Texas Letter Ruling 9209L1195G05: Grounds Cleaning — Around Structures/Units That Are Not Buildings — Taxable Cleaning Services

Subject

Grounds Cleaning — Around Structures/Units That Are Not Buildings — Taxable Cleaning Services

Plain-English summary

A chemical manufacturer hired a contractor to clean up around its manufacturing units — picking up used materials like spent welding rods and used rags. The manufacturing units were not inside a building; they sat in a steel-frame structure called a "pipe rack" that had no roof or walls, with the equipment physically built into the pipe rack. Small control rooms were located within the manufacturing units, and the whole manufacturing area was on a separate part of the same plot of land as the office building, split off by a road.

The taxpayer asked whether this cleanup service was taxable as building or grounds cleaning, janitorial, or custodial service.

The Comptroller's office ruled that it is a taxable real property service, and that it fits under both waste collection and grounds cleaning. The response explained that Rule 3.356(a)(7) lists examples of building or grounds cleaning but is not meant to be an exhaustive list. Critically, the fact that the cleaned property was not within a certain distance of a building does not exempt the work from counting as grounds cleaning — in other words, the service doesn't have to happen near a "building" in order to be taxable grounds cleaning.

The letter notes that this conclusion is based on the specific facts presented, and that other, even similar, facts could lead to a different result.

What this means for you

Manufacturing and industrial facility operators

If you hire a contractor to clean debris, used materials, or waste from around process equipment, pipe racks, or other structures on your plant grounds, don't assume the service escapes tax just because that equipment isn't inside a "building." This ruling treats grounds cleaning and waste collection around non-building structures as taxable in the same way as cleaning around an actual building.

Cleaning and waste-collection contractors

If your services include picking up used materials (spent parts, rags, debris) around a client's outdoor equipment or structures, that work can be taxable as grounds cleaning or waste collection, regardless of whether the equipment sits inside a conventional building or in an open structure like a pipe rack.

Accountants and tax professionals

The ruling relies on 34 Tex. Admin. Code Rule 3.356(a)(7)'s (non-exhaustive) list of examples of building or grounds cleaning, and confirms that proximity to a "building" is not required for the grounds-cleaning tax to apply. Remember that this is a fact-specific letter ruling: the Comptroller expressly cautions that other, similar facts may yield different results.

Common questions

Q: Is cleaning around equipment that isn't inside a building automatically exempt from tax?
A: No. This ruling holds that cleaning around manufacturing units housed in an open steel pipe rack (no roof or walls) is still a taxable real property service, fitting under both waste collection and grounds cleaning.

Q: Does the property need to be within a certain distance of a building to count as taxable grounds cleaning?
A: No. The ruling states directly that the fact the cleaned property is not within a certain number of feet of a building does not exempt the work from being grounds cleaning.

Q: What kind of activity was at issue here?
A: A contractor picking up used materials such as spent welding rods and used rags around a chemical manufacturer's manufacturing units.

Q: Can I rely on this letter for my own situation?
A: Only if you were the taxpayer who received it. Per the disclaimer, STAR letters can be the basis of detrimental reliance only for the taxpayer to whom they were directly issued, and the ruling itself notes it is based on the facts presented — other, similar facts may yield a different result.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.356(a)(7) (examples of building or grounds cleaning services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209L1195G05

Original ruling text

September 21, 1992

Dear **:

Thank you for your recent letter which is restated in part with response below.

Facts: A chemical manufacturer hires a contractor to cleanup around the
manufacturing units. This consists of picking up used materials such as spent
welding rods, used rags, etc. The manufacturing units are not located within a
building but, rather in a steel frame structure, called a pipe rack that does
not have a roof or walls. All the equipment is physically incorporated into
the pipe rack. There are small control rooms located within the manufacturing
units. The manufacturing area of the plant is located in a separate area from
the office building area but all are within the same plot of land. A road
separates the manufacturing area from the office building area.

Question: Is the service of "cleaning around manufacturing units," taxable as
building or grounds cleaning, janitorial, or custodial service?

Response: This is a taxable real property service and appears to fit under
both waste collection and grounds cleaning.

Rule 3.356(a)(7) gives examples of building or grounds cleaning, but it is not
intended to be exhaustive. The fact that the property cleaned is not within a
certain number of feet of a building does not serve to exempt the work from
being grounds cleaning.

This opinion is based on the facts you presented. Other facts, though similar,
may yield different results.

If you have questions or need more information, please call or write. You may
reach me by calling toll free, (800) 531-5441. My direct line number is (512)
463-4680. The number for FAX transmissions is (512) 475-0900. You may write
to me in care of Tax Administration Division.

Al Van Allen
Tax Administration Division