For Texas sales tax purposes, is work on golf course features (lakes, cart paths, retaining walls, bunkers, tee signs, bridges, gabions) taxable remodeling/repair labor, or nontaxable new construction labor?

Plain-English summary

This letter answers a taxpayer's questions about whether work on a golf course — building new retaining walls, irrigation lakes, or sand traps — counts as nontaxable "new construction" or taxable "remodeling" labor for Texas sales and use tax purposes.

The Comptroller explains the general framework first: tax is due on the total charge to repair, restore, or remodel a man-made structure or improvement to real property, but labor that adds new square footage to a man-made improvement is new construction labor and is not taxable. When a naturally occurring formation is "improved" (for example, dredging a natural lake), it becomes a man-made structure from then on, and any later labor to repair, remodel, or restore it is taxable. And when an improvement is completely demolished and another is built at the same site, that labor is new construction and not taxable.

For sales tax purposes, a golf course is treated as a collection of improvements. Some features are always considered existing improvements to realty, so any work to repair, remodel, or restore them is taxable: cart path, clubhouse, fairway, green, lake, parking lot, and tee box. Other features can be either new construction or remodeling depending on the circumstances: bunker, drainage ditch, earthen dam, gabion, irrigation system, retaining wall, and storm drainage system. For example, adding a new bunker on an existing fairway is remodeling (taxable).

The letter then works through specific examples the taxpayer asked about:

• Cart paths: Widening an existing path is taxable remodeling (citing Hearing No. 28,489, where excavating and widening asphalt cart paths was found to be taxable remodeling). Lengthening a path is new construction (not taxable). Replacing a segment of path that continues across a street is taxable remodeling.
• Lake expansion: Adding square footage to an existing man-made lake is new construction (citing Hearing No. 32,956, where the Tax Division agreed that expanding a lake's footprint was new construction).
• Bulkheading: Adding a retaining wall around an existing man-made lake is taxable remodeling, but adding a wall around the new expansion portion of that same lake is new construction (also from Hearing No. 32,956). By contrast, building a new bulkhead around a naturally occurring (not man-made) lake is new construction, because naturally occurring structures aren't "existing" structures for sales tax purposes (citing Letter 9311L1269C01).
• Tee signs: Adding or moving tee signs within an existing tee box is remodeling (taxable). But if a tee sign is built in an unimproved area of the course, or an existing tee sign in an unimproved area is completely torn down and replaced, that labor is not taxable.
• Bridges: Building a new bridge is always new construction (not taxable), even when it completely replaces an old bridge or an existing low-water crossing on a cart path (citing Hearing No. 29,731 (1996)).

What this means for you

Golf course owners and operators

Don't assume all golf course construction work is either fully taxable or fully exempt — Texas breaks it down feature-by-feature and even sub-project-by-sub-project (e.g., a lake's original footprint vs. its expansion can have different tax treatment). Get itemized invoices from contractors that separate new-construction labor (adding square footage, building on unimproved ground, or full demolition-and-rebuild) from repair/remodel labor on existing features, since only the latter is taxable.

Contractors and landscapers working on golf courses

The distinction hinges on whether you're adding square footage to something that already exists (new construction, not taxable) versus repairing, restoring, or remodeling something already there (taxable). Widening is remodeling; lengthening is new construction. Also remember that "man-made" status matters: once you improve (e.g., dredge) a naturally occurring feature, it becomes man-made going forward, and future work on it is taxable even though the original natural feature wasn't.

Accountants and tax professionals

This letter is a useful reference for how the golf-course-as-a-collection-of-improvements framework applies specific administrative hearing precedent (Hearing Nos. 28,489, 32,956, and 29,731) and at least one other letter ruling (9311L1269C01) to concrete features. Note this is a policy letter responding to a specific taxpayer's facts, so similar-looking projects on your client's course may still need individualized analysis.

Common questions

Q: Is building a new irrigation lake on a golf course taxable?
A: No — creating a new irrigation lake is new construction and the labor is not taxable.

Q: Is adding a new sand trap to an existing fairway taxable?
A: Yes — adding a new sand trap (bunker) to an existing fairway is remodeling, which is taxable.

Q: Are cart path repairs always taxable?
A: Widening an existing cart path is taxable remodeling, but lengthening a cart path is new construction and not taxable.

Q: If I expand a man-made lake and build a new retaining wall, is the whole project taxed the same way?
A: No. The retaining wall around the existing (original) part of the lake is taxable remodeling, but the retaining wall around the new expansion area is new construction and not taxable.

