When was labor taxable for maintenance, modification, or new construction work on Texas petroleum or chemical storage tanks?

Plain-English summary

The April 17 letter supplemented a March 30 answer about work on petroleum or chemical storage tanks treated as real-property improvements.

Scheduled periodic work needed to keep functioning real property operating safely and efficiently qualified as maintenance under Rule 3.357. Labor for documented maintenance was not taxable. A customer with supporting records could issue an exemption certificate stating that the work was maintenance and accepting liability if it was later determined otherwise.

The attached March answer treated a genuinely new dockline as new construction, except for taxable connection labor at the tank and ship dock; if that connection labor was 5% or less of total labor, the entire dockline job was exempt. A concrete spill pad was new construction with nontaxable labor, but new piping that modified or upgraded the tank was taxable. The other listed jobs were taxable modifications or upgrades when performed on tanks already in use. If performed before first use, all except paving an existing road qualified as initial finish-out and new construction; the paving remained a taxable upgrade.

Common questions

Was documented maintenance labor taxable? No.

Were tank upgrades taxable? Yes, when they modified or upgraded tanks already in place and in use.

What happened if the work occurred before the tanks were first used? All listed jobs except paving the existing road were treated as initial finish-out and new construction.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9004L1018D10

Original ruling text

April 17, 1990

Dear **:

In my letter to you dated March 30th, I omitted a discussion of
maintenance of real property, an area that could apply to your client's
operations detailed in your letter dated February 14th.

Rule 3.357, Real Property Repair and Remodeling, defines maintenance of
real property as "all scheduled periodic work on operational and
functioning improvements to real property necessary to sustain or support
safe, efficient, continuous operations or to keep in good working order
by preventing the decline, failure, lapse, or deterioration of the
improvements."

Labor charges to maintain real property are not taxable. If your client
has a contract and can show that the labor qualifies as maintenance with
documentation such as maintenance schedules or work orders, the labor
charges will be exempt.

If your client's customer has documentation to prove that the labor
qualifies as maintenance, the customer can issue an exemption certificate
to your client in lieu of paying tax. The certificate must state that the
labor is for the purpose of maintenance rather than repair or restoration
and that the customer will be liable for any tax in the event that it is
determined that the labor performed was not maintenance of real property.

I hope this letter answers any questions concerning your client's sales tax
situation. If you have any other questions, please call toll-free at
800-531-5441 or our regular number at 512-463-3830. Our FAX number is
512-475-0900.

Sincerely,

Larry Koenig
Taxability Section
Legal Services Division

March 30, 1990

Dear**:

We are in receipt of your letter concerning the taxability of work
performed on storage tanks. These tanks apparently hold petroleum or
other chemical products and are considered improvements to real property.

The following are the different types of work your client performs,
with our interpretation of the taxability of the labor involved. I have
retained your corresponding numbers for each job. I have also assumed
that the tanks are already "in place" at the job sites, after reading your
descriptions of the work performed by your client.

1. Installation of a floating roof in a tank.

2. Mounting a regulator, meter and pipe riser (which allows the flow of
   liquids upward) on a tank.

3. Sandblasting the interior of a tank, coating the interior to form an
   anti-contaminant lining.

4. Installation of heating coils; welding nozzles to tank shell to provide
   steam for coils on tank floor.

5. Installation of preformed aluminum insulation to a tank.

6. Construction of a new dockline from a tank to a ship dock.

7. Construction of new piping and a concrete spill pad to allow railcars and
   trucks to unload to or load from a tank.

8. Construction of a pump and its electrical supply at a tank.

9. In conjunction with #8, perforation of a tank shell to add new nozzles to
   provide additional circulation.

10. Paving an existing asphalt or gravel road with 6" concrete.

The construction of the new dockline in job #6 would be considered new
construction if the dockline is not a replacement in the same location of
an existing dockline. It is my understanding that new docklines are usually
constructed at a different location so that operation of the tank is not
disrupted. If this is the case, the only taxable labor involved in the
dockline construction would be the labor to connect the line at the tank and
at the ship dock. If this labor is 5% or less of the total labor charge on
the dockline, the entire job will be exempt.

The construction or installation of the concrete spill pad in job #7 would
be new construction, and the labor is not taxable. The new piping, however,
would be considered a modification or upgrading of the tank and that labor
would be taxed.

The remainder of the jobs listed above would be considered modifications or
upgrades as defined in Rule 3.357(a)(6). The labor would be taxed.

If these remaining jobs were performed before the tanks were used, all except
job #10 would be considered initial finish out work as defined in Rule
3.357(a)(4) and would qualify as new construction. Job #10 would be considered
an upgrade and taxed as remodeling at any time.

This opinion is based on the facts presented. If there are additional facts,
or if the facts change, the opinion may change.

Please write or call if you have any questions. You can call toll-free at
800-531-5441. Our regular number is 512-463-3830 and our FAX number is
512-475-0900.

Sincerely,

Larry Koenig
Taxability Section
Legal Services Division