Are barricade services and plastic pavement marker tabs used by highway contractors subject to Texas sales tax?

Subject

Barricade Services Provided To Contractors — Rental Of Equipment

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1263E11

Plain-English Summary

A taxpayer asked the Comptroller about the taxability of two things used by contractors on state highway jobs: barricade services and plastic marker tabs used as pavement markers. The letter addresses each item separately.

Barricade service is taxed as a rental of equipment. The letter states plainly that "charges for barricade service are treated as a rentals to the contractor and are subject to sales tax like other rentals of equipment." In other words, when a contractor pays a company to provide and set up barricades on a highway job, the Comptroller treats that charge the same way it treats any other equipment rental — it's taxable.

Plastic marker tabs can qualify as tax-free consumable supplies. The letter distinguishes the disposable plastic tabs used as pavement markers from the barricade rental. These tabs are treated as consumable supplies — rather than as taxable equipment — "if they are necessary to the performance of the contract, used once, and completely consumed at the job site." That three-part test (necessary to the contract, used only once, fully consumed on site) is what separates a tax-free consumable supply from a taxable rental or purchase of equipment.

A new exemption-certificate procedure took effect October 1, 1993. The letter notes that, effective that date, a contractor doing a state highway job may buy consumable supplies tax-free by giving suppliers an exemption certificate in lieu of paying the tax at the time of purchase.

The letter closes with the Comptroller's standard caveat that the opinion is rendered based on the facts submitted, and that other facts, though similar, may yield different results.

What This Means For You

If you provide barricades to highway contractors: Charges for your barricade service should be treated like any other equipment rental for Texas sales tax purposes — the letter treats this charge as taxable rent, not as a nontaxable service.

If you supply or use disposable pavement marker tabs on a state highway job: These tabs can be purchased tax-free as consumable supplies, but only if they meet all three conditions described in the letter — necessary to the performance of the contract, used one time, and completely consumed at the job site. If the tabs are reused or aren't fully consumed, this treatment as described in the letter would not apply.

If you are a contractor on a state highway job buying consumable supplies after October 1, 1993: The letter states you may give your supplier an exemption certificate in lieu of paying tax on those consumable supplies at the time of purchase, rather than paying tax and seeking a refund later.

Facts matter. As with all STAR letter rulings, the Comptroller explicitly notes this opinion is based on the facts submitted and that other, similar facts could produce a different result — so contractors with variations on this fact pattern (e.g., reusable markers, non-highway jobs) should not assume the same answer applies.

Q&A

Q: Is barricade service taxable in Texas?
A: Yes. The letter states that charges for barricade service "are treated as a rentals to the contractor and are subject to sales tax like other rentals of equipment."

Q: Are plastic pavement marker tabs taxable?
A: They can be treated as nontaxable consumable supplies "if they are necessary to the performance of the contract, used once, and completely consumed at the job site," per the letter.

Q: How can a contractor buy consumable supplies tax-free for a state highway job?
A: The letter states that, effective October 1, 1993, a contractor doing a state highway job "may buy his consumable supplies tax free by giving his suppliers exemption certificates in lieu of tax."

Q: Does this ruling apply to all similar contractors regardless of their specific facts?
A: No. The letter states, "This opinion is rendered based on the facts you submitted. Other facts, though similar, may yield different results."

Original ruling text

October 13, 1993

Dear *:

Thank you for your recent letter regarding the taxability of barricade
services and plastic marker tabs used by contractors on state highway
jobs.

Charges for barricade service are treated as a rentals to the
contractor and are subject to sales tax like other rentals of
equipment. Disposable plastic tabs that are used as pavement markers
are treated as consumable supplies if they are necessary to the
performance of the contract, used once, and completely consumed at the
job site. Effective October 1, 1993, a contractor doing a state
highway job may buy his consumable supplies tax free by giving his
suppliers exemption certificates in lieu of tax.

This opinion is rendered based on the facts you submitted. Other
facts, though similar, may yield different results.

If you have questions or need more information, please call or write.
You may reach me by calling toll free, (800) 531 -5441 (ext. 34680).
My direct line number is (512) 463-4680. The number for FAX transmissions
is (512) 475-0900. You may write to me in care of Tax Administration
Division.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9308141L.2 and/or 9308141L