Texas Letter Ruling 9406L1305D08: Golf Course — Made Up Of A Number/Collection Of Improvements (Lake,Fairways, Cart Paths, Gabion, Tee Box/Signs, Greens, Clubhouse, Trenches) New Construction Vs. Remodeling

Plain-English summary

A golf course contractor asked the Comptroller how to classify several different pieces of work performed under one contract — because in Texas, sales tax treatment for real property work turns on whether the work is "new construction" (generally not taxable as a service, though materials are taxed to the contractor) or "remodeling/repair/restoration" of an existing improvement (a taxable service). Because a golf course is really a collection of separate improvements (greens, fairways, cart paths, a lake, a gabion, tee boxes, a clubhouse, trenches, and so on), each piece of work has to be classified on its own rather than treating the whole project as a single category.

The Comptroller walked through several specific scenarios. Completely demolishing an existing green and rebuilding a new one on the same spot is new construction — since the old improvement is destroyed and a genuinely new one is built in its place — and because the contractor in this case didn't do any grassing work, there was no separate landscaping component to consider. By contrast, roto-tilling and reshaping fifteen existing putting greens (without full demolition) is remodeling of the green, since the underlying improvement isn't being replaced, just reworked. However, soil aeration by itself is treated as landscaping, which is a different (nontaxable) category of work. The letter draws the same natural-vs-man-made distinction for a spillway: building a spillway on a naturally occurring creek counts as new construction, but building or upgrading a spillway on a man-made creek, or improving an already-existing spillway, is remodeling.

Finally, the letter addresses debris removal: gathering and disposing of debris is a taxable service regardless of whether the debris is disposed of on the job site or hauled away. This matters because Texas has a "5 percent rule" for lump-sum new-construction contracts — if taxable services (like debris removal) make up more than 5% of the total contract charge, the entire lump-sum contract is presumed taxable, even the new-construction portions. A contractor can overcome that presumption by separately stating the charges for the taxable services apart from the new-construction labor.

What this means for you

Golf course and land-improvement contractors

Don't assume a single "golf course renovation" contract gets one uniform tax treatment. Break the work down improvement by improvement and ask, for each one: was the existing improvement destroyed and rebuilt (new construction), or was it reworked/upgraded in place (remodeling, which is taxable)? The same physical activity — like working a green or a spillway — can fall on either side of that line depending on whether it's full demolition-and-rebuild versus reshaping/upgrading an existing structure.

Contractors bidding lump-sum jobs

If your contract bundles new construction with any taxable service work (debris removal being a common one on golf course jobs), track what percentage of the total contract price that taxable work represents. Crossing the 5% threshold on a lump-sum new-construction contract puts the whole contract at risk of being treated as taxable, unless you separately state the taxable service charges from the new-construction labor charges in your billing.

Accountants and tax professionals advising contractors

This letter is a useful illustration that Texas doesn't ask "is this a golf course job" — it asks "is this specific improvement being newly built or being remodeled," improvement by improvement. It also reinforces that landscaping (like soil aeration) is treated differently than remodeling labor on the same physical feature, so mixed-scope contracts need careful line-item classification and, where possible, separately stated pricing to avoid tainting an otherwise-exempt new-construction contract.

Common questions

Q: If we tear out an old green completely and build a new one in the same spot, is that taxable?
A: No — the Comptroller treated total demolition of an existing improvement and rebuilding a new one on the same spot as new construction, which is not a taxable service (though the contractor still pays tax on materials).

Q: We're just roto-tilling and reshaping existing greens without demolishing them — is that different?
A: Yes. Roto-tilling and reshaping the putting greens (without full demolition) is remodeling of the green, which is a taxable service. But soil aeration alone is treated as nontaxable landscaping, so the specific activity matters.

Q: Does it matter whether a creek or spillway is natural or man-made?
A: Yes. Building a spillway on a naturally occurring creek is new construction, but constructing or improving a spillway on a man-made creek is remodeling.

Q: We're removing debris as part of a bigger new-construction contract — does that create tax exposure for the whole job?
A: It can. Debris gathering and disposal is always a taxable service. If taxable services like this exceed 5% of the total lump-sum contract price, the entire contract is presumed taxable — unless you separately state the taxable service charges apart from the new-construction labor.

Citations and references

• Tex. Tax Code § 151.0047 (definition of real property repair and remodeling)
• Tex. Tax Code § 151.0101(a)(13) (taxable real property repair/remodeling/restoration services)
• Tex. Tax Code § 151.056 (contractor's tax treatment on new construction lump-sum contracts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9406L1305D08

Original ruling text

June 13, 1994

Dear **:

I am responding to your letter requesting a determination of
taxability on the contract for your customer, **,
*****, Texas.

The total demolition of an existing improvement to realty
(green) and rebuilding another improvement on the same spot
qualifies as new construction. The contractor does not
provide any grassing, so there is no landscaping.

Roto-tilling and shaping the fifteen (15) putting greens is
remodeling the green. Soil aeration is landscaping.

The construction of a spillway on a naturally occurring
creek is new construction. However, constructing a spillway
to upgrade a man-made creek or improve the existing spillway
is remodeling.

The gathering and disposal of debris is taxable whether the
disposal takes place on the job site or is removed from the
job site. If more than 5 percent of the contract charge
(even on lump-sum new construction contracts) is for taxable
services the total contract is presumed taxable. This
presumption can be overcome by separately stating the
charges for taxable services from new construction labor.

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

If you have additional or different questions, you may call
or write. The address is Tax Administration Division, Comptroller
of Public Accounts, Post Office Box 13528, Austin, Texas 78711-3528.

Sincerely,

Tax Administration Division

NOTE: Previous Accession Number 9406410L