Q: Does adding a bulkhead around a natural (not man-made) lake count as remodeling?
A: No — building a new bulkhead around a naturally occurring lake is new construction, because naturally occurring structures aren't considered "existing" structures for sales tax purposes.

Q: Is replacing an old bridge with a new one taxable?
A: No. Building a new bridge is new construction, even when it completely replaces an old bridge or an existing low-water crossing.

Citations and references

No specific statutes or rule numbers were cited in this letter. The letter does reference Comptroller administrative hearing decisions (Hearing No. 28,489; Hearing No. 32,956; Hearing No. 29,731 (1996)) and an earlier letter ruling (9311L1269C01).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9605L1412G12

Original ruling text

May 29, 1996

Dear ****:

Thank you for your letter outlining your questions and ideas on the taxability
of work performed on a golf course. In your letter, you state your belief that
building new retaining walls, irrigation lakes or sand traps is new construction.
Under certain circumstances that work is new construction, but not always.

For example, creating a new irrigation lake is new construction. On the other
hand, adding a new sand trap to an existing fairway is remodeling. And building
new retaining walls could be new construction or remodeling depending on the
circumstances. Let me explain.

As we've discussed, tax is due on the total charge to repair, restore or remodel
a man-made structure or improvement to real property. However, the labor to
add new square footage to a man-made improvement is new construction labor and
not taxable.

When a naturally occurring formation is "improved," e.g., dredging a natural
lake, it is thereafter considered a man-made structure and any labor to
repair, remodel or restore it will be taxable.

When an improvement is demolished completely and another is constructed at the
same site, the labor is new construction labor and not taxable.

For sales and use tax purposes, a golf course is a collection of improvements.
As set out in administrative hearings and policy letters, the following are
considered improvements to realty and any work to repair, remodel or restore
the following will be taxable:

Cart path
Clubhouse
Fairway
Green
Lake
Parking lot
Tee box

As previously discussed, the installation of any the following items may be
either new construction or repair or remodeling depending on the circumstances.
For example, adding a new bunker on a fairway is remodeling.

Bunker
Drainage ditch
Earthen dam
Gabion
Irrigation system
Retaining wall
Storm drainage system

You asked about specific improvements to real property. I've addressed each below.

Cart Paths
In Hearing No. 28,489, a taxpayer had parts of its three different asphalt cart
paths excavated and the paths widened. The judge found that the work was taxable
remodeling of the cart paths. You asked about a cart path that abuts a street on
one end and a parking lot on the other end. Typically, a cart path doesn't
terminate when it reaches a street. The path continues on the other side of
the street. Replacing this segment of the path is taxable remodeling. Widening
a path is remodeling and lengthening a path is new construction.

Lake Expansion
This issue was recently addressed in Hearing No. 32,956, in which a taxpayer
hired a contractor to add square footage to a man-made lake and surround the
lake with a concrete retaining wall. In that hearing, the Tax Division agreed
that the expansion was additional square footage and new construction.

Bulkheading
Building new bulkheads may be either new construction or remodeling depending
on the circumstances. As I previously mentioned, in Hearing No. 32,956 a
taxpayer hired a contractor to surround a man-made lake with a concrete
retaining wall. The judge found that the addition of the retaining wall was
taxable remodeling when added to the existing lake but new construction when
added to the expansion.

On the other hand, in letter 9311L1269C01, the taxpayer built a new bulkhead
around a naturally occurring lake. In that situation, adding new bulkheading
was new construction because naturally occurring structures are not
considered "existing" structures for sales and use tax purposes.

Tee Signs
For sales and use tax purposes, a tee box is an improvement to realty. Adding
or moving tee signs in an existing tee box is remodeling the tee box. On the
other hand, if the tee sign is not on an existing improvement, the tee sign
itself is considered an improvement. Therefore, if a new tee sign is built
on an unimproved area of the golf course or an existing tee sign in an
unimproved area was completely torn down and a replacement installed, the
labor would not be taxable.

Bridges
The labor to build a new bridge is new construction, even when the new bridge
is a complete replacement of an old bridge. This is so even if the bridge
takes the place of an existing low-water crossing used as part of a cart path.
See Hearing No. 29,731 (1996).

I hope this satisfactorily answers your questions. Should you have additional
questions, please contact me at 111 E. 17th Street, Austin, Texas 78774, or
call me at 1-800-531-5441, extension 3-4004.

Sincerely,

Wade Anderson
Director, Tax Policy

NOTE: Previous Accession Number 9605249L