Is Texas sales tax due on bulldozer and trackhoe work to clear land or dig ponds, and does it matter whether the bulldozer-and-operator charge is billed as one lump sum or broken out into separate labor and equipment charges?

Plain-English summary

A land-clearing and excavation company asked the Comptroller's office how sales tax applies to work it performs with bulldozers and trackhoes, where nothing is hauled away from the job site.

Labor to clear land by uprooting trees or other obstacles in preparation for new construction — such as building a new building, road, or new pond — is not taxable. That covers most land-clearing jobs. But clearing underbrush as part of landscaping a yard or lawn is different: the total charge for that kind of job is taxed.

Digging a brand-new pond counts as new construction, so the labor charge for that is not taxed. Digging out an existing pond to remove sediment, or otherwise restoring or upgrading it, is treated instead as nonresidential repair or remodeling, and the total charge to the customer for that work is taxed.

Finally, when the labor itself is nontaxable, the way the company bills the customer determines what tax is owed on the equipment. If the company bills one lump-sum amount covering both the bulldozer and its operator (the letter gives an example of $5,000 for the bulldozer and operator together), the whole charge is not taxed. But if the company separately states the labor charge and the equipment charge (for example, $2,500 for the operator and $3,000 for the bulldozer), the equipment portion is taxable even though the labor portion remains untaxed. The letter references 34 Tex. Admin. Code Rule 3.294, the administrative rule governing equipment rentals.

What this means for you

Land-clearing, excavation, and landscaping businesses

Whether your bulldozer/trackhoe work is taxable turns on what the job accomplishes: clearing land or digging a new pond as part of new construction is nontaxable labor, while clearing underbrush for landscaping or dredging/restoring an existing pond is taxable as landscaping or nonresidential repair and remodeling. Keep clear records distinguishing new-construction jobs from landscaping or repair jobs.

Businesses that rent equipment with an operator

When your labor is nontaxable, how you invoice matters. Billing a single lump-sum price for equipment-plus-operator keeps the whole charge free of tax. Breaking the invoice into a separate line for the operator (labor) and a separate line for the equipment exposes the equipment line to sales tax, even though the labor line stays untaxed. If you want to avoid tax on the equipment rental portion, consider a lump-sum billing structure — but check current Comptroller guidance, since this letter is fact-specific and dated.

Accountants and tax professionals

This letter illustrates the Comptroller's general approach that new-construction labor (including clearing land and digging new ponds) is nontaxable, while nonresidential repair/remodeling labor (including dredging or restoring existing ponds) is taxable in full. It also shows the classic lump-sum-versus-separately-stated-charge distinction for equipment rentals under Rule 3.294: a lump sum for labor plus equipment shields the whole charge when the labor is nontaxable, but itemizing exposes the equipment charge to tax.

Common questions

Q: Is labor to clear land for new construction taxable in Texas?
A: No. Labor to clear land by uprooting trees or other obstacles in preparation for new construction — such as a new building, road, or pond — is not taxed.

Q: Is clearing underbrush for landscaping treated the same way?
A: No. Clearing underbrush as part of landscaping a yard or lawn is taxable, and the total charge for that type of job is taxed.

Q: Is digging a new pond taxable?
A: No, digging a new pond is new construction, so the labor charge is not taxed.

Q: What about digging out or restoring an existing pond?
A: That is taxed as nonresidential repair or remodeling (assuming the pond is not residential property), and the total charge to the customer is taxed.

Q: Does it matter whether I bill a lump sum or separate the labor and equipment charges?
A: Yes, when the labor is nontaxable. A lump-sum charge for the bulldozer and its operator is not taxed at all. If the operator (labor) and the bulldozer (equipment) charges are separately stated, the equipment charge is taxable even though the labor charge is not.

Citations and references

• 34 Tex. Admin. Code Rule 3.294 (equipment rentals)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9410L1321E04

Original ruling text

October 5, 1994

Dear ****:

I am responding to your letter questioning the application of tax to work
performed with bulldozers and trackhoes. You stated that you do not haul
anything away from the job site.

The charge for labor to clear land by uprooting trees or other such obstacles
in preparation of new construction is not taxed. New construction includes
any activity to build a new building, road, dig a new pond, or other new
improvement to realty.

Most jobs for clearing land are nontaxable as discussed in the previous
paragraph; however, clearing underbrush, etc., as part of a job to landscape
a yard or lawn is taxed. The total charge to the customer for these jobs is
taxed.

You also asked about digging a pond on your customer's property. Digging a
new pond is classified as new construction. The labor charge is not taxed.

Digging out an existing pond to clear out the sediment or other activity to
restore or upgrade the existing pond will be taxed as nonresidential repair or
remodeling. (Presumably the pond is not residential property.) The total
charge to the customer for this type work is taxed.

When the labor performed is nontaxable, the method of billing will determine
the sales tax responsibilities of your company. If you bill a lump-sum amount
($5000.00 for the bulldozer and operator), then the charge to your customer is
not taxed. If you bill a separated amount ($2500.00 for the operator and
$3000.00 for the bulldozer), the charge to the customer for the bulldozer is
taxed. The labor portion is not taxed. I have enclosed a copy of the
administrative section (Rule 3.294) dealing with equipment rentals.

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

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division

NOTE: Previous Accession Number 9410221L