Does a Texas hauler of dirt, sand, caliche, or rock have to charge sales tax on the material or on delivery charges?

Subject

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

Plain-English summary

A taxpayer asked the Texas Comptroller whether sales of gravel, sand, rock, and dirt are taxable. The Comptroller explained that a sale of tangible personal property is generally a taxable event under Section 151.005, but since June 1988 the agency's policy has been to exempt sales of "unprocessed" sand, dirt, and gravel.

The key question is whether the material has been "processed." Rule 3.300(a)(10) defines processing as physically applying materials and labor to modify or change the characteristics of tangible personal property. Processing includes crushing, mixing, cutting, or chipping. It does not include merely washing, drying, or sizing (screening material without resizing it).

Because cutting or chipping counts as processing, the letter points out that most rock haulers are actually handling processed — and therefore taxable — materials, even though the general policy exempts unprocessed dirt and gravel.

The letter also addresses transportation and delivery charges under Rule 3.303: hauling charges are only taxable when billed together with the sale, lease, or rental of a taxable item. So a hauler moving only unprocessed (exempt) material should not collect tax on the delivery charge. Likewise, a third-party carrier who is only providing transportation — and not selling the material being delivered — should not collect tax on its charges either.

The letter also notes that dirt and gravel haulers used to be addressed in a specific subsection (Section (e)) of the June 13, 1988 version of Rule 3.291 on contractors, but that language had been removed from the current rule at the time of this letter, and the Comptroller enclosed the old text for the requester's reference.

What this means for you

Dirt, sand, and rock haulers

Whether you need to collect sales tax depends on what has been done to the material, not just that you're hauling loose aggregate. If the material has only been dug up, washed, dried, or screened to size, it's still "unprocessed" and exempt. If it has been crushed, mixed, cut, or chipped, it's processed and taxable — and the Comptroller specifically flags that this catches most rock haulers, since cutting or chipping rock is a common step.

Delivery and transportation charges

Your delivery charge follows the taxability of the material. If you're hauling exempt unprocessed material, don't charge tax on the delivery. If you're hauling taxable processed material and you're also the seller, the delivery charge billed with that sale is taxable. If you're strictly a third-party trucking company that isn't selling the material, your hauling charge isn't taxable regardless of whether the material itself is processed.

Accountants and tax professionals

This letter is a useful illustration of how Rule 3.300(a)(10)'s definition of "processing" gets applied to raw construction aggregates, and how Rule 3.303's rule on transportation charges (taxable only when tied to a taxable sale) interacts with it. Note that the letter references a since-removed subsection of the June 13, 1988 version of Rule 3.291 dealing specifically with dirt and gravel haulers — worth checking current rule text, since this letter itself says that language no longer appeared in the rule as of 1992.

Common questions

Q: Is unprocessed dirt or gravel taxable in Texas?
A: No. Since June 1988, the Comptroller's policy has been to exempt sales of unprocessed sand, dirt, and gravel from sales tax.

Q: What counts as "processing" that makes the material taxable?
A: Crushing, mixing, cutting, or chipping. Washing, drying, or screening material to size (without resizing it) does not count as processing.

Q: Why does the letter say "most rock haulers" handle taxable material?
A: Because cutting or chipping is treated as processing, and much of the rock that haulers move has been cut or chipped, which pushes it into the taxable, processed category even though loose dirt and gravel are generally exempt.

Q: Do I have to charge tax on my delivery charge?
A: Only if the delivery charge is billed along with the sale, lease, or rental of a taxable item. A hauler of nonprocessed (exempt) material should not collect tax on the hauling charge, and a third-party carrier who isn't selling the material at all shouldn't either.

Q: Can I rely on this letter for my own business?
A: This letter was written for a specific requester based on the facts they presented, and the Comptroller notes the opinion could change if the facts are different. It's useful for understanding the agency's reasoning, but you should confirm current treatment for your own situation.

Citations and references

• Tex. Tax Code § 151.005 (sale or transfer of tangible personal property for consideration is a taxable event)
• 34 Tex. Admin. Code § 3.300(a)(10) (definition of processing)
• 34 Tex. Admin. Code § 3.291(e), June 13, 1988 version (dirt and gravel haulers; not present in the rule as of this 1992 letter)
• 34 Tex. Admin. Code § 3.303 (taxability of transportation and delivery charges)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207361L

Original ruling text

July 21, 1992

Dear **:

Thank you for your letter of June 19, 1992, concerning the taxability of sales

of gravel, sand, rock and dirt.

Section 151.005 of the Sales, Excise, and Use Tax Statute states that the sale

or transfer of tangible personal property for consideration is a taxable event.

However, since June of 1988 the Comptroller's policy has been to exempt the

sale of "unprocessed" sand, dirt and gravel. Rule 3.300 (a) (10) defines

processing as the physical application of the materials and labor necessary to

modify or to change the characteristics of tangible personal property. Dirt and

gravel haulers were discussed in Section (e) of the June 13, 1988 version of

Rule 3.291concerning contractors. This section does not appear in the current

rule. The old Section (e) has been enclosed for your review.

Processing includes crushing, mixing, cutting or chipping. Merely washing,

drying, or sizing (screening of materials, not resizing) are not considered

processing for these purposes. Due to the inclusion of cutting or chipping as

processing activities, most rock haulers actually are handling processed

materials.

Enclosed Rule 3.303 discusses the taxability of transportation or delivery

charges. These hauling charges are taxable only when billed in conjunction with

the sale, lease or rental of a taxable item. As a result, a hauler of non

processed materials should not collect tax. A hauler that is a third party

carrier, only providing transportation and not selling the item being

delivered, would also not collect taxes on their charges.

This opinion is based on the facts presented. If there are additional or

different facts, the opinion may change.

You may call me toll free at 1-800-252-5555, ext. 5-0613. The direct line is

512/475-0613.

You may also write to Tax Administration Division, Comptroller of Public

Accounts.

Sincerely,

Kevin Koller

Tax Administration Division