Sales Tax State Activity Update - January 2004

Texas Contractor not Permitted Refund on Real Property Services

A residential home-builder (“contractor”) was denied refund claims for tax paid on the purchase of real property services to model homes and at construction sites where it could not show that, the model homes were not used for residential services, the waste generated at its construction sites was municipal waste and not industrial waste, and the contractor was charged based on the number of toilets rented rather than amount of waste removed.

The contractor maintains model homes, which are used for demonstration and display purposes and as sales offices. The models homes can be made available for sale at any time and are ultimately sold for residential use. During the period in question, the contractor purchased landscape, cleaning and lawn maintenance services for the model homes and rubbish and human waste removal services at its construction sites.

Taxable real property service includes landscaping, the care and maintenance of lawns, yards, or ornamental trees or other plants, the removal or collection of garbage, rubbish, or other solid waste other than hazardous waste or industrial solid waste, and building or grounds cleaning, janitorial, or custodial services. However, these services are not taxable real prop-erty services when the service is purchased by a contractor as part of the improvement of real property with a new structure to be used as a residence or other improvement immediately adjacent to the new structure and used in the residential occupancy of the structure.

The Comptroller ruled that the contractor would be entitled to a refund of tax it paid on cleaning and lawn maintenance services to the extent that such services were used to make the model homes ready for use as a residence, but not for cleaning and lawn maintenance services on model homes while they were used for other purposes, such as sales offices. In this case documentary evidence was insufficient to establish purchased services were used for other than residential purposes. Also, residential home construction materials are categorized by the Texas Commission for Environmental Quality (TCEQ), as municipal waste and not industrial solid waste and were therefore taxable. Finally, customers were not charged on the amount of sewage removed but rather on the number of toilets rented and thus the charge was not the service of removing waste but the rental of toilets.

Decision, Texas Comptroller of the Public Accounts, (Hearing No. 38,774), 9/24/0

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