Is lawn mowing and landscaping work on a public highway right-of-way taxable when a private developer, not the government, pays for it?

Plain-English summary

A tax professional wrote to the Comptroller's office asking whether lawn maintenance and landscaping services performed on FM 518, a public highway, were taxable. The company doing the work (Company A) was paid not by a governmental entity, but by Company B, a for-profit property developer whose land runs adjacent to the highway.

The letter-writer noted they had already been told informally — by phone with the Comptroller's Austin office and by a sales tax auditor in the Houston North Audit Office — that the work was not taxable, based on earlier guidance letters.

The Comptroller's Tax Administration Division explained that those earlier opinions relied on an older version of sales tax rule 3.356(a)(6), which exempted lawn maintenance on land "formally dedicated to or belonging to" a governmental entity. That rule had since been amended (effective December 6, 1991) and renumbered to 3.356(a)(5). The new version is narrower: it excludes from taxable "lawn and yard maintenance" only work on governmental land where the governmental entity requires the service.

Because of that change, the Comptroller said the real question is not who owns the land or who pays for the work, but whether the governmental entity actually required the lawn maintenance and landscaping. If the governmental entity required it, the work is not taxable and Company B could give Company A an exemption certificate instead of paying sales tax. If the governmental entity did not require it, Company A should collect sales tax on the charge, even though the work is being done on public right-of-way.

The letter is expressly limited to the facts presented and notes the opinion could change with different or additional facts.

What this means for you

Landscaping and lawn maintenance businesses

If you do lawn, yard, or landscaping work on land owned by a city, county, state agency, or other governmental entity, don't assume the job is automatically tax-exempt just because the land belongs to the government. Under the current rule discussed in this letter, the exemption applies only when the governmental entity requires the maintenance. If a private party (like a nearby property owner or developer) is paying for work on government-owned land voluntarily — not because the government required it — the charge is taxable and you should collect sales tax.

Property developers and other private payers

Paying for landscaping or mowing on adjoining public right-of-way (for example, to make your development look nicer) does not by itself make the service tax-exempt, even though the land itself belongs to a governmental entity. Ask whether the governmental entity that owns the land actually required the maintenance; if not, expect to be charged sales tax and be prepared to pay it rather than issue an exemption certificate.

Accountants and tax professionals

This letter is a useful reminder that a 1991 rule amendment narrowed former Rule 3.356(a)(6) (exempting maintenance on land "belonging to" a governmental entity) into the current Rule 3.356(a)(5) (exempting maintenance only when "required by" the governmental entity). Older guidance letters based on the pre-amendment rule language may no longer reflect current policy — exactly what happened here, where an auditor had relied on outdated correspondence. Confirm which version of the rule applies to the period at issue, and document whether the governmental entity actually required the service before advising a client the work is exempt.

Common questions

Q: Is lawn mowing or landscaping on government-owned land always tax-exempt?
A: No. Under the rule discussed in this letter (34 Tex. Admin. Code Rule 3.356(a)(5)), it's exempt only if the governmental entity that owns the land requires the maintenance. Simply performing work on land belonging to a government is not enough by itself.

Q: Does it matter that a private company, not the government, paid for the work?
A: Not according to this letter. The Comptroller focused on whether the governmental entity required the service, not on who paid for it. A private developer can pay for the work and it can still be exempt, if the governmental entity required it — or it can be taxable even though the work benefits public land, if the government didn't require it.

Q: What if the exemption applies — how does the contractor avoid charging sales tax?
A: The letter states that if the services are required by the governmental entity, the payer (here, Company B) may issue an exemption certificate to the service provider (Company A) in lieu of paying sales tax.

Q: Why did earlier advice from the Comptroller's office and an auditor say the work was non-taxable?
A: That earlier advice relied on a prior version of the rule, formerly numbered 3.356(a)(6), which exempted maintenance on land "formally dedicated to or belonging to" a governmental entity — a broader, ownership-based test. That provision was amended effective December 6, 1991 and renumbered to (a)(5), replacing the ownership test with a requirement that the governmental entity require the service.

Q: Can I rely on this exact letter for my own situation?
A: No. Per the disclaimer, a STAR letter like this one can only be relied on by the taxpayer it was actually issued to, and it may no longer reflect current Comptroller policy. Confirm current rule language and get your own guidance for your specific facts.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.356(a)(5) — "Lawn and yard maintenance" excludes maintenance on land belonging to a governmental entity when the service is required by the governmental entity (effective December 6, 1991; formerly numbered (a)(6), which used a "formally dedicated to or belonging to" standard).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9211L1204B11

Original ruling text

November 18, 1992

Dear ***:

Thank you for your letter regarding the taxability of certain lawn maintenance
and landscaping services provided by one of your clients, COMPANY A.

You state that COMPANY A performs lawn maintenance and landscaping services to
FM 518, a public highway. COMPANY A's customer, the entity who pays for the
services to the highway, is COMPANY B, a for-profit corporation. COMPANY B is
a large property developer in CITY, Texas and FM 518 runs adjacent and near to
property it owns.

You further state that you telephoned the Comptroller's office here in Austin
for a taxability ruling in this matter and were informed that the services were
not taxable. You further questioned a sales tax auditor in the Houston North
Audit Office who, after researching the case, confirmed the non-taxable nature
of the work at issue. You included with your request for a written ruling from
us copies of letters from the Tax Administration Division upon which the
auditor based his opinion.

The opinions you have been given are based on what is now sales tax rule 3.356
(a) (5). This provision was most recently amended effective December 6, 1991,
and was formerly (a) (6). It now reads, in pertinent part:

(5) Lawn and yard maintenance. The term does not include...maintenance on land
belonging to a governmental entity when the service is required by the
governmental entity.

During the period when the letters relied upon by the Houston auditor were
written, the provision read, in pertinent part:

(6) Lawn maintenance. The term does not include . . maintenance on land
formally dedicated to or belonging to a governmental entity.

Under the current rule, therefore, the determinative issue is whether the lawn
maintenance and landscaping services provided by COMPANY A to FM 518 are
required by a governmental entity. If so, they are not taxable and COMPANY B
may issue an exemption certificate to COMPANY A in lieu of sales tax. If the
services are not required by a governmental entity, however, COMPANY A should
collect sales tax.

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

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialists toll free at
1-800-252-5555.

Sincerely,

Vic Hinterlang
Tax Administration Division