When a golf course is reworked to fill in a creek, install drainage, add a lake spillway and waterfalls, and re-sod disturbed areas, which parts of the job count as tax-favored new construction versus taxable remodeling or landscaping?

Plain-English summary

A golf course contractor asked the Comptroller how to classify, for Texas sales tax purposes, several distinct pieces of work being done on two holes of a golf course. The Comptroller answered feature-by-feature rather than treating the whole job as a single category.

On hole #2, a natural creek was being filled in entirely so the area could become part of the rough. The Comptroller treated the filling, grading/shaping, and installation of drain pipe and drain inlets as new construction. But sprigging (planting) the area with 419 Bermuda grass afterward was classified separately as taxable landscaping, not new construction.

On hole #3, work included installing a 36-inch spillway and 15-inch outflow pipe at an existing lake to control flood waters, adding two waterfalls, and sodding disturbed areas to blend into the surrounding grass. Here the classification turned on the history of the lake and how the pipe connects: if the lake is naturally occurring and was never shaped, built up, enclosed, or dug out, then installing the spillway is new construction. But if the 15-inch outflow pipe ties into the existing green for hole #3, installing that pipe is remodeling of the existing green (an improvement to realty), not new construction. The two waterfalls were treated as remodeling the existing green, and sodding the disturbed areas was, again, landscaping. Separately, the letter reiterates two general contractor rules: (1) gathering and disposing of debris is always taxable, whether disposed of on-site or hauled away, and (2) on a lump-sum new construction contract, if taxable services exceed 5% of the total contract charge, the entire contract is presumed taxable — a presumption that can be overcome only by separately stating the taxable service charges from the new construction labor.

What this means for you

Golf course owners and developers

Don't assume a single tax treatment applies to an entire course renovation or hole redesign. The same job can mix new construction (tax-favored labor), remodeling of existing greens or other realty (taxable labor), and landscaping (taxable), depending on exactly what is being built or altered and whether a feature already existed. Contracts should be structured, and invoices itemized, with this in mind.

Landscape and golf course contractors

Whether installing drainage or a spillway counts as new construction can hinge on a factual question you may need to document — such as whether a lake is truly natural and has never been shaped, built up, enclosed, or dug out. If a pipe or other feature ties into something that already exists (like an existing green), that connection point is remodeling, not new construction. Sprigging, sodding, and similar planting work is landscaping and is taxable regardless of whether it's paired with new construction or remodeling.

Anyone drafting or reviewing lump-sum construction contracts

If taxable services (landscaping, remodeling, debris removal) exceed 5% of a lump-sum new-construction contract's total charge, the Comptroller presumes the entire contract is taxable. The only way to overcome that presumption is to separately state the charges for taxable services from the new construction labor on the contract or invoice.

Common questions

Q: Is filling in a creek and installing drainage on a golf course new construction?
A: Yes — the Comptroller classified filling in the natural creek, grading and shaping the area, and installing drain pipe and drain inlets as new construction.

Q: Is planting grass (sprigging or sodding) part of new construction?
A: No. Sprigging the filled area with Bermuda grass and sodding disturbed areas near the lake were both classified as landscaping, which is taxable, separately from any new construction or remodeling work done nearby.

Q: Why does it matter whether the lake is naturally occurring?
A: Because that determines whether installing the spillway is new construction. If the lake was never shaped, built up, enclosed, or dug out, the spillway installation is new construction. If instead the outflow pipe simply ties into the existing green, installing that pipe is remodeling of existing realty, which is taxed differently.

Q: What happens if the taxable parts of a lump-sum contract are more than 5% of the total price?
A: The whole lump-sum contract is presumed taxable. The contractor can rebut that presumption only by separately stating the charges for taxable services (like landscaping or remodeling) apart from the new construction labor charges.

Citations and references

• 34 Tex. Admin. Code § 3.291 (Contractors; residential repair, remodeling, and new construction)
• 34 Tex. Admin. Code § 3.357 (Nonresidential Real Property Repair or 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/9406L1305D12

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.

You explained that on hole #2, there is a natural creek
which is being filled in completely; the creek will no
longer exist and the area will become a part of the
rough. This area is being shaped and fine graded; drain
pipe and drain inlets are installed and then sprigged with
419 Bermuda.

Filling in the natural creek, grading and shaping the area
into the rough, and installing drain pipe and drain inlets
is new construction. Sprigging the area with Bermuda is
landscaping.

On hole #3, a 36" spillway and 15" outflow pipe is installed
at an existing lake to control flood waters. Two waterfalls
are installed and the disturbed areas are sodded to tie back
into the existing grassed areas.

If this is a naturally occurring lake (never shaped, built-
up, enclosed, or dug-out, etc.), then the installation of
the spillway is new construction. If the 15" outflow pipe
is added to the exiting green for hole #3, then the
installation of the pipe is remodeling the existing green
(improvement to realty).

The installation of the two waterfalls appears to be
remodeling the existing green. Sodding the disturbed areas
is landscaping.

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 9406412L