Is erosion control work on a creek bank near a pipeline — including bulkheading, concrete mats, and rock or dirt fill — taxed as landscaping, new construction, or repair/remodeling of real property?

Plain-English summary

A taxpayer had a pipeline running underneath a naturally occurring creek or waterway. Over time, the bank had eroded, so the taxpayer hired a contractor to furnish labor, equipment, and supervision to haul in fill dirt and perform other work needed to establish a stable, permanent slope. The contractor's work included cutting and grading the west bank to create a new bank profile, installing and maintaining soil erosion and sedimentation control devices, and stabilizing the new bank by armoring it with an articulating concrete mat placed over geotextile fabric and secured with screw anchors.

The Comptroller's Tax Policy Division answered three questions about how this kind of work is taxed. First, installing permanent erosion control devices, like the concrete mat system described, is an improvement to realty. Second, simply adding or dumping dirt or rock into eroded areas of a creek bank — without more — falls within the scope of landscaping services, but because that work is not performed for aesthetic purposes, it is not taxable landscaping (this holds true whether it is done once or repeatedly). By contrast, adding dirt or rock together with other materials such as concrete or wire to create a permanent erosion control device (the letter gives gabions and bank mats as examples) is improving realty, and that work is taxed as new construction, residential repair or remodeling, or nonresidential repair or remodeling, depending on the situation. Any later additions of dirt, rock, or similar materials to that already-existing improvement are treated as repair, restoration, or remodeling of the device. Third, if the only erosion control done previously was adding soil or rock to the bank, then installing the concrete mat system described in the letter would be new construction, because it is the first permanent erosion control device installed on that naturally occurring waterway.

What this means for you

Contractors performing bank stabilization or erosion control work

Whether your work is taxable — and how — turns on what you actually install. Plain dirt or rock fill added to an eroded creek bank, without other materials, is treated as landscaping that is not taxable because it isn't done for looks. But as soon as you incorporate other materials (concrete, wire, geotextile fabric with anchors, etc.) to build a permanent structure like a gabion or bank mat, you've made an improvement to realty, and that work is taxed as new construction or as repair/remodeling.

Pipeline owners and other property owners commissioning erosion control

If this is the first permanent erosion control device ever installed on a particular naturally occurring waterway, the letter says that installation is new construction. Once a permanent device exists, later work adding more dirt, rock, or materials to maintain or restore it is instead repair, restoration, or remodeling — a potentially different tax treatment than the original installation.

Accountants and tax professionals

This letter draws three distinct lines: (1) improvement-to-realty status turns on whether the work creates a permanent erosion control device rather than merely relocating dirt or rock; (2) non-aesthetic dirt/rock placement alone stays outside taxable landscaping even if repeated; and (3) once dirt or rock is combined with other materials into a permanent structure, the first such installation on a given waterway is new construction, while subsequent additions to that same structure are repair, restoration, or remodeling.

Common questions

Q: Is dumping dirt or rock into an eroded creek bank taxable?
A: No. The letter states that simply adding, dumping, spreading, or packing dirt and/or rocks into eroded areas falls within the scope of landscaping services, but because it isn't done for aesthetic purposes, it is not taxable landscaping — whether done once or repeatedly.

Q: When does erosion control work become an improvement to realty?
A: When dirt or rock is combined with other materials, such as concrete or wire, to create a permanent erosion control device like a gabion or bank mat. That work is taxed as new construction, residential repair or remodeling, or nonresidential repair or remodeling.

Q: Is installing a concrete mat system new construction or repair?
A: According to the letter, if prior erosion control on that waterway was limited to adding soil or rock, then installing a permanent device such as the concrete mat system is new construction, because it is the first permanent erosion control device on that naturally occurring waterway. Later additions of dirt, rock, or other materials to that installed device are repair, restoration, or remodeling.

Q: Does this letter reference an earlier ruling?
A: Yes. The letter notes "Previous Accession Number 9501381L" at the end.

Citations and references

No specific statutes or administrative rules are cited in the text of 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/9501L1363F08

Original ruling text

DATE: JANUARY 26, 1995
TO: ***
FROM: Tax Policy Division
SUBJECT: Bank Stabilization

Background Information: A taxpayer has a pipeline that runs underneath a
naturally occurring creek/waterway. Over time the bank has eroded. The
taxpayer hired a contractor to furnish labor, equipment, and supervision to
haul in fill dirt and perform other activities as required to establish a
stable slope. This is intended to be permanent erosion control. The
contractor shall: ( 1 ) cut and grade the west bank to create a new bank
profile, (2) provide, install, and maintain soil erosion and sedimentation
control devices, and (3) stabilize the area by armoring the new west bank
with an articulating concrete mat that is placed over a geotextile fabric
and secure the mat's upper perimeter with a series of screw anchors.

Question 1: Does this work qualify as an improvement to realty?

Response: Yes, the installation of permanent erosion control devices
qualifies as improvements to realty.

Question 2: Would adding dirt or rock to an eroded creek bed be considered
an improvement to realty or landscaping?

Response: Simply adding (dumping, spreading, packing, etc.) dirt and/or
rocks to the eroded areas in the creek bank falls within the scope
of landscaping services. Because the work is not performed for aesthetic
purposes, adding the dirt or rocks to the eroded areas is not taxable
landscaping. This is the same for initial or repeated adding of dirt or rocks
to the creek bank.

However, adding dirt or rocks along with other materials (concrete, wire,
etc.) to create permanent erosion control devices such as gambions, bank mats,
etc., is improving realty. These activities are taxed as new construction,
residential repair or remodeling, or nonresidential repair or remodeling.
Subsequent additions of dirt, rock, or other such materials to the
improvement will be considered repair, restoration, or remodeling of the
permanent erosion control device.

Question 3: If previous erosion control measures have been limited to adding
soil or rock to the creek bank, would the installation of the concrete mat
system described above be considered new construction or repair or remodeling?

Response: Installation of the first permanent erosion control device to a
naturally occurring waterway is new construction.

NOTE: Previous Accession Number 9501381L