Sales Tax State Activity Update - June 2005

Texas Lays Down Taxability on Piping Activities

The Texas Comptroller of Public Accounts recently ruled that labor associated with pipeline replacement is nontaxable, but final clean-up charges are taxable real property repair services.

An international pipeline company paid sales tax to vendors for replacing pipe in several trenches. Pursuant to Federal regulations, the new pipe was required to be replaced at a lower depth. In order to replace the pipe at a lower depth, additional excavation to existing trenches was required. In addition to replacement of pipelines, the company paid sales tax to vendors for final clean-up services related to the replacement activity. The international pipeline company applied for a refund of sales tax paid to vendors for labor and clean-up services.

Texas sales and use tax laws and regulations provide that new construction labor is nontaxable while real property remodeling or restoration labor is taxable. Previous decisions of the Comptroller indicate relocation of a pipeline is considered nontaxable and a relocation results when pipe is replaced in new trenches adjacent to the old or in the same trenches to an increased depth. In the instant case, the trenches were increased from a depth of twenty inches to thirty inches. Therefore, a refund of sales tax for new construction services is granted. The claimant provided insufficient information related to the clean-up services and the refund of sales tax paid for such services is denied.

The full text can be viewed here.

(Texas Comptroller of the Public Accounts Hearing No. 44,134, 2/24/2005)

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