For a new-home landscaping contract that spans the October 1, 1995 law change, is labor taxed based on when the work was actually performed or based on the billing/acceptance date?

Plain-English summary

The Texas Comptroller's Tax Policy Division answered a question about the taxability of landscaping services during the transition to a new law. Senate Bill 640 amended Section 151.0048 of the Tax Code, effective October 1, 1995, so that "real property service" no longer includes landscaping purchased by a contractor as part of improving real property with a new structure to be used as a residence — or improving land immediately adjacent to that new structure when it's used in the residential occupancy of the structure. In plain terms: landscaping tied to building a new home became tax-exempt starting October 1, 1995.

The letter's key point is about timing on contracts that straddle the effective date. Labor performed before October 1, 1995 remains taxable regardless of the billing date or the date the work is accepted — so a contractor can't push taxable labor into the exempt period just by delaying an invoice or waiting for the customer to sign off after October 1. Conversely, labor performed in or after October 1995 is not subject to tax. The dividing line is when the work was actually done.

The letter also clarifies that the law change did not touch landscaping around new commercial structures — that landscaping remains taxable exactly as before; only new-residential landscaping is affected by the exemption.

What this means for you

Landscaping contractors with contracts spanning October 1, 1995

If you had a new-residence landscaping job in progress when the law changed, you need to split the labor by the date it was actually performed, not by invoice date or the date the customer accepted the work. Anything you did before October 1, 1995 is taxable; anything done on or after that date is exempt.

Contractors and builders on commercial projects

This exemption does not apply to landscaping around new commercial buildings. If your work involves commercial construction, the pre-existing taxability rules for landscaping (real property services) continue to apply without change.

Accountants and tax professionals

When advising on this transition, the operative fact is the actual performance date of the labor, not billing practices. Structuring invoices around the October 1, 1995 cutoff does not change the tax treatment — only the date the landscaping work was actually done controls whether tax applies.

Common questions

Q: If I bill a customer in November 1995 for landscaping work I did in September 1995, is it taxable?
A: Yes. The letter is explicit that labor performed before the October 1, 1995 effective date is taxable regardless of the billing date or work acceptance date.

Q: Is landscaping around a newly built house taxable after October 1, 1995?
A: No, not when it's landscaping purchased by a contractor as part of improving real property with a new residential structure, or land immediately adjacent to it used in the residential occupancy of that structure — per the amended Section 151.0048.

Q: Does this exemption apply to landscaping for new commercial buildings too?
A: No. The letter states the law change did not change the taxability of landscaping services around new commercial structures.

Q: What law caused this change?
A: Senate Bill 640, which amended Section 151.0048 of the Tax Code, effective October 1, 1995.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.0048 (definition of "real property service," as amended by Senate Bill 640, effective 10/1/1995)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9509543L

Original ruling text

September 25, 1995

Dear ****:

Thank you for your letter of September 15, 1995, concerning the taxability of
landscaping services.

Your letter references the changes to Section 151.0048 of the statute that are
effective October 1, 1995 (Senate Bill 640). The statute states that "real
property service" does not include landscaping purchased by a contractor as
part of the improvement to real property with a new structure to be used as a
residence or other improvement immediately adjacent to the new structure and
used in the residential occupancy of the structure.

The labor performed before the effective date of the law change will be taxable
regardless of the billing date or work acceptance date. Labor performed in and
after October of 1995 will not be subject to tax.

The law change did not change the taxability of landscaping services around new
commercial structures.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change. You may call me toll free at
1-800-531-5441, ext. 5-0613. The direct line is 512/475-0613. You may also
write to Tax Administration Division, Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Policy Division