Is cutting or closing an opening in a fence to let trucks through a taxable real property service in Texas?

Plain-English summary

A company hired a third party to cut an opening in a fence so the company's trucks could get onto a job site to do environmental consultation work. Once the work was done, the same third party came back and closed the opening again, restoring the fence. The third party billed the company one lump-sum amount for both jobs, and the company asked the Comptroller whether that charge was taxable — and whether the answer would change if the two jobs (cutting and closing) were billed separately instead.

The Comptroller explained that a permanently installed fence is an improvement to real property. Cutting a hole in the fence counts as remodeling that improvement, and closing the hole back up counts as repair, restoration, or remodeling of it. When the fence is on nonresidential real property, the service provider must charge tax on the total charge for cutting the hole, and separately must charge tax on the total charge for closing the hole. Because both jobs here were billed as a single lump sum, the entire lump-sum amount is taxable when the fence is nonresidential realty. The Comptroller also confirmed that billing the two jobs separately would not change the outcome — both separate charges would still be taxable for a nonresidential fence. However, if the fence is residential realty, the labor charge to the customer is not taxable.

The letter notes this opinion is based on the facts presented and could change if the facts were different.

What this means for you

Businesses hiring fence contractors

If you hire someone to cut an opening in a fence (for example, to let vehicles or equipment through) and later have it closed back up, expect the labor to be taxable if the fence sits on nonresidential (commercial) property. This is true whether the contractor bills you one lump sum for both the cutting and the closing, or bills each step separately — either way, tax applies to a nonresidential fence.

Fence and remodeling contractors

This letter tells you how to treat charges for cutting and later closing an opening in a fence: both are treated as taxable improvements to nonresidential real property (remodeling for the cut, repair/restoration/remodeling for closing it back up), so tax must be charged on the total amount billed. If the fence is on residential property instead, the labor charge is not taxable. How you structure your invoice — lump sum versus itemized — does not change whether tax applies to a nonresidential job.

Accountants and tax professionals

This letter is a useful, narrow data point on how the Comptroller treats temporary alterations (cutting and re-closing an opening) to an existing fence: both the cutting and the closing are treated as taxable real property services when the fence is nonresidential, and lump-sum billing does not shield the transaction from tax. The residential/nonresidential distinction is the operative fact to confirm with clients.

Common questions

Q: Is cutting a hole in a fence to let trucks through a taxable service in Texas?
A: Yes, if the fence is on nonresidential real property. The Comptroller treated cutting the opening as remodeling an improvement to realty, which is taxable in that case.

Q: Does closing the opening back up later get taxed the same way?
A: Yes. Closing the opening is treated as repair, restoration, or remodeling of the fence, and the charge is taxable when the fence is nonresidential realty.

Q: Does billing the cutting and closing as one lump sum instead of two separate invoices change whether tax applies?
A: No. The letter states that whether the charges are combined into one lump sum or billed separately, the amounts are taxable as long as the fence is nonresidential realty.

Q: What if the fence is at a residential property instead of a commercial one?
A: The letter says that if the fence is residential realty, the labor charge to the customer is not taxable.

Citations and references

The original letter does not cite any specific statute or rule by number.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9404L1296C08

Original ruling text

April 13, 1994

Dear **

I am writing as a result of our telephone conversation and your fax of April 6,
1994. You asked about sales tax on the following transactions.

You stated that your company hired a third party to come out and make an
opening in a fence to allow your trucks to enter a job site. Once your company
completed the environmental consultation for this location, the third party
returned and closed the fence. The third party billed your company one
lump-sum amount. You asked whether the charge was taxable or not. You also
asked whether the charge would be taxed if the third party separately billed
for cutting the fence and separately billed for restoring the fence.

Response: A permanently installed fence is an improvement to realty.

Cutting an opening (hole) in a fence is remodeling an improvement to realty.
The service provider is required to charge tax on the total charge for cutting
a hole in the fence when the fence is nonresidential realty. If the fence is
residential realty, the labor charge to the customer is not taxable.

Likewise, closing an opening in a fence is either repair, restoration, or
remodeling an improvement to realty. The service provider is required to
charge tax on the total charge for closing a hole in the fence when the fence
is nonresidential realty. If the fence is residential realty, the labor charge
to the customer is not taxable.

The third party billed your company a lump-sum amount for both situations
discussed above. The total amount billed to your company is taxable when the
fence is nonresidential realty. If the third party had billed two separate
amounts, the separate amounts would have been taxable as well when the fence is
nonresidential realty.

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.

Sincerely,

Tax Administration Division

NOTE: Previous Accession Number 9404267L