Is Texas sales tax due on seal coating and striping a parking lot's asphalt?

Plain-English summary

A paving contractor asked the Comptroller's office whether seal coating and striping a parking lot's asphalt counts as non-taxable maintenance. The Comptroller responded that the answer depends entirely on the circumstances of the job.

If the parking lot is new, the initial seal coating and striping done within a reasonable time after the asphalt cures is treated as part of the new construction itself, and it is not taxable.

If the lot has been around for a while, the tax treatment turns on its history. If the lot has never been seal coated or striped before, doing it for the first time is taxable remodeling. If the lot has already been seal coated and striped previously, redoing it is a taxable repair — unless the work meets the regulatory definition of maintenance.

The Comptroller's rule defines maintenance as "all scheduled periodic work on operational and functioning improvements to real property necessary to sustain or support safe, efficient, continuous operations or to keep in good working order by preventing the decline, failure, lapse, or deterioration of the improvement." Applying that definition, work done on a periodic, scheduled basis — for example, seal coating and striping the lot every other fall as a matter of course — is non-taxable maintenance. But if the customer has no regular schedule and simply calls the contractor to redo the seal coating or striping as needed, that job is a taxable repair.

What this means for you

Paving and asphalt contractors

Whether you charge Texas sales tax on seal coating and striping work depends on the customer's history and schedule for the lot, not just on the work itself. Ask whether the lot is new, whether it's ever been seal coated or striped before, and — if it has — whether the customer maintains it on a regular, scheduled basis or calls you only when it looks like it needs it. The answer changes the tax treatment of the identical physical work.

Property owners and facility managers

If you want your seal coating and striping program to qualify as non-taxable maintenance, put it on a periodic schedule (such as every other year) rather than calling a contractor only when the lot looks worn. Ad hoc, as-needed redos of previously seal coated or striped lots are taxed as repairs even though the work performed is the same.

Accountants and tax professionals

This letter lays out a four-way framework for real property services on the same asphalt: (1) initial seal coating/striping shortly after new construction is nontaxable new construction; (2) first-time seal coating/striping of an existing, never-treated lot is taxable remodeling; (3) redoing previously treated asphalt on an ad hoc basis is a taxable repair; and (4) redoing it on a scheduled, periodic basis is nontaxable maintenance under the Comptroller's regulatory definition.

Common questions

Q: Is seal coating a brand-new parking lot taxable?
A: No. Initial seal coating and striping done within a reasonable time after the asphalt cures is treated as part of the new construction and is not taxable.

Q: My customer's lot has never been seal coated before. Is doing it now taxable?
A: Yes. Adding seal coating or striping to a lot for the first time is considered taxable remodeling.

Q: The lot has been seal coated before, and the customer wants it redone. Is that taxable?
A: It depends. If the customer has a periodic, scheduled program (for example, redoing it every other fall), it's non-taxable maintenance. If the customer just calls you to do it as needed, with no regular schedule, it's a taxable repair.

Q: What is the Comptroller's definition of "maintenance" for this purpose?
A: "All scheduled periodic work on operational and functioning improvements to real property necessary to sustain or support safe, efficient, continuous operations or to keep in good working order by preventing the decline, failure, lapse, or deterioration of the improvement."

Citations and references

No specific statutes or administrative rules are cited in the text of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9412L1328A08

Original ruling text

December 5, 1994

Dear ***:

Recently, you asked that seal coating and striping asphalt be considered
maintenance. Under the sales tax law, seal coating and striping asphalt may be
either taxable or non-taxable depending on the circumstances when they are
done.

If the parking lot is new, the initial seal coating and striping done within a
reasonable time after the asphalt has cured is considered part of the new
construction and not taxable.

If the parking lot has been in existence for some time, the addition of seal
coating and striping may either be taxable or not. If the lot has never been
seal coated or striped, the addition of seal coating or striping is considered
taxable remodeling.

If the lot has been seal coated and striped previously, adding new seal coating
or new striping is considered a taxable repair unless it meets the definition
of maintenance.

Maintenance is defined in our rule as follows:

All scheduled periodic work on operational and functioning improvements to real
property necessary to sustain or support safe, efficient, continuous operations
or to keep in good working order by preventing the decline, failure, lapse, or
deterioration of the improvement.

Therefore, if your customer has a program in which the asphalt is seal coated
or striped on a periodic and scheduled basis, it would be considered
non-taxable maintenance. For example, if the customer schedules its asphalt for
sealing and striping in the fall of every other year, it would be maintenance.

On the other hand, if the customer did not have a regular schedule for having
the sealing and striping done but simply asked you to do it as needed, it would
be a taxable repair.

I hope this satisfactorily answers your question. Should you have additional
questions, please call me at 1-800-531-5441, extension 5-0220.

Sincerely,

Glen D. Hunt

NOTE: Previous Accession Number 9412774L