A company tests underground storage tanks for leaks using a van equipped with a computer, to help customers comply with Texas Water Commission leak-detection regulations. Should the company be collecting sales tax on these testing charges?

Plain-English summary

A company that tests underground storage tanks (USTs) for leaks — using a 1990 Ford van equipped with the necessary equipment and a computer — asked the Comptroller whether it should be collecting sales tax on its testing services. The testing is performed to help the company's customers comply with regulations set by the Texas Water Commission.

The Comptroller ruled that charges for testing whether an underground storage tank leaks contained product beyond the amount allowed by Texas Water Commission standards or other regulatory standards are not taxable. However, the testing company itself owes tax at the time of purchase on all materials, equipment, and supplies it uses to perform the testing services. The letter also notes that if the company performs any other services for customers that may be taxable, the charges for the (nontaxable) testing services must be separately stated from the charges for the other taxable services, and it references Rule 3.357 regarding nonresidential repair or remodeling services in that context.

What this means for you

Underground storage tank testing and environmental services companies

If your business tests USTs for leaks to help customers meet Texas Water Commission (or other regulatory) leak standards, your charges for that specific testing service are not subject to Texas sales tax. But you can't treat your own purchases the same way — tax is due when you buy the equipment, materials, and supplies you use to perform the testing.

Businesses that also perform taxable services alongside UST testing

If your company bundles UST leak testing with other services that are taxable (for example, nonresidential repair or remodeling work, which the letter points to via Rule 3.357), you need to separately state the testing charges from the taxable service charges on invoices — otherwise the whole charge could be at risk of being treated as taxable.

Accountants and tax professionals advising testing companies

This letter is a narrow, facts-specific opinion about one company's mobile van-and-computer UST leak-detection service. It doesn't establish a blanket exemption for all environmental testing — it turns on the specific fact that the service is testing compliance with Texas Water Commission (or similar) leak standards, and it still requires accurate invoice separation whenever other taxable services are involved.

Common questions

Q: Is my charge to test an underground storage tank for leaks subject to Texas sales tax?
A: Based on this letter, no — charges to test whether a UST leaks more product than allowed by Texas Water Commission standards or other regulatory standards are not taxable.

Q: Do I owe tax on the equipment I use to perform UST leak testing?
A: Yes. The testing company owes tax at the time of purchase on all materials, equipment, and supplies used to perform the testing services.

Q: If I also do taxable repair or remodeling work for the same customer, does that affect my nontaxable testing charges?
A: You need to separately state the charges for the (nontaxable) testing services from the charges for the other taxable services. The letter encloses Rule 3.357 on nonresidential repair or remodeling services on this point.

Q: Can another UST testing company rely on this letter for its own operations?
A: No. The letter states the opinion is based on the facts presented, and if there are additional or different facts, the opinion may change. STAR letters can only be relied upon by the taxpayer to whom they were issued.

Q: What kind of testing equipment did the company in this letter use?
A: A 1990 Ford van equipped with the necessary essentials and a computer to perform the leak-detection tests.

Citations and references

• Rule 3.357 — referenced in the letter as an enclosure regarding nonresidential repair or remodeling services, relevant if the testing company also performs other taxable services that must be separately stated from the nontaxable testing charges.

No other statutes or rule numbers were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9208L1191D13

Original ruling text

August 31, 1991

Dear ***:

Thank you for your letter questioning whether you should be collecting sales
tax on your services to test underground storage tanks to comply with the
regulations set forth by the Texas Water Commission. You stated that your
equipment consists of a 1990 Ford van equipped with all the necessary
essentials and a computer to perform these tests.

Your company's charge to test whether underground storage tanks leak the
contained product more than allowed by Texas Water Commission standards or
other regulatory standards is not taxable. Your company owes tax at the time
of purchase on all materials, equipment, and supplies used to perform these
services.

If your company also performs any other services for your customers that may be
taxable, the charges for the testing services must be separately stated from
the charges for the other taxable services. I have enclosed Rule 3.357
regarding nonresidential repair or remodeling services.

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

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

Sincerely,

Tax Administration Division
JULY 20, 1992