Are 'dial before you dig' underground-utility notification centers providing a taxable information service to the utility operators who fund them?

Plain-English summary

Texas law (the Underground Facility Damage Prevention and Safety Act, Utilities Code Chapter 251) requires statewide "notification centers" that connect excavators (anyone digging 16+ inches deep) with utility operators who have underground lines, cables, or pipelines in the area — reducing the risk of digging into them. A company operating one of these centers maintains a GIS map showing where subscribing utility operators have underground facilities; when an excavator calls before digging, the center checks the map and alerts every operator near that location. Excavators pay nothing; operators fund the whole system through a statutorily set per-notification fee. The company had received conflicting Comptroller guidance over the years — a 1993 letter versus a 2005 letter to a different notification center saying the service isn't taxable — and asked which guidance now controls.

The Comptroller confirmed the 2005, non-taxable position controls, formally superseding its own 1993 guidance to this same taxpayer. The reasoning: Texas taxes "information services" (electronic data retrieval, research, or furnishing of specialized information) only when there's an exchange of information for consideration. Here:

• The notification center gives excavators the safety-alert service for free.
• Utility operators DO pay a per-call fee, but that fee covers the center's operating costs and statutory responsibilities — it is not consideration paid in exchange for the underlying information itself.

Because no party is paying specifically for the information as such, the service falls outside the taxable information-service definition entirely.

What this means for you

Underground utility operators paying notification-center fees

Your per-notification fees are not subject to Texas sales tax as a taxable information service — the Comptroller has confirmed this specifically, and formally superseded an older, contrary 1993 position for one operator's situation.

Companies operating fee-funded public-safety information systems

The key distinction the Comptroller drew is between a fee that funds an operation's costs versus a fee paid specifically for the exchange of information. If your fee structure is more closely tied to covering a mandated public function than to selling data access, that supports non-taxable treatment — but the line can be fact-specific, so document how your fees are calculated and what they're described as covering.

Anyone still relying on this taxpayer's 1993 STAR guidance

Stop — this ruling explicitly states the 1993 guidance (STAR Accession No. 9311L1271F13) was superseded by the 2005 guidance (STAR Accession No. 200509266L), and this 2017 ruling confirms the 2005 position remains current.

Common questions

Q: Does charging a fee for a service automatically make it a taxable "information service" in Texas?
A: No — per this ruling, the fee has to be consideration paid specifically in EXCHANGE for the information; a fee that instead covers a provider's general operating costs isn't taxable as an information service.

Q: Do excavators who use a dial-before-you-dig service owe tax on it?
A: No — per this ruling, excavators receive the notification service for free, so there's no charge to tax on their side at all.

Q: If the Comptroller issued conflicting guidance to the same taxpayer years apart, which one controls?
A: The more recent one — per this ruling, the Comptroller expressly confirmed its 2005 non-taxable guidance superseded its own earlier 1993 guidance to the same taxpayer.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.0038 (Information Service defined)
• Tex. Tax Code § 151.0101 (Taxable Services — information services enumerated)
• 34 Tex. Admin. Code Rule 3.342(a)(6) (Taxable Information Services — requires an exchange for consideration)

Cited prior guidance:

• STAR Accession No. 9311L1271F13 (1993) — SUPERSEDED guidance to this same taxpayer
• STAR Accession No. 200509266L (2005) — controlling guidance confirmed by this ruling (notification center services not taxable)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201702006L

Original ruling text

February 9, 2017

RE: Private Letter Ruling #151970272

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters, [ENDNOTE 1] in response to your request dated July 15, 2015. Detrimental reliance relief is provided in accordance with Rule 3.10, the Taxpayer Bill of Rights.

You requested guidance on the Comptroller’s application of the term “information service,” as defined by Section 151.0038, to the service provided by notification centers operating under the Underground Facility Damage Prevention and Safety Act. Specifically, you asked whether the Comptroller continues to follow the guidance provided to your client, COMPANY A , in STAR Accession No. 9311L1271F13 (Nov. 29, 1993), or instead follows the guidance provided to another notification center in STAR Accession No. 200509266L (Sept. 19, 2005), which states that services provided by notification centers are not taxable.

This private letter ruling addresses the taxability of the services COMPANY A provides.

Facts Presented

Digging, drilling, tunneling and other similar activities risk damaging underground cables, lines, pipelines and conduits (underground facilities). To minimize the risk these activities pose, the Underground Facility Damage Prevention and Safety Act, codified as Texas Utilities Code, Chapter 251, authorizes the creation of statewide notification centers. Notification centers act as a conduit between persons who dig, drill, or otherwise disturb the soil to a depth of sixteen inches or more (Excavators) and the entities that operate underground facilities (Operators). All notification centers must be open 24 hours a day every day of the year to receive and disseminate emergency information.

COMPANY A operates NOTIFICATION CENTER established in accordance with Texas Utilities Code, Chapter 251. NOTIFICATION CENTER has a base map of its service area created using a geographic information system (GIS). Operators subscribe to NOTIFICATION CENTER and provide geo-coded information data files identifying the Operators’ desired areas of notification. These data files are incorporated into NOTIFICATION CENTER’s GIS base map.

When an Excavator contacts NOTIFICATION CENTER before commencing work on a project, as required by Chapter 251, NOTIFICATION CENTER compares the project location against the base map. NOTIFICATION CENTER then alerts all Operators with underground facilities at or near the excavation site, giving the Operators time to mark their lines.

Operators fund the notification centers; notification centers are not reimbursed by Excavators. Instead, Operators must pay a statutorily-established fee for each notification they receive.

Requested Ruling, Response and Analysis

Our restatement of the ruling you requested is shown below, followed by the response and analysis.

Requested Ruling: COMPANY A, through NOTIFICATION CENTER, is not providing a taxable information service.

Ruling: COMPANY A is not providing a taxable information service.

Analysis: In relevant part, Section 151.0038 defines an “information service” as electronic data retrieval or research and as the furnishing of general or specialized news or other current information, including financial information. Section 151.0101 provides that information services are taxable.

Rule 3.342(a)(6) describes “taxable information services” and states, “[i]nformation that is gathered, maintained, or compiled and made available by the provider of the information service to the public or to a specific segment of industry for a consideration is subject to sales tax.” The rule then provides examples of taxable information services, including newsletters, scouting reports and surveys, real estate listings, financial reports, news clipping and wire services, and abstracts of title and other information provided by title plants.

Generally speaking, an information service is taxable only if there is an exchange of information for consideration. Notification centers provide services to Excavators for no consideration. While notification centers charge Operators a fee on a per call basis, that fee covers the cost of the notification center’s responsibilities and activities, and is not consideration for an information service.

The guidance we provided COMPANY A in 1993 was superseded on September 22, 2005, when we issued STAR Accession No. 200509266L.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/taxhelp/ and reference Private Letter Ruling #151970272.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE

1. Unless otherwise indicated, all references herein to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code. Comptroller’s Decisions and STAR Documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at Comptroller.Texas.gov.