Were in-place underground-tank abandonment, testing, contaminated-waste removal, and restoration of surrounding improvements taxable in Texas?

Plain-English summary

The Comptroller treated filling and permanently plugging an underground storage tank in place as nontaxable demolition, not taxable remodeling.

The approved process removed contaminated waste, cleaned the tank, plugged its piping, filled it with sand, water, and a drying agent, and permanently sealed the intake. The hardened tank could not practically or economically be repaired and returned to service, so the work functionally destroyed it.

The service provider still owed tax on taxable items it bought, leased, or rented for the job, including the concrete mixture poured into the tank. Analytical laboratory testing and site assessment were not taxable. The company could accept a properly completed exemption certificate for charges to remove fuel-contaminated fluids and dirt from inside and around the tank and could give an appropriate certificate to a subcontractor performing that removal.

Repairing or restoring existing asphalt, islands, concrete, or other real-property improvements was taxable. Those charges should be separately stated. A combined lump-sum price for taxable and nontaxable services was fully taxable unless the taxable portion was 5% or less and supported by business records.

What this means for you

Environmental and tank contractors

Permanent destruction and repair were treated differently. Document why the abandonment cannot reasonably be reversed, and separate any restoration work from the nontaxable demolition charge.

Property owners

An exemption certificate could support the contaminated-fluid and dirt-removal treatment described in the letter, but it did not exempt repairs to surrounding improvements.

Common questions

Was filling and plugging the tank taxable? No. It was treated as demolition.

Were laboratory testing and site assessment taxable? No.

Did the contractor owe tax on the fill material? Yes, including the concrete mixture.

Were asphalt and concrete repairs taxable? Yes.

What if the invoice combined all services? The whole lump sum was taxable unless taxable services were 5% or less and documented.

Citations and references

The letter does not cite a numbered statute or administrative rule. It states that the Texas Water Commission approved the described procedure on September 9, 1991.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9201L1157E10

Original ruling text

January 28, 1992

Dear ***:

Thank you for providing additional information which describes the
job called "abandonment in-place of underground storage tanks"
performed by your business.

The steps taken to accomplish the job, as described in your letter
are stated in part:

Site assessment; approval by the Water Commission; remove & dispose
contaminated waste vacuum/clean the UST; plug all piping; fill the
UST with a mixture of sand, water and a drying agent; and permanently
plug the in-take hole.

You stated the end result was: The UST is completely filled with an
inert material, all piping is filled and capped. After a few days
the entire product is hardened and after a few years the tank is
disintegrated to rust.

This procedure was approved by the Texas Water Commission on
September 9, 1991.

For tax purposes, the tank filling and plugging service you describe
is not a taxable service. This work is the functional equivalent of
demolition. As I understand it, a UST that has been filled and plugged
in the manner you describe is permanently destroyed; the procedure
may not be practically or economically reversed in order to repair
the UST and return it to functional condition. This is an important
distinction because remodeling UST is a taxable service, whereas
demolishing a UST is not.

** must pay tax on all taxable items bought, leased, or rented
to provide this service. This includes the concrete mixture that
the "subcontractor" pours into the UST. The other "subcontractor's"
charge for analytical laboratory testing and site assessment is not
taxable, however.

Your company may obtain a properly completed exemption certificate
from each customer instead of collecting tax on charges to remove
fuel-contaminated fluids and dirt from inside and around a UST.
Your company may issue a resale or exemption certificate to a
"subcontractor" who provides this service for you.

If your company repairs or restores any existing improvements to
realty (such as asphalt, islands, concrete, etc.) as part of its
services, it should separately state and collect tax on the charge
for this taxable service. A lump-sum charge for taxable and
nontaxable services is taxable in its entirety unless the amount
attributable to taxable services constitutes 5% or less of the
total charge and business records document this fact.

This opinion is based on the facts presented. Different facts,
though similar, might lead to different answers. If you have any
questions, feel free to write or call me at 1-800-531-5441,
extension 5-0330, or 512/463-4600.

Sincerely,

Bettie Peterson
Tax Administration Division