A refinery is relocating a large storage tank (exceeding 500 barrels, treated as real property) — tearing it down at its current location and rebuilding it, using the same materials in the same configuration, either elsewhere within the same facility or at a different facility. Is this relocation taxable?

Plain-English summary

A refinery asked about the tax treatment of relocating a large storage tank (a piece of real property, since it exceeds 500 barrels of storage capacity) — tearing it down at its current spot and rebuilding it using the same materials in the same configuration, either elsewhere within the same facility or at an entirely different facility.

The Comptroller confirmed the teardown and relocation themselves are NONTAXABLE services. But the rebuilding of the tank at its new location is treated as NEW CONSTRUCTION — and in a new-construction contract, the materials (though not the labor) are taxable. Exactly how that tax applies depends on the contract structure: under a SEPARATED contract (materials and labor separately stated), any charge for "new" incorporated materials is taxable directly to the property owner. Under a LUMP-SUM contract, the roles flip — the contractor is treated as the consumer of the materials incorporated into the improved property, and the contractor (not the owner) must pay sales tax on supplies and on any equipment purchased, leased, or rented to perform the job.

What this means for you

Refineries, industrial facilities, and similar businesses relocating large storage tanks

Tearing down and moving a large storage tank (real property) within or between facilities isn't itself a taxable event — but rebuilding it at the new location is new construction, which brings materials into the tax base (though not labor). Structure your contract deliberately, since a separated vs. lump-sum contract shifts WHO bears that materials tax (the property owner vs. the contractor).

Contractors performing tank teardown/relocation/rebuild work

Under a lump-sum contract, you (the contractor) are the one who owes sales tax on materials incorporated into the rebuilt tank, plus tax on your own supplies and equipment — not the property owner. Under a separated contract, the property owner bears tax on the new materials charge instead.

Accountants and tax professionals structuring real-property relocation contracts

This letter is a clean illustration of the lump-sum vs. separated contract distinction in new-construction contexts: the SAME underlying work (rebuild materials) gets taxed to a different party depending purely on how the contract is structured.

Common questions

Q: Is tearing down and relocating a large storage tank within the same facility a taxable event?
A: The teardown and relocation themselves are nontaxable services.

Q: Is rebuilding the tank at the new location taxable?
A: The rebuild counts as new construction, which makes the materials (not the labor) taxable.

Q: Who pays the tax on the new-construction materials — the property owner or the contractor?
A: Under a separated contract, the property owner is charged tax on the new materials. Under a lump-sum contract, the contractor is treated as the materials' consumer and pays the tax itself (along with tax on its own supplies/equipment).

Q: Can I rely on this letter for my own tank relocation project?
A: No. It's based on the facts presented, and the letter notes other facts, though similar, may provide a different result.

Citations and references

No specific Tax Code section or rule number was cited in this letter; it applies the Comptroller's general new-construction vs. remodeling and lump-sum vs. separated contract framework for real property improvements.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9803272L

Original ruling text

March 13, 1998

Dear **

Your letter to Mr. Antonio J. Pena, Auditor, Corpus Christi Audit, has been
referred to me for response. You are requesting a ruling regarding the
taxability of the relocation of a piece of real property (a refinery storage
tank) from one location to another location within the same facility or to a
different facility.

Response: Storage tanks exceeding 500 barrel storage capacity are considered
improvements to realty. A charge for the teardown, relocation and subsequent
setup (using the same materials in the same configuration) of a storage tank
exceeding 500 barrels would not be taxable. The teardown and relocation are
nontaxable services and the rebuilding of the tank at a different location
would qualify as new construction. In a contract involving new construction the
materials, but not labor, would be taxable.

Any charges by the contractor for "new" incorporated materials would be taxable
to your company if the contract to improve realty is a separated contract. If
the contract is for a lump-sum amount, the contractor is considered the
consumer of any materials incorporated into the property being improved. The
contractor must pay sales tax on supplies, equipment purchased, leased or
rented for the contract.

This opinion is based on the facts presented. Other facts though similar may
provide a different result. I hope this information answers your questions. If
you need additional information, please call me toll-free at 1-800-531-5441,
extension 3-4502. The direct line is 512/463-4502. You may also write to Tax
Policy Division, Comptroller of Public Accounts. You may also e-mail our tax
help section at: .

Sincerely,

Gilbert Zamora
Tax Policy Division

cc: Antonio J. Pena, Auditor
Corpus Christi Audit