Is dredging (removing mud, sand, or silt) from a river, channel, pond, or boat slip subject to Texas sales tax?

Plain-English summary

A marine dredging company asked the Comptroller how sales tax applies to its dredging work. The company does both new construction and maintenance of existing facilities, moving mud, sand, and silt from channels, rivers, ponds, and boat slips, often to a spoil area for disposal.

The Comptroller drew a line based on whether the waterway's configuration changes:

• Not taxable: dredging done at a new construction site, and dredging done to remove sand or silt from a naturally occurring river, lake, or channel without changing the configuration of the watercourse.
• Taxable as real property repair, remodeling, or restoration: dredging a man-made waterway (like a man-made pond or boat slip), or dredging a naturally occurring river, lake, or channel that has been widened, deepened, or otherwise reconfigured.

Separately, the letter addresses the disposal side of the job. Removing and disposing of the dredged material is classified for tax purposes as "solid waste disposal," which is taxable unless the waste fits one of the exceptions in Rule 3.356(a)(3)(A)–(E), Real Property Services. And if a single lump-sum charge combines taxable and nontaxable work, the whole charge is taxable unless the taxable portion is 5% or less of the total.

What this means for you

Dredging and marine construction contractors

Whether your dredging charge is taxable depends on the specific job, not just the fact that you're dredging. New-construction dredging and maintenance dredging of a natural, unmodified waterway are not taxable. But if the job involves widening, deepening, or reconfiguring a natural waterway, or working a man-made pond or boat slip, the dredging itself becomes taxable real property repair/remodeling/restoration.

Billing and invoicing

Keep taxable and nontaxable dredging/disposal charges separated on invoices where possible. If you lump a taxable charge (e.g., solid waste disposal that doesn't meet a Rule 3.356 exception) together with a nontaxable charge (e.g., dredging silt from a natural, unmodified river) into one lump sum, the entire lump sum becomes taxable unless the taxable part is 5% or less of the total.

Marina and waterfront property owners

If you hire a contractor to dredge a man-made boat slip or pond on your property, expect that charge to be treated as taxable real property repair, remodeling, or restoration — distinct from dredging of a natural waterway left in its original configuration.

Solid waste disposal from dredging

The removal and disposal of dredged mud, sand, or silt is its own taxable category ("solid waste disposal") separate from the dredging activity itself, unless the waste meets one of the specific exceptions in 34 Tex. Admin. Code § 3.356(a)(3)(A)-(E).

Common questions

Q: Is dredging a river or channel always taxable in Texas?
A: No. If it's done at a new construction site, or removes sand/silt from a naturally occurring river, lake, or channel without changing its configuration, the dredging charge is not taxable.

Q: When does dredging become taxable?
A: When it's done on a man-made waterway (like a man-made pond or boat slip), or when a naturally occurring river, lake, or channel is widened, deepened, or otherwise reconfigured — then it's taxable as real property repair, remodeling, or restoration.

Q: Is disposing of the dredged material taxed the same way as the dredging itself?
A: No, it's a separate category. Removing and disposing of the dredged mud, sand, or silt is classified as "solid waste disposal," which is taxable unless it meets one of the exceptions in Rule 3.356(a)(3)(A)-(E).

Q: Can I combine a taxable and a nontaxable dredging-related charge into one invoice line?
A: You can, but if you do, the whole lump sum is taxable unless the taxable portion is 5% or less of the total charge.

Q: Can this company (or anyone else) rely on this letter for a different dredging job?
A: Only the taxpayer this letter was issued to may rely on it, and even then only for the facts presented — the letter states the opinion may change if there are additional or different facts.

Citations and references

• 34 Tex. Admin. Code § 3.356, Real Property Services (referenced as "the enclosed Rule 3.356" governing the solid waste disposal exceptions and real property repair/remodeling/restoration classification)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9206L1176D01

Original ruling text

June 10, 1992

Dear **:

Thank you for your recent letter concerning the taxing of dredging.

You stated: This company is involved in marine dredging; pipeline work,
building marina locations and other work which can be classified as dredging.
We are doing both new construction and maintenance of existing facilities. The
material moved from the dredging operation is often moved to a spoil area for
disposal.

Response: As I understand it, dredging involves removing and disposing of mud,
sand, silt, and similar materials from channels, rivers, ponds, boat slips, and
similar locations.

If the dredging is done at a new construction site, the charge for dredging is
not taxable.

If the dredging is being done to remove sand or silt from a naturally occurring
river, lake, channel, etc. without changing the configuration of the
watercourse or waterway, the charge for dredging is not taxable.

If dredging is done at a man-made waterway, such as a man-made pond or boat
slip, or in a naturally occurring river, lake, or channel that has been
widened, deepened, or any way reconfigured, the dredging activity is taxable as
real property repair, remodeling or restoration.

The activity of removing and disposing of the materials is classified, for tax
purposes, as "solid waste disposal." A charge for solid waste disposal is
taxable unless the waste meets one of the definitions in Subsections (a)(3)(A),
(B), (C), (D), or (E) of the enclosed Rule 3.356, Real Property Services.

If taxable (example: disposal of waste) and nontaxable (example: dredging silt
from a naturally occurring river) charges are lumped together into a single
charge, the total is taxable unless the taxable portion of the lump-sum charge
is 5% or less of the overall charge.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

If you have any questions or need more information, you may call me toll free
at 1-800-252-5555, extension 3-4633. The regular number is 512/463-4633. You
may also write to the Tax Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division