Is a utility-line-locating 'damage prevention' service — where a contractor uses a computer-dispatched service to find and mark underground utility lines before excavation — taxable in Texas?

Plain-English summary

This is an internal Texas Comptroller memo, not a letter addressed to a taxpayer. Becky Hampton, of Tax Administration audit staff, wrote to Adina Whittemore describing how a particular company's "line locator" service works, so that Whittemore could make a tax determination.

The service works like this: a company contracts with utility companies (for lines like pipelines and phone lines) to locate and mark their underground lines before a contractor excavates in the area. The company gets line-location details from a "one call center," downloads that information onto its mainframe computer, and its trucks are equipped with computers that communicate with the mainframe to pin down where lines are. When a utility company learns a contractor will be excavating near its lines, it contacts the service company, whose home office sends a "wireless computerized dispatch" to one of its computer-equipped vehicles. That vehicle goes to the site, locates the lines, and marks them (with stakes, flags, etc.) so the contractor can see where they are; the utility company is then notified the site has been marked. The memo notes this service exists so utility companies don't have to send their own truck out to mark lines, and that it's similar to a prior case on fiche (microfiche) 9311L1271F13, "but with a twist."

After Whittemore discussed the facts with Tom Soto, they determined that this "damage prevention" service is a nontaxable service. The memo gives no further reasoning beyond that conclusion.

What this means for you

Utility-line-locating / "damage prevention" service providers

If your business operates a line-locating service under contract with utility companies -- using a one-call center, computer dispatch, and field crews to find and mark underground utility lines before a contractor digs -- this internal memo reflects a Comptroller determination that such a service is nontaxable. Because this is staff-to-staff correspondence rather than a letter ruling issued to a specific taxpayer, you cannot rely on it directly for detrimental-reliance protection; it only shows how Comptroller staff analyzed one company's facts in 1996.

Utility companies and excavation contractors

The memo describes the service purely from the vendor's side; it doesn't address how a utility company's or contractor's own purchase of this service should be treated on their books, beyond confirming that the charge for the service itself is not taxable.

Businesses relying on older or informal Comptroller guidance

Because this document is an internal memo rather than a taxpayer-specific letter ruling, and because sales tax treatment of services can change over time, businesses in a similar line of work should confirm current treatment (for example, by requesting their own letter ruling) rather than relying on this 1996 memo alone.

Common questions

Q: Is a utility line-locating / damage prevention service taxable in Texas?
A: According to this internal 1996 Comptroller memo, no -- Comptroller staff determined this type of service is nontaxable.

Q: Who requested this determination?
A: No one -- this is not a taxpayer-requested letter ruling. It's an internal memo from Tax Administration audit staff (Becky Hampton) to a colleague (Adina Whittemore), who reached the nontaxable determination after discussing the matter with Tom Soto.

Q: Can a taxpayer rely on this memo the way they could rely on a letter ruling issued to them?
A: No. Because it was not issued to any specific taxpayer, it cannot be the basis of a detrimental reliance claim under 34 Tex. Admin. Code Rules 3.1 and 3.10. It only illustrates the Comptroller's reasoning on a comparable set of facts.

Q: Does the memo explain why the service is nontaxable?
A: No. The memo describes the service in detail and then states the conclusion -- that it is a nontaxable "damage prevention" service -- without laying out the underlying legal analysis.

Q: What is fiche 9311L1271F13, mentioned in the memo?
A: The memo notes the service "appears to be similar to fiche 9311L1271F13, but with a twist," referring to an earlier, similar case the Comptroller had reviewed. The memo doesn't explain what the "twist" was.

Citations and references

No statutes or Comptroller rules are cited by number in this memo.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=
• Opinion: https://star.comptroller.texas.gov/view/9602L1392E07

Original ruling text

Date: February 8, 1996

To: Adina Whittemore, Tax Administration

From: Becky Hampton, *** Audit

Subject: Line locator service

I spoke with the folks at *** and was able to obtain the following
additional information.

*** obtains detail information concerning line locations from a one
call center.

This information is downloaded onto ***'s mainframe computer. The
computer in **'s truck communicates with ****'s mainframe
computer to determine whether lines (pipelines, phone lines, etc.) are located.

*** enters into a contract with the utility companies. When a
utility company is notified that a contractor will be excavating in the area
where they have lines, the utility company contacts **.
****'s home office sends a "wireless computerized dispatch" to one of
its computer-equipped vehicles. This vehicle goes to the site, locates the
lines based on their current computer information and marks them as needed
(with stakes, flags, etc.) so the contractor will be aware of their location.
Once the lines are marked, the utility company is notified that the site has
been marked.

This service was created to keep the utility companies from having to send a
truck out to mark the line.

This appears to be similar to fiche 9311L1271F13, but with a twist.

If you need additional information, let me know.

February 8, 1996

I discussed this service with Tom Soto, and we have determined that this
"damage prevention" service is a nontaxable service.

Signed by Adina Whittemore

NOTE: Previous Accession Number 9602618L