If a city installs speed bumps in a neighborhood and bills the private citizens or businesses who requested them, does the city have to collect sales tax on that charge?

Subject

Speed Bumps Installed By City And Billed To Requesting Citizens — No Sale, So No Sales Tax Collection Required

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9311L1272A05

Plain-English Summary

A city asked the Comptroller whether it needed to bill, collect, and remit sales tax when it charges private businesses, citizens, and neighborhood groups for installing speed-reducing road bumps in their neighborhoods. City employees do the actual installation work.

The Comptroller's response has two parts:

1. Installing speed bumps is a taxable service. The letter confirms that installing speed bumps counts as remodeling of nonresidential realty, which is a taxable service under Texas sales tax rules.
2. But the city still doesn't have to collect tax on these particular charges. Even though the underlying work is a taxable service, the Comptroller found that the city is not required to collect sales tax on the amounts billed to the citizens, businesses, or neighborhood groups. The reasoning: no "sale" occurred between the city and the requesting parties. Instead, the city is being reimbursed for the cost of remodeling the public streets — streets the city itself owns and improves. Since the transaction is a reimbursement rather than a sale of a taxable service to the citizen or business, there is nothing to charge tax on.

The letter title in the stub references "no parking" signs as well, but the body of this particular letter (Accession No. 9311L1272A05, formerly 9311167L.2 and/or 9311167L) discusses only speed bumps.

What This Means For You

If you're a city or municipality billing residents or businesses for street improvements like speed bumps: This letter indicates you may not need to collect sales tax on those reimbursement charges, even though the installation work itself (remodeling of nonresidential realty — here, public streets) is a taxable service in Texas. The key distinction the Comptroller drew is between a taxable "sale" of the service to the requesting party and a "reimbursement" to the city for improvements the city makes to property it owns and controls.

If you're a private business, citizen, or neighborhood group being billed by a city for a similar improvement: Based on this letter, you should not expect to see sales tax added to that bill, because the Comptroller treated the charge as a reimbursement rather than a taxable sale.

Caution on scope: This is a 1993 letter ruling addressing one specific city's specific billing arrangement for speed bumps. It does not cite any statute or rule, and letters on STAR can be relied upon only by the taxpayer who received them (see the disclaimer below). Facts that differ — for example, if a private contractor rather than city employees performed the installation, or if the arrangement were structured as a direct sale of a taxable service rather than a reimbursement of city costs — could produce a different answer, as the letter itself notes ("Different facts, though similar, may result in different answers").

Q&A

Q: Is installing speed bumps a taxable service in Texas?
A: Yes. This letter states that the installation of speed bumps is considered remodeling of nonresidential realty, which is a taxable service.

Q: If speed bump installation is taxable, why doesn't the city have to collect sales tax when it bills citizens for it?
A: Because, according to this letter, no "sale" took place. The Comptroller characterized the charge as the city being reimbursed for remodeling public streets, not as the city selling a taxable service to the citizen, business, or neighborhood group being billed.

Q: Who installs the speed bumps in the scenario this letter addresses?
A: City employees install the speed bumps, per the facts stated in the letter.

Q: Does this ruling also address "no parking" signs, as the filename suggests?
A: No. The body of this specific letter discusses only speed-reducing road bumps; it does not mention "no parking" signs.

Original ruling text

November 29, 1993

Dear **:

This is in response to your letter dated November 15, 1993, regarding sales tax
as it applies to the facts below.

FACTS: Private businesses, citizens, and neighborhood groups are charged by
the City of * to install speed-reducing road bumps in their neighborhood.
The speed bumps are installed by city employees.

QUESTION: When billing the private businesses citizens, and neighborhood
groups, should the city bill, collect, and remit sales tax on the charges?

RESPONSE: Although the installation of the speed bumps is considered
remodeling of nonresidential realty (which is a taxable service), the City of
** is not required to collect sales tax on the charges billed to citizens
because a sale did not occur. The city is being reimbursed for remodeling of
public streets.

This opinion is based on the facts presented. Different facts, though similar,
may result in different answers. If you have any questions or need more
information, please write or call me at 1-800-531-5441, extension 50330, or
512-475-0330.

Sincerely,

Bettie Peterson
Tax Administration Division

NOTE: Previous Accession Number 9311167L.2 and/or 9311167L