Was labor to repair and repave privately owned streets and parking areas in deed-restricted residential subdivisions taxable in Texas?

Plain-English summary

The Comptroller's Policy Committee decided that labor to repair and repave the streets and parking areas in two private residential subdivisions was exempt as repair work on residential real property.

The roads had never been dedicated to a governmental entity, and the homeowners associations contracted and paid for the work. One development controlled public access through a single guarded entrance; the other was open to the public but consisted of cul-de-sacs with no through streets. Both were deed-restricted against commercial enterprises.

The May 14 response addressed only the contractor's second question. The attached February letter also asked about asphalt sealcoating, but the published response does not decide that question.

Common questions

Did it matter that the roads were privately owned? The ruling's facts expressly say the roads had never been dedicated to a government and the homeowners associations paid for the work.

Was the repair labor taxable? No. The Policy Committee treated it as exempt repair labor on residential real property.

Did the ruling decide whether asphalt sealcoating was taxable maintenance? No. That issue appears in the attached request, but the Comptroller's response is limited to question two about private subdivision road repairs.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9005L1019E10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

May 14, 1990

Dear **:

I'd like to take a minute to respond to question number two of
your February 27th letter. Your facts are restated with response
below.

Facts: Your firm had done two road repaving jobs for private
subdivisions in the recent past. None of the roads had ever been
dedicated to a governmental entity. The contracts were made with
and paid for by the homeowners associations.

One of the developments was quite exclusive with only one
entrance and a security guard controlling access by the public.
The other is open to the public but is simply a honeycomb of cul-
de-sacs with no through streets. These are zero lot line homes
with small parking areas for guest parking. Both subdivisions
are deed restricted against commercial enterprises.

Response: These facts were referred to our Policy Committee for
consideration. They have decided that the labor to do those
repairs will be exempt from tax as repairs to residential real
property.

This opinion is rendered based on the facts presented above.
Other facts, though similar, may yield different results.

Feel free to call or write me if you have questions. You can
reach me by calling toll free 800-531-5441 or FAX (512) 475-0900.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division

February 27, 1990

Comptroller of Public Accounts
111 West 6th Street
Austin, TX 78701

Attention: Tax Policy Division

Dear Sir:

We are a small paving contractor in Tyler, Texas. Our sales tax records
are
being audited by ** from your Tyler Audit Office. In the
course of the audit, **** has presented two questions. This
letter
states our position on these matters.

QUESTION ONE

Is the labor taxable on the maintenance of asphalt paving when the method
used
is to furnish and apply rubberized sealant (Sealmaster) as manufactured
by
** ?

OUR POSITION

In June, 1988, we entered the pavement maintenance business. Due to the
1988
change in tax law, there was a question about whether or not the labor
was
taxable as opposed to materials only. Therefore, we called your toll
free
number (1-800-252-5555) and talked to one of your tax policy persons. We
have
no record of the individual's name that we talked to. His ruling was
that the
process constituted maintenance; therefore, only the material was
taxable. On
the basis of this conversation, for the remainder of 1988 and all of the
1989
season, we paid sales tax on materials only. We did not include sales
tax on
the labor when figuring our bids nor when billing the owners.

It is our understanding that the labor on maintenance is not taxable
whereas
the labor on repair, restore, or remodel is taxable. Since the sealing
operation is unquestionably a maintenance operation, we felt that the tax
should only apply to the materials. The tax policy person felt the same
way.

Enclosed for your perusal is manufacturer's literature on the process in
question. See on the front in bold letters--ASPHALT MAINTENANCE. Inside
the
literature, the following references are made:

(1) Protects sealant

(2) Sealing prolongs the life of any asphalt pavement by preventing
deterioration

(3) Regular sealcoating of blacktop can produce a saving of more
than....
in maintenance cost

(4) Preventive maintenance with Sealmaster....will eliminate costly
repairs

(5) Sealmaster is formulated as a preventative paving maintenance
product

The literature specifically states that this product is not for pavement
repairs. This product will do nothing but prevent deterioration. It
does
not restore deteriorated paving.

The two-year rule on what constitutes regularly scheduled maintenance
cannot
be fairly applied to our company. We have been in the pavement
maintenance
business less than two years.

The last publication we had from the Comptroller's office was #96-109
revised
January 9, 1986 (this was also the latest publication that **
had).
Thus, we have been paying our taxes on the basis of the latest
instruction
(both written and verbal).

To interpret this process to be taxable under the various definitions
would be
illogical. To charge us back taxes, penalties, and interest would
further be
unfair, considering our conversation with the tax policy person.

QUESTION NUMBER TWO

Is the labor involved in repair and overlay of community streets and
parking
areas in a private residential development ruled to be taxable?

OUR POSITION

During 1988 and 1989 we repaired and overlaid streets and paved areas at

in Smith County, Texas, and at ** in Tyler,Texas. ****
is a rural, residential, private subdivision. The streets are not dedicated
to the county, but are owned by the residents of the subdivision (about 4,000
people live there). The subdivision has no commercial function, nor any
commercial businesses.

We consider this to be residential work. Therefore, only the materials
are
taxable. We did not figure sales tax on the labor in our bid nor did we
collect sales tax from the property owners' association when we invoiced
for
the work.

** is a similar situation. It is a "planned unit residential"
subdivision. Streets are not dedicated although the City of Tyler owns
and
maintains the water and sewer system in the subdivision. The subdivision
has
no commercial function, nor any commercial businesses.

To consider this work to be other than residential work would be
illogical.
To charge us back taxes, penalties, and interest on the labor involved in
this
work would further be unfair.

SUMMARY

We acted on logic and verbal instructions of your tax policy person.

We have unfailingly paid our taxes on materials, but we have no way to
collect
taxes on the labor since all the projects in question have been
completed.

Please issue your opinions on these two questions as soon as possible so
that
if the labor is indeed taxable, we can begin including it in future bids
and
billings. Also, please inform us of any resulting liability we have
incurred
due to our procedures to date.

We are asking the Associated General Contracts of Texas by copy of this
letter to present our position in person at your office in Austin.

Your prompt attention to this matter would be appreciated.

Yours very truly,

P.S. We were particularly impressed by **'s polite,
professional,
thorough manner. It's reassuring to know that people of his caliber
are employed by our state government.