Does a monument/cemetery contractor owe Texas sales tax on curbing, marble, and concrete work at gravesites, and does it matter whether the work is new construction or repair of an existing site?

Plain-English summary

A tax professional wrote to the Comptroller's office asking how sales tax applies to several kinds of cemetery gravesite work performed by a client (apparently a monument or concrete contractor). The Comptroller's response sorts the work into two categories:

New construction (situations 1-4): Pouring curbing and/or a marble slab right after the vault is set, filling between curbing and slab with concrete or marble chips, or pouring just a slab over a fresh gravesite all count as "finish-out work on new construction." New construction labor is not taxable. Whether tax applies to materials depends on the contract type:

• Under a lump-sum contract, the contractor owes sales tax on the cost of the materials, and the customer owes nothing.
• Under a separated contract, the contractor must collect sales tax from the customer on the price of incorporated materials, but can buy those materials tax-free from suppliers by issuing a resale certificate.

Repair of an existing site (situation 5): Filling in old curbing on a site that previously had only gravel or grass is treated as repair or remodeling of nonresidential real property. Here, the contractor's entire charge to the customer is taxable, though the contractor can still buy the concrete and other incorporated materials tax-free with a resale certificate.

The letter also answers two follow-up questions:

• A driveway connecting a public street to a residential dwelling (even one that also touches a carport, garage, or sidewalk) is treated as residential.
• Farm and ranch roads are nonresidential improvements to realty (not covered by the agricultural exemption, which applies only to machinery and equipment). Repair/remodeling of a road from a public roadway to agricultural portions of the property is taxable; a road leading to the residence is treated as residential. If a lump-sum job covers both a residential and nonresidential portion of a road, the whole charge is taxable once the nonresidential portion reaches 5% or more of the total. Equipment and consumable supplies used to do the work are always taxable to the contractor.

What this means for you

Cemetery, monument, and concrete contractors

Track whether each job is a fresh gravesite installation (new construction, untaxed labor) or work on a site that already has curbing/gravel/grass (repair, fully taxable). For new construction, decide up front whether you're quoting a lump-sum or separated contract, since that determines who owes sales tax on materials and who can use a resale certificate.

Accountants and tax professionals advising these contractors

The letter is a useful reference for classifying real-property work under Rule 3.291 (lump-sum vs. separated contracts) and Rule 3.357 (nonresidential repair and remodeling), and for the residential/nonresidential line-drawing on driveways and farm roads, including the 5%-of-total threshold for mixed lump-sum road jobs.

Common questions

Q: Is labor to install curbing and marble at a brand-new gravesite taxable?
A: No. The letter treats this as new construction finish-out work, and new construction labor is not taxable in Texas. Tax may still apply to the materials, depending on whether the contract is lump-sum or separated.

Q: What if the contractor is just filling in old, existing curbing?
A: That's treated as repair or remodeling of nonresidential real property, not new construction. In that case the contractor's entire charge to the customer — labor and materials together — is taxable.

Q: Can the contractor buy materials tax-free either way?
A: Only by issuing a resale certificate to suppliers. On a separated new-construction contract, the contractor buys materials tax-free and then collects tax from the customer. On a repair job, the contractor can also buy incorporated materials tax-free with a resale certificate, but must charge tax on the full job price to the customer.

Q: Does a driveway or farm road ever count as agricultural and exempt?
A: No. The letter states the agricultural exemption applies to machinery or equipment, not to improvements to realty, so farm and ranch roads (other than the portion leading to the residence) are nonresidential and taxable.

Citations and references

Rules cited in this letter:

• 34 Tex. Admin. Code Rule 3.291 — definition of lump-sum and separated contracts
• 34 Tex. Admin. Code Rule 3.357 — nonresidential real property repair and remodeling

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1224D01

Original ruling text

February 24, 1993

Dear **:

Thank you for your recent letter asking about cemetery work performed by your
client. I have restated the situations you presented below with our responses.

1. He will go in after the vault (and possibly a marble slab) has been set and
   pour curbing, then fill in between the slab and curbing with concrete.

Response: For tax purposes, this work is considered to be finish-out work on
new construction. New construction labor is not taxable. Your client's sales
tax responsibilities for the tax on materials will be determined by the type of
contract he uses.

If your client and his customer have a lump-sum contract, your client is
responsible for sales tax on his cost of materials. Your client's customer is
not liable for any tax.

If your client and his customer have a separated contract, your client must
collect sales tax from his customer on the price for incorporated materials.
Under a separated contract, your client may purchase the incorporated materials
tax free by issuing suppliers a resale certificate in lieu of tax. See Rule
3.291 for the definition of lump-sum and separated contracts.

2. He will pour curbing and a slab, then fill in between with marble chips.

Response: See the response to Situation 1.

3. He will pour just curbing and fill in with marble chips.

Response: See the response to Situation 1.

4. He may pour just a slab to cover a gravesite with nothing else on it.

Response: See the response to Situation 1.

5. He may fill in old curbing with concrete where there's just been gravel or
   grass.

Response: Work on an existing site is considered to be repair or remodeling of
nonresidential real property. Your client's total charge to his customer is
taxable.

Your client may purchase concrete and other incorporated materials tax free by
issuing a resale certificate to suppliers in lieu of tax. See Rule 3.357 on
nonresidential repairs and remodeling.

Question: There also seems to be confusion about driveways as part of the
residence. Where it's connected to a carport, garage, sidewalk, etc., it seem
it would be residential. Any guidelines for us in that department?

Response: A driveway from a public street to a residential dwelling is
residential.

Question: Would roadwork (leveling of gravel, sand, filling in water crossings)
done for a farmer be considered exempt agricultural use?

Response: The agricultural exemption in the Texas Tax Code applies to machinery
or equipment, not improvements to realty. A farm or ranch road to places other
than the farmer or rancher's home is a nonresidential improvement to realty.

Repair and remodeling work performed on a road from a public roadway to any
agricultural portions of farm or ranch property is taxable.

Repair and remodeling work performed on a road from a public roadway to a
residential dwelling is treated as residential. See response to Situation 1.

If your client works on a road a portion of which is nonresidential and a
portion of which is residential, and the work is done for a lump-sum amount,
then your client must collect sales tax on the total charge if the
nonresidential portion is 5% or more of the total.

Your client owes tax on all equipment and consumable supplies used to perform
his work.

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

If you have any questions or need more information, you may call me toll free
at 1-800-531-5441, extension 3-4633. The regular number is 512/463-4633. You
may also write to the Tax Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division