Which oil-spill pad recycling, site assessment, and soil remediation charges were taxable in Texas?

Plain-English summary

A company cleaned oil-absorbent pads and booms so they could be reused, occasionally sold pads, performed environmental site assessments, and restored or remediated damaged soil. The Comptroller gave a different tax answer for each activity.

Cleaning and restoring pads and booms was a taxable maintenance or repair service under Rule 3.292(a)(5). The company also owed tax when buying the chemicals used for that work. Sales of pads—new or used—were taxable.

Environmental site assessments were nontaxable only when the resulting information was proprietary to the customer and could not be sold to anyone else. If the information could be sold to others, the work was a taxable information service under Rule 3.342. Information gathered from public sources did not become proprietary merely because it was delivered to one customer; the customer needed enforceable property rights in the raw information.

Charges for restoring or remediating lost or damaged soil were nontaxable. The service provider nevertheless had to pay tax on items used or consumed while performing that nontaxable work.

What this means for you

Environmental cleanup businesses

Do not treat every cleanup-related charge the same. Repairing reusable equipment, selling pads, delivering research, and remediating soil fell into separate tax categories in this letter.

Accountants and tax professionals

For site assessments, document whether the customer receives enforceable exclusive rights in the gathered information. The source and resale rights mattered more than calling the report “proprietary.”

Common questions

Was cleaning used absorbent pads and booms taxable? Yes. It was taxable maintenance or repair of tangible personal property.

Were sales of recycled or used pads taxable? Yes. The letter required tax collection on sales of both new and used pads.

When was an environmental site assessment nontaxable? When the information was proprietary to the customer and could not be sold to another person.

Was soil remediation taxable? No. But the provider had to pay tax on items used or consumed in performing the service.

Citations and references

• 34 Tex. Admin. Code Rule 3.292(a)(5) (repair, maintenance, and restoration of tangible personal property)
• 34 Tex. Admin. Code Rule 3.342(a)(2), (b), and (d) (information services and proprietary information)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9205L1170C07

Original ruling text

May 11, 1992

Dear **:

Thank you for your letter of April 27, 1992, regarding the taxability of
recycled absorbent pads and booms used to clean up oil spills, environmental
site assessment, and bioremediation.

As I understand it, ** recycles oil absorbent pads and booms. The
pads are used to clean up oil spills. In the past, pads and booms were disposed
of after use. Your company cleans the pads and booms and to restore their
absorbency for continuous use. You may also sell the pads occasionally. You
also do environmental site assessments and bioremediation. You question what
your tax responsibilities are when providing these services.

The service to clean and restore the pads and booms is taxable as maintenance
or repair of tangible personal property. Please refer to Section (a)(5) of Rule
3.292, Repair, Remodeling, Maintenance, and Restoration of Tangible Personal
Property. You will owe tax at the time of purchase on the chemicals used to
clean the pads and booms.

You are required to collect tax on the sale of pads (new or used).

Environmental site assessments are not taxable if the information is of a
proprietary nature to your customer and may not be sold to another person. If
the information may be sold to others, the services are taxable as information
services. Please refer to Section (a)(2), (b), and (d) of Rule 3.342,
Information Services. Please note that information that you gather from public
sources is not "of a proprietary nature" to your clients. To meet the terms of
this exclusion, your clients would have to have enforceable property rights in
the raw information you gather.

Charges for restoring or remediating lost or damaged soil are not taxable.
However, when you provide nontaxable services, you should pay tax on items used
or consumed in the performance of the service.

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

If you have any questions or need additional information, you may call toll
free 1-800-252-5555 Ext. 50037 or the regular Austin number is 512-475-0037.
You may also write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division