Were labor charges for cleaning up a crude-oil spill taxable when the spill might be an industrial discharge regulated by the Texas Water Commission?

Plain-English summary

The ruling gave a conditional answer for labor connected with a 298-barrel crude-oil spill on Sabine River floodwaters.

Ordinary garbage or solid-waste collection was taxable under Rule 3.356. But the rule's definition excluded hazardous waste listed by an appropriate agency and industrial discharges whose removal was regulated by the Texas Water Commission under Water Code Chapter 26. The Comptroller understood that crude oil was not hazardous waste, but said it might be an industrial discharge. If the Commission confirmed that status, the provider could accept an exemption certificate instead of collecting tax on removing the crude and contaminated water and soil.

Restoring and remediating the natural environment after cleanup was not a taxable service, although the provider owed tax on materials and equipment it used or consumed. Repairing, restoring, or remodeling a nonresidential real-property improvement such as a pipeline was taxable, but the request did not say that work would be performed.

What this means for you

The tax result depended on what work was performed and how the discharge was classified. The letter did not make the required regulatory finding itself; it directed the taxpayer to obtain confirmation from the Texas Water Commission before using an exemption certificate.

Common questions

Was crude oil treated as hazardous waste? No. The letter said the Comptroller understood that it was not hazardous waste.

Could removal of the spill be exempt? Yes, if the Texas Water Commission confirmed it was a regulated industrial discharge.

Was environmental remediation taxable? No, but the provider owed tax on materials and equipment used or consumed.

Was pipeline repair taxable? Yes, as work on a nonresidential real-property improvement, though that work was not part of the stated facts.

Citations and references

• 34 Tex. Admin. Code Rule 3.356(a)(3) and (h)
• Texas Water Code Chapter 26

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9204L1166G11

Original ruling text

April 28, 1992

Dear **:

Thank you for your recent letter regarding the tax consequences of
the clean-up of a crude oil spill.

You stated in your letter that a 298 barrel crude oil spill
occurred upon the flood waters of the Sabine River. Emergency
response teams did the clean-up according to Texas Water
Commission regulations. You have asked if labor charges in
connection with the clean-up are taxable.

The collection and disposal of garbage or other solid waste as
defined in section (a)(3) of the enclosed Rule 3.356 is taxable
However, the term does not include hazardous waste listed by an
appropriate federal or state agency or industrial discharges whose
removal list regulated by the Texas Water Commission under Chapter
26 of the Water Code.

It is our understanding that crude oil is not hazardous waste;
however, it may constitute an industrial discharge under the Water
Code. The Texas Water Commission can confirm this. If so, then
the service provider may accept an exemption certificate from the
customer instead of collecting tax on the collection and removal
of the crude and any contaminated water and soil. Please refer to
subsection (h) of Rule 3.356 for the required contends of the
certificate.

The service of restoring and remediating the natural environment
following the clean-up is not a taxable service. The service
provider owes tax on all materials and equipment used or consumed
to perform the service.

Repairing, restoring, or remodeling nonresidential improvements to
real property (such as a pipeline) is a taxable service, but you
did not indicate that this service will be provided in connection
with this spill.

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