Is adding bulk heading to a natural lake, or paving over a worn dirt cart path, new construction or remodeling for Texas tax purposes at an existing golf course?

Subject

Golf Course — Bulk Heading Added To A Natural Lake And Paving Of A Worn Dirt Cart Path — New Construction, Not 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/9311035L

Plain-English Summary

A country club asked the Comptroller whether two projects done on an already-operating golf course should be classified as new construction or as remodeling/upgrading an existing improvement to realty for Texas sales tax purposes. The country club had treated both projects as new construction; the club's auditor felt they were instead remodeling of an existing improvement. The Comptroller sided with the country club on both items.

The letter addresses two specific activities:

1. Bulk heading around part of the lake. The country club added bulk heading (concrete blocks, described as "gambions," used to prevent erosion) around part of the lake area. Before the bulk heading was added, the lake area was completely natural. The Comptroller ruled that adding bulk heading, gabions, etc., to a natural lake or creek is new construction — and the fact that the bulk heading was added to sections of the lake over time, rather than to the entire lake all at once, does not turn the activity into remodeling.

2. Paving of cart paths. Before the concrete was poured, only dirt paths existed. Based on verbal information from phone conversations with the taxpayer and the auditor, these "cart paths" were actually just worn areas that had become paths because of golfer habits — the country club had taken no action to grade, level, or otherwise enhance those areas until the concrete was added. The Comptroller ruled that if only a worn path in dirt or grass exists, and the club then takes action to level the path and add concrete to the natural ground, that action is new construction.

The Comptroller's underlying rule: for sales tax purposes, naturally occurring structures are not considered "existing" improvements to realty. So improving a natural feature for the first time is new construction, not remodeling of an existing improvement. However, the letter is explicit that this treatment only applies the first time — once the bulk heading has been added to the natural lake, and once the naturally worn cart path has been graded, paved, or otherwise improved, any subsequent actions to repair, upgrade, or remodel those same areas will be taxed (i.e., treated as remodeling).

The Comptroller also notes this opinion is based on the facts presented, and could change if the facts are different.

What This Means For You

If you're improving a natural feature (a lake, creek, pond, or worn dirt path) on an existing golf course or similar property for the first time: This letter's reasoning is that a natural feature is not an "existing improvement to realty," so the first structural work done to it — such as adding bulk heading/gabions to a natural lake, or paving a worn dirt path — is new construction rather than remodeling.

If you've already improved a natural feature and are now going back to do more work on it: Be aware the letter draws a clear line — once bulk heading has been added to a lake, or once a worn path has been graded/paved, that area is now an existing improvement. Any later repair, upgrade, or remodeling of that same area is taxed as remodeling, not new construction.

Document the "before" condition carefully. The Comptroller's conclusions here turned heavily on fact-specific details established through telephone conversations with the taxpayer and auditor — e.g., that the lake area was "completely natural" before bulk heading, and that the cart paths were merely worn areas with no prior grading, leveling, or enhancement. The letter itself cautions that it is based on the facts presented and "may change" if the facts are different.

Note on scope: This letter does not cite any statute or rule, and it does not explain the practical tax consequences that follow from a "new construction" versus "remodeling" classification (such as differences in how a contractor's labor or materials are taxed). It only answers the classification question for these two specific projects.

Q&A

Q: Is adding bulk heading or gabions to a natural lake considered new construction or remodeling?
A: New construction, according to this letter. The lake area was completely natural before the bulk heading was added, and the Comptroller does not treat naturally occurring structures as "existing" improvements to realty. It doesn't matter that the bulk heading was added to sections of the lake over time rather than all at once — that phased approach doesn't turn it into remodeling.

Q: Does paving a worn dirt cart path count as new construction if golfers created the path themselves just by walking or driving over it?
A: Yes, per this letter — as long as the club took no action to grade, level, or enhance the worn area before adding concrete. If only a naturally worn path in dirt or grass exists, and the club then levels it and adds concrete, that action is new construction, not remodeling of an existing path.

Q: If a country club later repairs or upgrades bulk heading it already added to a lake, is that still new construction?
A: No. The letter is explicit that once bulk heading has been added to a natural lake (or a worn cart path has been graded, paved, or otherwise improved), any subsequent actions to repair, upgrade, or remodel those areas will be taxed — meaning they're treated as remodeling of an existing improvement, not new construction.

Original ruling text

November 4, 1993

Dear **:

Thank you for your patience while waiting for my written response. Although a
verbal response was given once your auditor provided the additional information
she had gathered to me, the written verification was delayed.

COUNTRY CLUB understood the following activities to be new construction and had
treated them as such during the construction phases. The auditor felt the
activities were remodeling or upgrading an existing improvement to realty. The
activities were performed on the golf course that was already in use.

1. Bulk heading (concrete blocks to prevent erosion) was completed around part
   of the lake areas. Before the bulk heading was added the lake area was
   completely natural.

Response: Adding bulk heading, gambions, etc., to a natural lake, creek, etc.,
is new construction. The fact that the bulk heading was added to sections of
the lake over time rather than to the entire lake all at once does not change
the activity to remodeling.

2. The other construction was the paving of cart paths. Prior to the laying of
   concrete, only dirt paths existed.

Response: Based upon the verbal information received during telephone
conversations with you and the auditor, the cart paths that existed were
actually worn areas that had become the "cart path" because of the habits of
the golfers. You stated that the country club had taken no action to grade,
level, or enhance the areas used as cart paths until the concrete was added. If
only a worn path in dirt or grass exists and actions are taken to level the
path and add concrete to the natural ground, then this action is new
construction. Based upon our telephone conversations the activity in question
is new construction.

For sales tax purposes we do not consider naturally occurring structures to be
"existing" improvements to realty. However as we also discussed, once the bulk
heading has been added to the natural lake and the naturally worn cart path has
been graded, paved, or otherwise improved any subsequent actions taken to
repair, upgrade or remodel these areas will be taxed.

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

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division