For a contractor working on an exempt entity's job site: is a portable toilet rental tax-exempt because the contract requires it, and is the transportation/delivery charge for hauling dirt, sand, caliche, or rock to the site taxable?

Plain-English summary

This is a follow-up letter answering two separate questions for a contractor working on exempt-entity job sites.

Portable toilets. The contractor had previously been told that dumpster/trash removal service required by a contract with an exempt entity was tax-exempt, and asked whether portable toilets ("port-a-johns") called for in a similar contract would also be exempt. The answer is no: a contractor owes tax on the rental of portable toilets used in performing a contract to improve real property for an exempt entity, EVEN IF the contract requires having portable toilets at the job site. Sec. 151.311 only exempts tangible personal property that is either (a) actually incorporated into the realty, or (b) necessary/essential for the contract AND completely consumed at the job site (used up or destroyed after one use). Rented or leased equipment is specifically excluded from this exemption regardless of how necessary the contract makes it.

Hauling dirt, sand, gravel, and rock. Separately, the contractor asked about transportation charges for gravel delivered to the site. Since June 1988, the Comptroller's policy has been to exempt the sale of "unprocessed" sand, dirt, gravel, and rock — materials that have merely been sorted, sized, screened, washed, and/or dried. A hauler of unprocessed materials like this should not collect tax on the transportation charge. But if the same materials are sold in a PROCESSED state (crushed, or mixed with other materials), both the sale and the related transportation charge are taxable.

What this means for you

Contractors working on exempt-entity job sites

Don't assume a rental item is exempt just because your contract with the exempt entity requires it. The completely-consumed/incorporated-into-realty test under Sec. 151.311 is what matters — rented equipment like portable toilets is always excluded from the exemption, no matter how contractually necessary it is.

Aggregate material haulers (dirt, sand, caliche, gravel, rock)

Check whether the material you're hauling is processed (crushed or mixed with other materials) or unprocessed (merely sorted, sized, screened, washed, and/or dried) — that single distinction determines whether both the sale AND your transportation/delivery charge are taxable or exempt.

Accountants and tax professionals

This letter is a clean two-part reference: it reinforces the rented-equipment exclusion from Sec. 151.311's completely-consumed exemption (a recurring theme across other TX contractor rulings), and it restates the Comptroller's long-standing (since June 1988) processed-vs-unprocessed aggregate materials policy.

Common questions

Q: Is a portable toilet rental exempt if my contract with an exempt entity requires it on-site?
A: No. Sec. 151.311 specifically excludes rented or leased equipment from its exemption, regardless of contractual necessity.

Q: Is hauling unprocessed sand or gravel to a job site taxable?
A: No — since June 1988, the Comptroller has exempted unprocessed sand, dirt, gravel, and rock (merely sorted, sized, screened, washed, and/or dried), including the transportation charge.

Q: What if the sand or gravel is crushed or mixed with other materials before delivery?
A: Then it's "processed," and both the sale and the transportation charge are taxable.

Q: Can I rely on this letter for my own contract or hauling business?
A: No — a Texas letter ruling can be the basis of a detrimental reliance claim only for the taxpayer it was issued to.

Citations and references

• Tex. Tax Code Sec. 151.311 (exempts tangible personal property incorporated into realty or completely consumed at the job site under a contract with an exempt entity; specifically excludes rented/leased property)
• The processed-vs-unprocessed aggregate materials transportation policy (in effect since June 1988, per the letter) is described as Comptroller policy without citing a specific statute or rule number.

Subject

Dirt/Sand/Caliche/Rock Haulers — Processed Vs. Unprocessed — Transportation/Delivery Charge

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9711063L

Original ruling text

November 18, 1997

Subject: Tax Exempt Jobs and Rental Equipment

Dear **:

This is in response to your request for a ruling regarding "tax-exempt
services" performed at your job sites.

In our prior correspondence, I responded that dumpster services (i.e., "trash
removal service"), required as part of the contract with an exempt entity, were
exempt from sales tax. You are now asking if "port-a-johns" would also be
considered a service that is tax-exempt (it is called for in our contract)?
Additionally, you are asking about the transportation costs that you get
charged by the person who delivers your gravel to the site?

Response: A contractor owes tax on the rental of portable toilets used in the
performance of contracts to improve real property for exempt entities even if
the contract requires the contractor to have portable toilets at the job site.
Texas Tax Code Sec. 151.311 only provides an exemption for tangible personal
property actually incorporated into the realty or for tangible personal
property that is necessary and essential for the performance of the contract
and completely consumed at the job site. Tangible personal property is
completely consumed if after being used once for its intended purpose it is
used up or destroyed. Tangible personal property that is rented or leased for
use in the performance of the contract is specifically excluded from the
exemption.

The Comptroller's policy, since June of 1988, has been to exempt the sale of
"unprocessed" sand dirt, gravel, and rock. A hauler of these non-processed
materials should not collect tax on transportation. The materials are
considered unprocessed if they have been merely sorted, sized, screened,
washed, and/or dried. The sale of the same materials in a processed state
(i.e., crushed or mixed with other materials) and the related transportation is
taxable.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please
call me toll-free at 1-800-531-5441, extension 3-4502. The direct line is
512/463-4502. You may also write to Tax Policy Division, Comptroller of Public
Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division