Is filling and plugging an abandoned underground storage tank (UST) in place, including removing residual product and disposing of it, a taxable service in Texas?

Plain-English summary

A company asked the Texas Comptroller whether the work it does to abandon underground storage tanks (USTs) "in place" is a taxable service. The described work involved three steps: (1) using vacuum trucks to remove leftover product from the tanks, (2) disposing of the materials removed from the tanks, and (3) filling the tanks with concrete, plus the labor to perform this work.

The Comptroller ruled that this tank-filling-and-plugging service is not a taxable service, because it is "the functional equivalent of demolition." As a result, the company was not required to collect sales tax from its customers for performing this work.

The ruling also addressed the other side of the transaction: the company still had to pay sales tax to its own suppliers on any taxable items it bought, leased, or rented in order to provide this nontaxable service (for example, equipment or materials used in the vacuum-truck, disposal, and concrete-filling work).

The Comptroller noted the opinion was based on the facts presented, and that additional or different facts could change the result.

What this means for you

Environmental services and tank-abandonment contractors

If your business fills and plugs underground storage tanks in place (removing residual product, disposing of it, and filling the tank with concrete or similar material), this ruling treats that work as nontaxable demolition rather than a taxable service. You would not collect sales tax from the customer for that labor and service. However, you remain responsible for paying sales tax to your own suppliers on taxable items you purchase, lease, or rent to perform the job — you cannot pass that cost through as tax-exempt just because the end service is nontaxable.

Accountants and tax professionals advising these businesses

The key distinction in this letter is that "abandonment in place" work (vacuum removal of product, disposal, and filling/plugging with concrete) was classified as functionally equivalent to demolition, a nontaxable service, rather than as a taxable service such as repair or remediation. Because the letter is fact-specific and does not cite a statute or rule by number, confirm that a client's actual scope of work matches these facts (removal of product, disposal, filling with concrete, and associated labor) before relying on this classification, and remember the use-tax obligation on the contractor's own taxable purchases still applies.

Common questions

Q: Does the company have to charge its customers sales tax for filling and plugging an underground storage tank in place?
A: No. The Comptroller found this work to be the functional equivalent of demolition, which is not a taxable service, so the company was not required to collect sales tax from customers for it.

Q: Does that mean the company pays no sales tax at all on this work?
A: Not quite. The company still must pay sales tax to its own suppliers on all taxable items it buys, leases, or rents to provide the tank-filling and plugging service — the exemption applies to the service charged to the customer, not to the contractor's own taxable purchases.

Q: What work specifically was covered by this ruling?
A: Three tasks and their labor: (1) using vacuum trucks to remove product from the tanks, (2) disposing of the materials removed from the tanks, and (3) filling the tanks with concrete.

Q: Would this ruling still apply if the facts were different?
A: The Comptroller expressly stated the opinion is based on the facts presented and that the opinion may change if there are additional or different facts.

Citations and references

No statutes or rules are 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/9302L1227G13

Original ruling text

February 19, 1993

Dear ***:

Thank you for your recent letter regarding the abandonment in place of
underground storage tanks. You asked about the taxability of the
following work to be performed.

1) Vacuum trucks will remove the product from the tanks.

2) Disposal of materials removed from tanks.

3) Tanks will be filled with concrete.

4 ) Labor to perform above services.

Response: The tank filling and plugging service you describe is not a
taxable service. This work is the functional equivalent of demolition.
You are not required to collect sales tax from your customers for this
work.

You must pay sales tax to your suppliers on all taxable items bought,
leased, or rented to provide this nontaxable service.

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

If you have any questions or need more information, you may call me toll
free at 1-800-531-5441, extension 3-4633. The regular number is
512/463-4633. You may also write to the Tax Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division