Is installing a vapor recovery system on an existing underground fuel tank taxable as remodeling, or exempt as new construction?

Subject

Installing A Vapor Recovery System On An Underground Fuel Tank: New Construction Or Taxable Remodeling?

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9308L1254B01

Plain-English Summary

A taxpayer wrote in about installing vapor recovery systems on fuel tanks, asking whether the job should be treated as new construction or as remodeling, and whether it could qualify for the exemption in Section 151.338 of the Texas Tax Code.

The Comptroller's answer turns on timing. If the vapor recovery system is attached to an existing underground fuel tank, the job is remodeling of nonresidential real property, and tax is due on the entire sales price billed to the customer. If instead the vapor recovery system is installed at the time the tank itself is originally put in, or if an existing underground storage tank is dug up and replaced with a new tank that already contains the vapor recovery system, the job is new construction.

Either way, the letter explains that the Section 151.338 exemption does not apply, because an underground storage tank is an improvement to real property — and that exemption only covers services to repair or remodel tangible personal property, not real property.

The letter closes with the standard note that the opinion is based on the facts presented, and that additional or different facts could change the result.

What This Means For You

Timing decides the tax treatment. For businesses that install or service vapor recovery systems on underground fuel tanks, whether the job is taxable remodeling or non-taxable-under-151.338-but-still-new-construction depends on whether the system goes onto an existing tank (remodeling — taxable on the full sales price) or is installed alongside a brand-new or replacement tank (new construction).

The Section 151.338 repair/remodel exemption won't help here either way. Even for the new-construction scenario, the letter is clear that Section 151.338 does not apply to this type of job, because an underground storage tank is real property, not tangible personal property, and that exemption is limited to repair or remodeling services performed on tangible personal property.

Tax applies to the entire sales price for remodeling jobs. When the vapor recovery system is added to an existing tank, the letter states tax is due on the entire amount billed to the customer for the job — not just a portion of it.

Q&A

Q: Is installing a vapor recovery system on an existing underground fuel tank taxable?
A: Yes. The letter states the job is remodeling of nonresidential real property when the vapor recovery system is attached to an existing underground fuel tank, and tax is due on the entire sales price billed to the customer.

Q: When is the installation treated as new construction instead?
A: When the vapor recovery system is installed at the time of the original installation of the tank, or when an existing underground storage tank is excavated and replaced with a new tank that contains the vapor recovery system.

Q: Does the Section 151.338 exemption apply to this job?
A: No. The letter says the exemption in Section 151.338 does not apply because an underground storage tank is an improvement to real property, and that section only exempts services to repair or remodel tangible personal property.

Q: How much of the sales price is taxable when the job is remodeling?
A: The entire sales price billed to the customer, according to the letter.

Q: Does this letter apply to every vapor recovery installation?
A: No. The letter states the opinion is based on the facts presented, and that any additional or different facts could change the opinion.

Original ruling text

August 17, 1993

Dear ***:

Thank you for your letter of July 22, 1993, regarding the installation
of *** vapor recovery systems on fuel tanks. You question whether
the job is considered new construction or remodeling. Also, you asked
if the job could be covered by the exemption provided in Section
151.338 of the Texas Tax Code.

The job is remodeling of nonresidential real property if the vapor
recovery system is attached to an existing underground fuel tank. As
such, tax is due on the entire sales price billed to your customer.

The job would be considered new construction if the vapor recovery
system were installed at the time of the original installation of the
tank. Or, the service would be new construction if an existing
underground storage tank were excavated and replaced with new one
containing the vapor recovery system.

Because an underground storage tank is an improvement to real
property, the exemption in Section 151.338 does not apply. This
section only provides an exemption for services to repair or remodel
tangible personal property.

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

If you have any questions or need additional information, you may call
toll free 1800-531-5441, ext. 50037. The regular Austin number is
512-475-0037. You also may write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division

NOTE: Previous Accession Number 93070064L.2