Is the labor to dig out and haul away contaminated soil taxable in Texas?

Plain-English summary

A taxpayer had a Jet-A fuel overflow from an underground tank that contaminated the surrounding soil (the tank itself was not damaged). A service provider dug the contaminated soil out by hand and backhoe, set it aside on the property to air out, tested it for contamination, and backfilled the hole. The Comptroller's Tax Policy Division answered whether the provider's itemized labor charges were taxable.

The ruling draws a line based on where the soil ends up. Excavation labor is not taxable if the contaminated soil stays on the customer's premises. But if the same provider also hauls the soil away for disposal — whether right after digging or later — both the excavation and hauling charges become taxable, unless the soil meets the definition of an "industrial discharge" whose disposal is regulated under Chapter 26 of the Texas Water Code (the letter suggests checking with the Texas Water Commission on that point). If a customer hires two separate providers — one to excavate, one to haul — the excavator's charge is not taxable even if the hauler's charge is.

Two related items are addressed too: backfilling the hole is not taxable (it's not a taxable repair, remodeling, or landscaping job in this situation), and scientific soil analysis is not a taxable service. On the backfill material itself, selling and delivering unprocessed dirt, sand, gravel, soil, rock, or caliche is a nontaxable service — materials are still "unprocessed" if merely washed, dried, sized, sorted, or screened — but the full charge becomes taxable once the same materials are delivered in a processed condition, such as crushed or mixed.

What this means for you

Environmental remediation and excavation contractors

Structure and itemize your billing carefully: digging out contaminated soil and leaving it on-site is nontaxable, but adding disposal hauling (by you) to the same job makes both the excavation and hauling charges taxable — unless the soil is a regulated industrial discharge under Chapter 26 of the Texas Water Code. If you only excavate and a separate company handles hauling, your excavation charge stays nontaxable regardless of what the hauler charges.

Property owners and businesses dealing with a spill or contamination

Consider using separate contractors for excavation and hauling if you want to minimize tax exposure, since combining both services with one provider can convert the whole job to taxable. Backfilling the hole and having the soil tested are both nontaxable regardless of how you structure the removal.

Landscaping and material suppliers

Selling and delivering unprocessed dirt, sand, gravel, soil, rock, or caliche is nontaxable, and washing, drying, sizing, sorting, or screening doesn't change that. But crushing or mixing those materials makes the whole delivered charge taxable, so keep processed and unprocessed material sales separately documented.

Common questions

Q: Is labor to dig out contaminated soil taxable in Texas?
A: No, not by itself — excavation labor is not taxable if the soil is left on the customer's premises.

Q: What if the same company also hauls the soil away?
A: Then both the excavation and the hauling charges are taxable, unless the soil meets the definition of an industrial discharge regulated for disposal under Chapter 26 of the Texas Water Code.

Q: Can I avoid tax by hiring separate excavation and hauling companies?
A: Based on this ruling, yes — the excavator's charge would not be taxable even if the hauler's charge were taxable, when they are two different service providers.

Q: Is backfilling the hole afterward taxable?
A: No, not in the situation described, because it was not part of a taxable repair or remodeling job and was not considered taxable landscaping.

Q: Is delivered fill dirt or gravel taxable?
A: Unprocessed dirt, sand, gravel, soil, rock, and caliche are nontaxable, even if merely washed, dried, sized, sorted, or screened. Delivering those same materials in a processed condition (e.g., crushed or mixed) makes the full charge taxable.

Q: Is soil testing/analysis taxable?
A: No, scientific soil analysis is not a taxable service under this ruling.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9212L1218C01

Original ruling text

December 30, 1992

Dear *****:

Thank you for your recent FAX. According to your facts, you experienced a
Jet-A fuel overflow from an underground tank which contaminated the surrounding
soil. (The tank itself was not damaged, it just overflowed.) You hired a
service provider to dig the soil out by hand and backhoe, place it nearby on
your property to air, analyze the soil for contamination, and backfill the
excavated area. The service provider itemized the labor charges and added tax.
You ask whether the labor charges are taxable.

Response: The labor to excavate contaminated soil is not taxable if the
service provider leaves the soil on the customers premises. If the service
provider is also responsible for hauling the soil away for disposal, either
immediatelyupon excavation or at a later date, then his charges for both
excavation and hauling are taxable unless the contaminated soil meets the
definition of an industrial discharge, the disposal of which is subject to
regulation under Chapter 26 of the Texas Water Code. Feel free to ask the Texas
Water Commission whether it regulates the type of waste generated by the spill
and whether it regulates the hauling even after the soil is decontaminated. (If
you contract directly with two different service providers for excavation and
hauling as you describe, the charges of the "excavator" would not be taxable
even if the charges of the "hauler" were taxable.) Scientific soil analysis is
not a taxable service.

Labor to backfill the hole is not taxable in the situation you describe
because it is not part of any taxable repair or remodeling job and is not
considered taxable landscaping.

As for the backfill material, the sale and delivery of unprocessed dirt,
sand, gravel, soil, rock, caliche, and similar materials is considered a
nontaxable service. Such materials are not considered "processed" if they are
only washed, dried, sized, sorted and/or screened. The total charge for sale
and delivery of the same type of materials is taxable when the materials are
delivered in a processed condition. Processing includes crushing and/or mixing
the materials.

If there has been some confusion surrounding the taxation of these types
of services, it may be because (a) the legislature close to impose sales and
use tax on only some, but not all, of them, and (b) a lot of folks specialize
in performing both taxable and nontaxable services, and their billing methods
don't always clearly separate the charges.

This opinion is based on the facts presented. Different or additional
facts, though similar, might lead to different answers. If you have further
questions, please feel free to write or call me at 1-800-531-5441, extension
3-3889.

Sincerely,

John Christian
Attorney
Tax Administration Division