Is a dragline service that clears silt from a farm or ranch tail water pit subject to Texas sales tax?

Subject

Farm Or Ranch — Nonresidential Property — Repairs Or Remodeling Done To Existing Realty Is Taxable (Fences, Stock Tanks, Barns, Roads)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9402L1286G13

Plain-English Summary

The Comptroller addressed whether a dragline service — rented with an operator to remove silt from a farm or ranch tail water pit — is subject to Texas sales tax. The answer is yes. A tail water pit is treated as real property, and a farm or ranch is treated as commercial property. Because the dragline service repairs, restores, or remodels the tail water pit, it counts as taxable labor to remodel commercial real property under Rule 3.357.

The ruling also makes clear that labor to repair or remodel real property on a farm or ranch is not exempt, even though other farm and ranch purchases can qualify for exemptions under Rule 3.296. That means the vendor cannot accept an exemption certificate in good faith from a farmer or rancher for this kind of repair labor.

There is one narrow exception carved out in the letter: if the charge for disposing of or transporting the dredged silt is separately stated from the dredging labor itself, that disposal/transportation charge is not taxable as garbage collection or disposal. Rule 3.356(a)(3), which governs real property services, specifically excludes "solid or dissolved materials in irrigation return flows" from the definition of "garbage or other solid waste."

What This Means For You

If you provide dragline, dredging, or similar dirt-work services on a farm or ranch: Charges for repairing, restoring, or remodeling existing real property — such as clearing silt from a tail water pit — are taxable, because farm and ranch structures are treated as commercial property for this purpose. Do not accept a farm exemption certificate for this type of repair labor.

If you are a farmer or rancher hiring this kind of service: Expect to pay sales tax on the labor portion of dredging or similar repair work to existing real property (fences, stock tanks, barns, roads, pits, etc. — as reflected in this ruling's subject classification), even though other farm-related exemptions exist under Rule 3.296.

If disposal/transportation is billed separately: Make sure the charge for hauling away or disposing of the dredged material is stated as a separate line item from the repair labor. That separately stated disposal/transportation charge is not taxable, per Rule 3.356(a)(3)'s exclusion for irrigation return flow materials.

Q&A

Q: Is a dragline service to remove silt from a farm's tail water pit taxable in Texas?
A: Yes. The Comptroller ruled the tail water pit is real property and the farm or ranch is commercial property, so the dragline service that repairs, restores, or remodels the pit is taxable under Rule 3.357.

Q: Can a farmer give the dragline company an exemption certificate to avoid the tax?
A: No. Labor to repair or remodel real property on a farm or ranch is not exempt, so the vendor cannot accept an exemption certificate in good faith for this service, even though Rule 3.296 provides other exemptions for farms and ranches.

Q: Is the charge for hauling away the dredged silt also taxable?
A: Not if it is separately stated. Rule 3.356(a)(3) excludes materials in irrigation return flows from the definition of "garbage or other solid waste," so a separately stated disposal or transportation charge for the dredged silt is not taxable as garbage collection or disposal.

Citations

• 34 Tex. Admin. Code § 3.296 (exemptions available to farms and ranches)
• 34 Tex. Admin. Code § 3.357 (commercial real property remodeling)
• 34 Tex. Admin. Code § 3.356(a)(3) (real property services; definition of "garbage or other solid waste" excludes irrigation return flow materials)

Original ruling text

February 6, 1994

Dear ****:

Thank you for your letter of January 18, 1994, concerning the taxability
of draglines rented with an operator to remove silt from tail water pits.

Labor to repair or remodel real property on a farm or ranch is not exempt.
Enclosed Rule 3.296 discusses exemptions that are available to farms and
ranches. You cannot accept exemption certificates in good faith from
farmers or ranchers for these services.

A tail water pit is considered real property. A farm or ranch is considered
commercial property. The dragline service repairs, restores, or remodels
the tail water pit. Your dragline service is taxable per enclosed Rule 3.357
concerning commercial real property remodeling.

The separately stated disposal or transportation of the dredged silt is
not taxable as garbage collection or disposal. Rule 3.356(a)(3), concerning
real property services, states that the term "garbage or other solid waste"
does not include solid or dissolved materials in irrigation return flows.

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

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct line
is 512/475-0613. You may also write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Kevin Koller
Tax Administration Division

NOTE: Previous Accession Number 9402065L