Is building, replacing, or repairing a fence around nonresidential real property taxable in Texas?

Plain-English summary

A taxpayer asked the Comptroller's Sales Tax Policy Division whether building or replacing an existing fence around commercial (nonresidential) realty is taxable.

The Comptroller explained that a permanent fence is an improvement to realty. Because of that:

• Building a brand-new fence is nontaxable new construction, regardless of whether the fence is on occupied nonresidential property.
• Replacing an entire existing fence with a new one is also treated as new construction (and so is nontaxable). However, if there's a single combined charge to demolish and remove the old fence, that charge becomes taxable if 5% or more of it is attributable to waste removal. The demolition charge escapes tax only if the removal charge is separately stated and taxed on its own.
• Repairing a fence, or replacing only part of an existing fence, on nonresidential property is taxable on the total amount billed to the owner — it doesn't get new-construction treatment.

The letter closes with the standard caveat that the opinion is based on the facts presented and could change if the facts are different.

What this means for you

Fence contractors and installers

Whether your fence job is taxable depends heavily on whether you're building/fully replacing a fence (nontaxable new construction) versus repairing or partially replacing one (taxable on the whole billed amount). If your job includes tearing out and hauling away an old fence, watch how you bill the demolition/removal charge — bundling it with 5% or more attributable to waste removal makes that combined charge taxable, while separately stating and taxing the removal charge keeps the demolition portion out of tax.

Commercial and nonresidential property owners

If you're paying to have a fence built or fully replaced, expect that charge to be nontaxable new construction. But if you're just having sections repaired or partially replaced, expect to be billed sales tax on the entire invoice amount, not just materials.

Accountants and tax professionals

This letter is a clean illustration of Texas's new-construction-versus-repair distinction as applied to a fence: full construction/replacement of a real property improvement is nontaxable, while repair or partial replacement of that same improvement on nonresidential property is fully taxable. The 5% waste-removal threshold for combined demolition/removal billing is also worth flagging for clients doing teardown-and-rebuild fence jobs.

Common questions

Q: Is building a brand-new fence around commercial property taxable in Texas?
A: No. A permanent fence is an improvement to realty, so building a new fence is nontaxable new construction, regardless of whether the property is occupied nonresidential real estate.

Q: What about tearing out an old fence and replacing it entirely with a new one?
A: Replacing an entire existing fence with a new fence is also treated as new construction. But if there's one combined charge for demolishing and removing the old fence, that charge is taxable if 5% or more of it is attributed to waste removal.

Q: How do I avoid tax on the demolition portion of a full fence replacement?
A: The charge for demolition is not taxable if the charge for removal is stated separately and taxed on its own.

Q: Is repairing part of an existing fence taxable?
A: Yes. Making repairs, or replacing only a portion of an existing fence on nonresidential property, is taxable on the total charge billed to the owner.

Q: Can I rely on this letter for my own fence project?
A: This opinion is based on the facts presented to the Comptroller; if there are any additional or different facts, the opinion may change.

Citations and references

No specific statutes or rule numbers were cited in 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/9606L1425A03

Original ruling text

June 26, 1996

Dear **:

Thank you for your fax dated June 24, 1996. You asked whether building or
replacing an existing fence around commercial realty is taxable.

A permanent fence is an improvement to realty. As such, building a new fence
is new construction regardless of whether the fence is on occupied
nonresidential property.

Similarly, replacing an entire existing fence with a new fence is new
construction. A single charge to demolish and remove the old fence is
taxable if 5% or more of the charge is attributed to the waste removal. The
charge for demolition is not taxable if the charge for removal is separately
stated and taxed.

Making repairs or replacing only a portion of an existing fence on
nonresidential property is taxable on the total charge billed to the owner.

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

You may call me toll free at 1-800-531-5441, ext. 5-0037. The direct line
is 512/475-0037. You also may write to Sales Tax Policy Division,
Comptroller of Public Accounts.

Sincerely,

Lindey Osborne
Sales Tax Policy Division