When did renovating golf-course lakes, fairways, greens, tees, paths, and systems count as new construction instead of taxable remodeling?

Plain-English summary

The Comptroller did not treat a golf course as one indivisible improvement. Its separate real-property improvements included fairways, greens, tees, cart paths, bunkers, irrigation systems and lakes, storm-drainage systems, and walls.

For each improvement, complete demolition followed by reconstruction or redesign at the demolished location was new construction. If any part of the existing improvement remained intact, the activity was repair or remodeling. Expanding an existing lake was remodeling.

Topsoil and other contract work followed the same complete-versus-partial-demolition analysis. Spreading seedbed appeared to be taxable landscaping under Rule 3.356, and sales tax applied to the itemized contract jobs that were taxable services.

What this means for you

A project-wide label such as "complete golf-course renovation" did not settle the tax result. Each lake, path, green, drainage system, and other improvement had to be analyzed by what was demolished and rebuilt.

Common questions

Was rebuilding every golf-course feature new construction? Only when the existing improvement was completely demolished first.

Was expanding an existing lake new construction? No, it was remodeling.

Was spreading seedbed taxable? The letter said it appeared to be taxable landscaping.

Citations and references

• TR 1263 (microfiche 9109T1137G11)
• 34 Tex. Admin. Code Rules 3.291, 3.356, and 3.357

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9203L1163A01

Original ruling text

DATE: March 19, 1992

TO: Julie Farney, ** Audit (**)

FROM: Eddie C. Washington, Tax Administration Division (**)

SUBJECT: Taxability of Services to Renovate a Golf Course

RE: ** (TP)

Facts: TP is in the golf course construction business. All contracts reviewed
are lump-sum and are considered new construction by TP. The particular contract
enclosed was entered into on January 11, 1991, with a country club for a
complete renovation of the golf course. The purpose of the renovation was to
secure flood control detention ordered by ** County. Based on
information from INDIVIDUAL, TP's president, the basic scope of the work
consisted of leveling the golf course and performing the construction of the
redesign to the owner's specifications. A price schedule enclosed with the
lump-sum contract listed the following items as the work to be done:

Excavation: This activity consisted of digging new lakes and expanding others
on the golf course and digging up the bunkers, tees, fairways, and greens.
Also, a gunnite wall was demolished.

Shaping and fine grading: This charge was for moving dirt to places specified
by the county for flood control and shaping the fairways, greens, tees, etc. to
the owner's specifications. Also TP spread seedbed purchased by owner.

Top soil stripping & replacing: This consisted of moving the top soil off to
one side and then moving it back after completing the shaping and fine grading.

Cart path (removal): This involved digging up the existing cart path and
burying it on site of the golf course.

Cart Path (new): The new cart path was placed in a different location on the
golf course. This is based on INDIVIDUAL' explanation and the review of
blueprints.

Pipe: This was the charge for performing the storm drainage system and
irrigation system.

Question 1: According to TR 1263 (microfiche 9109T1137G11), taxable remodeling
does not take place when an improvement to real property is demolished
completely and another improvement to real property is constructed at the same
site. Therefore, does the work described consist of real property remodeling
because the areas on the golf course (green, fairways, tees, bunkers, etc.) had
previously existed or does the work constitute new construction?

Answer: TR 1263 states that a golf course as a whole is not necessarily an
improvement to realty. The areas of a golf course that are improvements to
realty include, but are not limited to, fairways, greens, tees, cart paths,
bunkers, irrigation systems, irrigation lakes, storm drainage systems, and
walls. A determination must be made as to whether the improvements are
completely demolished before the redesigning and shaping takes place. If any
part of the existing improvement is left intact, the activity will constitute
real property repair or remodeling.

The demolition of an improvement to realty is not taxable. The reconstruction
or redesigning of an improvement to realty at a location that was demolished is
considered new construction. See TR 1263.

The expansion of an existing lake is remodeling.

Question 2: Would the top soil stripping and replacing and other parts of the
contract and accompanying change orders be considered landscaping services or
would it be considered construction site preparation and new construction work?

Answer: The taxability will be taxed or not taxed according to the
determination of whether or not the improvement is completely or partially
demolished. See the answer to Question 1.

Question 3: This contract involves elements of new construction, real property
remodeling, and real property services. Which parts of the accompanying
contract and change orders are taxable and nontaxable under the applicable
sales tax Rule 3.291, 3.356, or 3.357?

Answer: According to TR 1263, if the existing improvements are demolished, the
redesigning is new construction. The spreading of the seedbed appears to be
landscaping which is taxable under rule 3.356. Article 9, Section 9.1.4 of the
contract makes Exhibits "B", "E", and "D" part of the contract. These exhibits
itemize the various jobs to be performed and the cost for performing each job.
Sales tax should apply to those jobs that are taxable services.