Can a Texas home builder or developer buy landscaping, lawn care, pest control, surveying, building and grounds cleaning, or waste removal services tax-free during construction of a new home, and does that exclusion cover model homes?

Plain-English summary

The Texas Comptroller's Tax Policy Division responded to a home builder or developer asking about the taxability of services purchased during the construction of new residential structures, in light of recent changes to Tax Code Section 151.0048 (effective October 1, 1995).

Under those changes, landscaping, lawn care, pest control, surveying, building and grounds cleaning, and waste removal services performed for home builders and developers can be purchased tax free when the service is part of the improvement to realty of a new structure, or of an improvement immediately adjacent to the new structure that is used in the residential occupancy of that structure. To get this treatment, the home builder or developer must give the service provider documentation certifying that the real property service is excluded from the definition of "real property service" — services are presumed taxable until that documentation is furnished. An exemption certificate can be used for this purpose instead of creating a separate certification, and it should certify that the property is new residential construction.

The letter then draws an important limit: this exemption does not apply to model homes, sales trailers, or home owner amenity areas. It only covers services that are part of improving the realty of the new structure — not maintenance performed on homes that are already complete and being held for sale, such as mowing a speculative home after it's built but before it sells.

What this means for you

Home builders and developers

You can buy landscaping, lawn care, pest control, surveying, building/grounds cleaning, and waste removal services tax-free for new residential construction, but only for genuine improvement-to-realty work on the new home or its immediately adjacent, occupancy-related improvements. Give the service provider documentation — an exemption certificate works — certifying the property is new residential construction; otherwise the service is presumed taxable.

Builders with model homes, sales trailers, or amenity areas

Don't extend the exclusion to model homes, sales trailers, or home owner amenity areas — the letter says explicitly that these are not covered. Services purchased for these purposes remain taxable even though they may be on the same development.

Builders holding completed spec homes for sale

Once a home is complete and being held for sale, ongoing maintenance work on it (the letter's own example is mowing a speculative home after construction but before sale) is not covered by this exclusion. Only services that are actually part of improving the realty of a new, not-yet-complete structure qualify.

Landscaping, lawn care, pest control, and similar service providers

If you're performing these services for a home builder or developer, you should get documentation (an exemption certificate is acceptable) stating the property is new residential construction before treating the sale as tax-free. Without it, the presumption is that the service is taxable.

Common questions

Q: What services does this exclusion cover?
A: Landscaping, lawn care, pest control, surveying, building and grounds cleaning, and waste removal services performed for home builders and developers, when the service is part of the improvement to realty of a new residential structure (or an adjacent improvement used in its residential occupancy).

Q: Does the exclusion cover model homes?
A: No. The letter states plainly that the exemption does not apply to model homes, sales trailers, and home owner amenity areas.

Q: What paperwork does a builder need to buy these services tax-free?
A: Documentation from the home builder or developer certifying that the real property service is excluded from the definition of "real property service." An exemption certificate certifying the property is new residential construction can serve this purpose; without such documentation, the services are presumed taxable.

Q: Is mowing a completed, unsold spec home covered?
A: No. The letter gives this as its own example of what's excluded from the exemption — maintenance performed on homes that are complete and held for sale is not part of "improvement of the realty" and is not covered.

Q: When did this change take effect?
A: The letter references changes to Tax Code Section 151.0048 effective October 1, 1995.

Q: Can another taxpayer rely on this letter?
A: The letter states its opinion is based on the facts presented, and that the opinion may change if there are additional or different facts.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.0048 (definition of "real property service," as amended effective October 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/9511669L

Original ruling text

November 8, 1995

Dear *:

Thank you for your letter of November 3, 1995, concerning the
taxability of
services purchased during the construction of new residential
structures.

Your letter references recent changes to Section 151.0048 of
the Tax Code
effective October 1, 1995. The law changes stipulate that
landscaping, lawn
care, pest control, surveying, building and grounds cleaning,
and waste removal
services performed for home builders and developers can be
purchased tax free
when the service is part of the improvement to realty of a
new structure or an
improvement immediately adjacent to the new structure and
used in the
residential occupancy of the structure.

The home builder or developer needs to provide the service
provider with
documentation certifying that the real property service is
excluded from the
definition of "real property service." The services are
presumed to be taxable
until the contractor furnishes this information. You may use
an exemption
certificate as your form of documentation instead of
developing another means of
certification. Both your firm and the service provider may
feel more
comfortable using an exemption certificate in these cases.
The certificate
should certify that the property is new residential
construction.

I should add that this exemption does not apply to model
homes, sales trailers,
and home owner amenity areas. It only covers services that
are part of the
improvement of the realty and not maintenance performed on
homes that are
complete and held for sale (i.e.; mowing of speculative homes
after building yet
prior to sale).

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

This is a very new area for all of us, so do not hesitate to
call or write with
questions. 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