Did a city have to collect Texas tax when it repaired sidewalks or drive approaches and billed residential or commercial property owners?

Plain-English summary

A city repaired or remodeled sidewalks and drive approaches at property owners' request and billed them for part of the cost.

For work on private residential property outside an accepted city right-of-way, the city collected no tax on a lump-sum charge because it acted as a lump-sum general contractor. For private nonresidential property, the city collected tax on the total charge under either lump-sum or separated billing because it provided taxable repair or remodeling services.

Work inside a right-of-way already dedicated to and accepted by the city was treated as work for the city on city property. Neither labor nor materials billed to the owner were taxable, regardless of property type or contract form. The city, owner, and subcontractor needed clear documentation of the dedication and acceptance.

What this means for you

Right-of-way status was decisive, and private-property treatment differed between residential and nonresidential work.

Common questions

Was a private residential lump-sum repair charge taxable? The city collected no tax.

Was private commercial repair work taxable? Yes, on the total charge.

What if the sidewalk was in an accepted city right-of-way? Labor and materials were not taxable to the owner.

Was documentation required? Yes, to overcome the presumption of taxability.

Citations and references

• The letter referred to enclosed rules and earlier Taxability Responses but did not provide numbered citations.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9105L1110B07

Original ruling text

May 16, 1991

Dear **:

I apologize for the delay in responding to your recent
letter. You describe a situation in which the City of
** will repair or remodel sidewalks and drive approaches
for commercial and residential properties at the request of
citizens. The City will bill the citizens for a share of
the cost of the repair or remodeling. You ask if the City
is required to collect tax on the charge to the citizens.

Whether or not the City must collect tax on the work depends
on whether it is performed inside a right of way that has
been dedicated to and accepted by the City.

The following rules apply to repair and remodeling performed
on sidewalks and drive approaches on private property, and
not within rights of way that have been previously dedicated
to and accepted by the City:

Residential property (homes, apartments, etc.):

Lump-sum charge: The City will collect no tax on lump-sum
charges billed to citizens for repairing or remodeling
sidewalks or drive approaches connected to residential
properties. The City is, in effect, acting as a lump-sum
general contractor.

Nonresidential property (offices, hotels, warehouses,
stores, etc.):

The City will collect tax on the total charges billed to
citizens for repairing or remodeling sidewalks or drive
approaches connected to nonresidential properties. Lump-sum
and separated contracts are treated the same way. The City
is, in effect, providing taxable repair or remodeling
services, in this instance.

Rights of way:

This agency has taken the position in a previously-issued
Taxability Response that if the sidewalk or drive approach
is located inside a right of way that has been previously
dedicated to and accepted by the City (or that has been
dedicated to and accepted by the City with certain
conditions or on some future date), then the work will be
treated the same as other work performed for a City on City
property.

In this situation, neither the labor nor the materials
charges would be taxable to the property owner, regardless
of whether the property were residential or nonresidential,
and regardless of whether the contract were lump-sum or
separated. The City, the property owner, and any
subcontractor should be able to clearly document that the
property in question has been dedicated to and accepted by
the City, to overcome the presumption that such work is
subject to tax.

The enclosed rules provide additional information. I have
also enclosed copies of previous opinions issued by this
agency in response to similar inquiries.

This opinion is based on the facts presented. Different
facts, though similar, might lead to different answers. If
you have further questions, feel free to write or call
1-800-252-5555. My direct extension is 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration