How did Texas tax unprocessed aggregate and equipment-with-operator charges used in taxable, construction, residential, or nontaxable services?

Plain-English summary

Selling and delivering unprocessed sand, gravel, dirt, soil, and similar material was nontaxable. If that material was supplied as part of a taxable service, the entire charge including the material was taxable.

For landscaping, nonresidential repair or remodeling, and other taxable services, the full equipment, truck, and operator charge was taxable even when separately stated. For new construction or residential repair and remodeling, separately stated labor and equipment-with-operator charges were nontaxable and were not treated as equipment rentals.

When equipment with an operator supported a nontaxable service for one combined charge, the charge was presumed to be for the nontaxable service. If equipment and operator were separately priced, they were presumed separate transactions: the equipment charge became a taxable rental unless supported by an exemption or resale certificate. A separately charged truck rental for 180 days or less was subject to motor-vehicle rental tax.

What this means for you

Billing format could change the result for equipment supplied with a nontaxable service. Providers should document the underlying service and understand that separating equipment from operator charges may create a taxable rental rather than clarify a nontaxable service fee.

Common questions

Was unprocessed gravel taxable? Not by itself, but it became part of the taxable total when supplied through a taxable service. Were equipment charges taxable in nonresidential remodeling? Yes. Was one equipment-and-operator charge for a nontaxable service taxable? Presumed no. What if equipment and operator were separated? The equipment was presumed a taxable rental.

Citations and references

• Proposed 34 Tex. Admin. Code Rule 3.294, as enclosed with the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9111L1141G03

Original ruling text

November 26, 1991

Dear **:

Thank you for your letter requesting tax information. I hope you'll
accept my apology for the delay in answering your tax questions. We have been,
and still are, swamped by a deluge of inquiries regarding changes in the tax
laws.

In your first question you asked if the sale of unprocessed sand, dirt,
gravel, road gravel, septic gravel or 1-1/2" gravel would be taxable. The sale
and delivery of unprocessed sand, gravel, dirt, soil, and similar materials is
a nontaxable service. However, if the unprocessed material is provided as part
of a taxable service, the total charge, including the unprocessed material, is
taxable.

Your remaining questions regarded the taxability of the charge for the
use of equipment/backhoe/or truck and operator when performing a job. If you
are performing a taxable service (i.e., landscaping, repair/remodeling of
nonresidential real property, etc.), the total charge is taxable whether or not
the charges for equipment/ truck and operator are separately stated. If you
are improving realty under a new construction contract or repairing or
remodeling residential real property, separately stated charges for labor and
equipment/truck and operator are not taxable. This is not a rental of the
equipment/truck.

If you are providing a nontaxable service and there is a single charge
for rental of equipment with an operator, it is presumed that the charge is for
the performance of a nontaxable service, and not the rental of equipment.
However, when equipment with an operator is provided with separate charges for
the operator and equipment, it is presumed that the charge for equipment and
charge for the operator are separate transactions. Under that presumption, the
equipment charge is a rental (and taxable unless you receive an exemption or
resale certificate). If the separately stated charge is for a truck, the
rental of the truck (contract for 180 days or less) is subject to the Motor
Vehicle Rental Tax.

Enclosed is proposed Rule 3.294, Rental and Lease of Taxable Items, for
your reference. Please note that the text that is being added to the rule is
underlined, and the text that is being deleted from the rule is in parenthesis.

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

If you have any other questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialists toll free at
1-800-252-5555.

Sincerely,

Joan Hale
Tax Administration Division