Is cleaning a petroleum storage tank subject to Texas sales tax, and does it matter whether the tank is above ground, below ground, or over 500 barrels in capacity?

Subject

Storage/Frac Tank — Above Ground With 500 Barrels Or Less Capacity — Cleaning Is Maintenance Of Tpp

Plain-English summary

A taxpayer asked the Comptroller's office under what circumstances services to clean a petroleum product storage tank would be subject to Texas sales tax. The answer turns on whether the tank is considered an improvement to real property or just tangible personal property.

The Comptroller's office treats above-ground petroleum storage tanks that hold more than 500 barrels, and below-ground petroleum storage tanks, as improvements to realty. Companies that clean those tanks are not performing real property repair or remodeling services, nor building or grounds cleaning, janitorial, or custodial services — so cleaning those tanks is not subject to sales tax.

By contrast, if the storage tank is above ground with a capacity of 500 barrels or less, or if it is no longer an improvement to realty because it has been severed from the realty, cleaning that tank is treated as maintenance of tangible personal property and is taxable.

The letter also addresses waste removal: hauling off waste products from these tanks counts as an industrial discharge subject to regulation by permit under Chapter 26 of the Texas Water Code, and the sales tax law excludes the removal of such discharges from the definition of taxable waste removal services.

What this means for you

Tank cleaning companies

Whether your tank-cleaning service is taxable depends on the specific tank: cleaning a below-ground tank, or an above-ground tank over 500 barrels, is nontaxable real property work. Cleaning a smaller above-ground tank (500 barrels or less), or any tank that has been severed from the realty, is taxable maintenance of tangible personal property, so you should charge and collect sales tax on that portion of the job.

Oil and gas / petroleum storage operators

If you own or operate frac tanks or other petroleum storage tanks, the tax treatment of cleaning services you purchase depends on the tank's size, whether it is above or below ground, and whether it remains attached to (or has been severed from) the realty. Separately track which category your tanks fall into so you know whether you should be paying tax on cleaning invoices.

Accountants and tax professionals

Note the letter also separately addresses waste hauling: removal of waste products from these tanks is regulated as an industrial discharge under Chapter 26 of the Texas Water Code, and the sales tax law excludes that removal from the definition of taxable waste removal services — this exclusion applies regardless of how the tank itself is classified for cleaning-service purposes.

Common questions

Q: Is cleaning a petroleum storage tank always subject to Texas sales tax?
A: No. It depends on whether the tank is an improvement to realty. Below-ground tanks and above-ground tanks over 500 barrels are treated as improvements to realty, so cleaning them is not taxable.

Q: When is tank cleaning taxable?
A: When the tank is above ground with a capacity of 500 barrels or less, or when the tank has been severed from the realty. In those cases, cleaning is treated as maintenance of tangible personal property and is taxable.

Q: Is hauling away waste from these tanks taxable as a waste removal service?
A: No. The letter states that removal of such waste products is an industrial discharge regulated by permit under Chapter 26 of the Texas Water Code, and the sales tax law excludes that removal from the definition of taxable waste removal services.

Citations and references

Statutes:

• Texas Water Code Chapter 26 (regulation of industrial discharges by permit)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608L1424C14

Original ruling text

August 5, 1996

Dear **:

In you July 31, 1996 letter, you asked the following question:

Please advise under what circumstances would services to clean a petroleum
product storage tank be subject to sales tax.

This office has considered above ground petroleum storage tanks that hold more
than 500 barrels and below ground petroleum storage tanks as improvements to
realty. We have taken the position that companies cleaning such tanks are not
performing real property repair or remodeling services or building or grounds
cleaning, janitorial, or custodial services. Therefore, cleaning tanks that
are improvements to realty is not subject to the sales tax.

Consequently, in answer to your question, if the storage tank is above ground
and has a capacity of 500 barrels or less or is no longer an improvement to
the realty because it has been severed from the realty, cleaning the storage
tank would be the maintenance of tangible property and taxable.

Additionally, the removal and hauling off of waste products from these tanks
are industrial discharges subject to regulation by permit pursuant to Chapter
26 of the Texas Water Code. The sales tax law excludes the removal of such
discharges from the definition of taxable waste removal services.

I hope this satisfactorily answers your inquiry. Please feel free to contact
me again should you have further questions.

Sincerely,

Wade Anderson
Director, Tax Policy