Does a Texas soil remediation company owe sales tax on its cleanup service, on materials it uses, or on remediated soil it later sells?

Subject

Soil/Dirt — Sale After Reclamation/Decontamination/Remediation Services — Materials Used

Plain-English summary

This 1992 Texas Comptroller letter answers four questions from a soil remediation company about how sales tax applies to its business.

First, the remediation service itself (cleaning up contaminated soil) is not a taxable service in Texas, so the taxpayer doesn't charge its customers sales tax on the cleanup work. Because the service isn't taxable, the company owes tax on the materials, supplies, and equipment it buys to perform that service, the same as any other non-taxable service provider.

Second, what happens to the soil afterward matters. If the soil is cleaned and simply left where it was (at the customer's site), that is not treated as a sale of tangible personal property, so no sales tax applies. But if the company hauls contaminated soil away, processes or treats it, and then sells that processed soil to a third party, the Comptroller treats this as a taxable sale of tangible personal property.

Third, because that resale situation makes the company a "processor" for tax purposes, materials that are necessary or essential and are directly used or consumed in the actual processing of soil destined for resale can qualify for Texas's manufacturing/processing exemption (citing Rule 3.300). But materials used for anything other than that actual processing step — including materials used to remediate soil that will not be sold — remain taxable.

Fourth, a "profile fee" the company charges (apparently a fee tied to characterizing or documenting waste) is also not taxable to the taxpayer's customers.

What this means for you

Environmental remediation and cleanup businesses

If you provide soil, water, or site remediation services in Texas, the service charge to your customer is generally not taxable. That means you're on the hook for sales/use tax on the equipment, chemicals, and supplies you use to perform the work — you can't buy those tax-free just because your service is exempt.

Businesses that also sell remediated material

The tax picture changes if you remove contaminated soil, treat it, and then sell it (rather than just cleaning it in place). That sale becomes a taxable sale of tangible personal property. The upside is that materials essential to the actual processing of soil you intend to resell may qualify for the manufacturing/processing exemption under Rule 3.300 — but you need to track which materials go toward soil sold to third parties versus soil remediated and left on-site, since only the former can qualify.

Accountants and tax professionals

This ruling is a good illustration of the "processor" analysis under Rule 3.300: exempt status for processing materials depends on the item being necessary/essential to actual processing of property held for resale, not merely used somewhere in the taxpayer's operations. It also draws a bright line between a nontaxable remediation service performed in place versus a taxable sale of the resulting processed material once it's removed and sold — a distinction that likely extends to other kinds of processing/resale businesses, not just soil remediation.

Common questions

Q: Do I need to charge my customers sales tax for soil remediation work?
A: No. This ruling treats soil remediation as a non-taxable service, so the charge to the customer for the cleanup itself is not subject to Texas sales tax.

Q: If I clean contaminated soil and leave it on the customer's property, is that a taxable sale?
A: No. Soil that is remediated and left at the site is not considered a sale of tangible personal property.

Q: What if I take the soil off-site, treat it, and then sell it?
A: That is a taxable sale. Once contaminated soil is removed, processed, and sold to a third party, the Comptroller treats the transaction as a sale of tangible personal property subject to tax.

Q: Can I buy my remediation materials and equipment tax-free?
A: Generally no, since the underlying service is non-taxable. However, materials that are necessary or essential and directly used or consumed in actually processing soil that will be sold to a third party can qualify for the manufacturing exemption under Rule 3.300. Materials used to remediate soil that isn't sold remain taxable.

Q: Is the "profile fee" mentioned in the ruling taxable?
A: No, the letter states the profile fee described by the taxpayer is not taxable to the taxpayer's customers.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209L1191E13

Original ruling text

September 4, 1992

Dear **:

Thank you for your letter concerning the taxability of soil remediation
services.

1) Is the service provided by taxpayer subject to the Texas sales tax?

Response: Soil remediation services are not taxable services to the taxpayer's
customers. The taxpayer should pay tax on all materials, supplies, and
equipment used in performing the non-taxable service.

2) Is the sale of the processed soil subject to sales tax?

Response: Soil that is remediated and left at the site is not considered a
sale of tangible personal property. If the soil is removed from the site,
remediated, and then sold to a third party, the soil is considered to be
processed and the sale to the third party is taxable.

3) Is taxpayer subject to sales tax on the purchase of materials that are used
in the decontamination process?

Response: The necessary or essential materials that are directly used or
consumed in the actual processing of the soil that is sold to third parties
qualify for exemption. See section (d) (3) (A) of the enclosed Rule 3.300 on
manufacturing. Taxable items used by a processor in any activities other than
the actual processing of tangible personal property held for sale are not
exempt. See section (c)(l) of Rule 3.300. Tax is due on materials directly
used or consumed in remediating soil that is not sold.

4) Is the profile fee subject to sales tax?

Response: The profile fee described in your letter is not taxable to the
taxpayer's customers.

I have also enclosed Rule 3.356 on real property services for your review.

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. 5-0030. The direct line is
512/475-0030. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Administration Division