If a contractor performs lead-paint abatement (a taxable repair to real property) and also does air monitoring for the same job, is the air monitoring taxable too, and what about the disposal of contaminated materials?

Subject

Asbestos Abatement: Air Monitoring Services Separately Stated May Be Treated As a Nontaxable Stand-Alone Service

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9306L1244G12

Plain-English Summary

This June 25, 1993 letter ruling addresses a taxpayer who performs air monitoring during lead-contaminated paint removal from a clarifier at an industrial plant. Because the clarifier sits near another clarifier holding 2 million gallons of water, the taxpayer follows procedures to prevent water contamination during the lead abatement, implements OSHA-mandated engineering controls (protective clothing, respirators, disposable towels, decon showers, negative air machines), and fully encloses the clarifier with a shroud required by TACB Regulation I (111.135). After the abatement, contaminated poly, protective clothing, respirator filters, and disposable towels remain with the client to be tested, classified as hazardous or non-hazardous, and disposed of accordingly. The contract between the taxpayer and the client is a time-and-materials contract covering air monitoring services and any repair of the full enclosure; a separate painting contractor performs the actual lead abatement and repainting.

The Comptroller's office responded to three questions. First, the repair or remodeling of the clarifier (paint removal, repainting, and subsequent repairs) is a taxable service, but a person repairing or remodeling nonresidential real property may separately state a reasonable charge for an unrelated service — without collecting tax on that charge — if the service meets the definition in subsection (a)(11) of Rule 3.357 (nonresidential real property repair and remodeling). Air monitoring that involves direct scientific observation of physical phenomena and is provided on a stand-alone basis is not itself a taxable service, so the taxpayer may separately state a reasonable charge for the air monitoring without collecting tax on it. Second, the taxpayer must pay tax on the equipment, materials, and supplies used to perform the air monitoring, but may issue a resale certificate to suppliers for materials that will be transferred to the client as part of the taxable realty repairs performed after the lead abatement is complete. Third, whether the materials to be disposed of are classified as hazardous or non-hazardous waste for disposal purposes has no effect on the taxability of the labor, materials, and equipment rental used for the job.

The Comptroller notes this opinion is based on the facts presented, and other facts, though similar, may produce a different result.

What This Means For You

If you perform environmental remediation alongside real property repairs

Repair or remodeling work on nonresidential real property (like removing and repainting a contaminated surface) is taxable. But if you also provide a genuinely separate service — such as air monitoring involving direct scientific observation — you may be able to avoid charging tax on that portion, provided it is separately stated and meets the "unrelated service" definition in Rule 3.357(a)(11).

If you are billing for a combined abatement and monitoring job

Structure your invoice to separately state a reasonable charge for the air monitoring apart from the repair/remodeling charges. Under this letter, only the repair/remodeling portion is taxable; the properly separated, stand-alone air monitoring charge is not.

If you are sourcing materials and equipment for the job

You must pay tax on equipment, materials, and supplies used to perform the (nontaxable) air monitoring service itself. However, for materials that will physically become part of the taxable real property repairs performed after abatement, you may issue a resale certificate to your suppliers instead of paying tax up front.

If your job generates hazardous or non-hazardous waste

The letter confirms that how disposed materials are ultimately classified (hazardous vs. non-hazardous) for disposal purposes does not change the sales tax treatment of your labor, materials, or rental equipment charges for the underlying job.

Q&A

Q: Is the lead-paint abatement and repainting work taxable?
A: Yes. The repair or remodeling of the clarifier — paint removal, repainting, and subsequent repairs — is a taxable service.

Q: Is the air monitoring service taxable?
A: Not if it is provided on a stand-alone basis and involves direct scientific observation of physical phenomena. The taxpayer may separately state a reasonable charge for air monitoring without collecting tax on it, so long as it meets the "unrelated service" definition in Rule 3.357(a)(11).

Q: Does the taxpayer owe tax on materials and equipment used for air monitoring?
A: Yes. The taxpayer must pay tax on equipment, materials, and supplies used to perform the air monitoring.

Q: Can the taxpayer avoid tax on materials that become part of the realty repairs?
A: Yes. The taxpayer may issue a resale certificate to suppliers for materials that will be transferred to the client as part of the repairs to the realty after the lead abatement is completed.

Q: Does classifying the contaminated waste as hazardous change the tax treatment?
A: No. The letter states that whether the materials to be disposed of are considered hazardous or non-hazardous for disposal purposes does not affect the taxability of the labor, materials, and rental equipment used for the job.

Q: Can this taxpayer rely on this letter if their facts change?
A: Only to a point. The Comptroller states the opinion is based on the facts presented, and other facts, though similar, may provide a different result.

Original ruling text

June 25, 1993

Dear *****:

This is in response to your inquiry concerning the taxability of air
monitoring services and the related disposal of contaminated materials
used to perform this service .

I have restated your fact situation below, followed by my response:

FACTS: Taxpayer performs air monitoring during lead contaminated (15%)
paint removal from a clarifier in an industrial plant. Due to the
location of the clarifier, 25 ft. from another clarifier containing 2
million gallons of water, procedures will be followed during the lead
abatement to prevent contamination of the water supply. Taxpayer will
implement engineering controls as mandated by OSHA to prevent employee
exposure to lead, (i.e., protective clothing, respirators, disposable
towels, decon showers, and negative air machines), and will fully
enclose the clarifier with a type of shroud as mandated by TACB
Regulation I (111.135).

Upon completion of the lead abatement, all poly, protective clothing,
respirator filters, disposable towels, etc., will remain with the
client to be disposed of after it has been tested and classified
(hazardous, non-hazardous) according to ***** regulations.

The contract between Taxpayer and Client is a time and materials
contract for air monitoring services, and any repair of the full
enclosure. All lead abatement and repainting will be performed by
the painting contractor.

QUESTIONS:

1. What services if any are taxable to Client?

RESPONSE: The repair or remodeling (paint removal, repainting, subsequent
repairs by Taxpayer) of the clarifier is a taxable service. However, a person
repairing or remodeling nonresidential real property may separately state a
reasonable charge for an unrelated service and not collect tax on that
service if it meets the definition in subsection (a)(11) of the enclosed
Rule 3.357 concerning nonresidential real property repair and remodeling.
Air monitoring involving direct scientific observation of physical phenomena
and provided on a stand alone basis is not a taxable service. Taxpayer may
separately state a reasonable charge for air monitoring without collecting
tax on that charge.

2. Are the materials purchased, and equipment rental taxable to the taxpayer?
   Are they taxable to the client?

RESPONSE: Taxpayer must pay tax on equipment, materials and supplies,
that he uses to perform the air monitoring. Taxpayer may issue a resale
certificate to suppliers for materials that will be transfer **
to Client as part of the repairs to the realty after the lead abatement
is completed.

3. What effect, if any, does the classification (hazardous/non-hazardous)
   of the materials to be disposed have on the taxability of the labor,
   materials, and equipment rentals?

RESPONSE: The fact that the contaminated materials may be considered
hazardous waste for disposal purposes does not affect the taxability of
the labor, materials and rental equipment used for this job.

This opinion is based on the facts presented. Other facts though similar
may provide a different result.

If you have other questions or need more information, you may call me at
1-800-531- 5441, extension 3-4502. The regular number is 512/463-4502.
You may also write to Tax Administration Division at the above address.

Sincerely,

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 9308016L.3 and/or 9308016L