Is Texas sales tax due on labor to build or repair fences, gates, cattle guards, and roads on a farm or ranch?

Plain-English summary

A taxpayer asked whether sales tax applies to labor for building fences, gates, cattle guards, and roads on a farm or ranch, and separately, to labor for repairing those same items.

The Comptroller drew a clean new-construction-versus-repair line. Labor to newly construct fence posts, gates, cattle guards, or roads that qualify as an improvement to realty is not taxable, regardless of whether it's billed as one lump sum or with materials broken out separately. Labor to repair or remodel an existing fence, gate, cattle guard, or road, by contrast, is taxable real property repair and remodeling labor under Rule 3.357 and Tax Code Section 151.0047.

There's a materials wrinkle specific to farm/ranch repair jobs: Tax Code Section 151.316 exempts fences, cattle guards, gates, and chutes as farm/ranch machinery and equipment when a farmer or rancher buys them for qualifying agricultural use. But to actually get that exemption on a repair or remodeling job, the materials must be separately stated from the labor on the invoice. And that exemption never reaches a lump-sum new construction contract in the first place — under Section 151.056, a contractor performing a lump-sum realty-improvement job (not the farmer/rancher) is treated as the consumer of the materials, so the farmer/rancher's exemption doesn't flow through to lump-sum new construction either.

What this means for you

Farmers, ranchers, and fencing contractors

New construction labor (building a new fence, gate, cattle guard, or road) is untaxed labor no matter how you bill it. But once you're repairing or remodeling something that already exists, the labor is taxable, and if you want the farm/ranch materials exemption to apply to the materials portion of a repair job, you must itemize materials separately from labor on the invoice — a lump-sum repair bill won't get the materials exemption.

Contractors billing lump-sum for new farm/ranch construction

Even though fences, cattle guards, gates, and chutes can be exempt farm equipment in the farmer's or rancher's hands, that exemption doesn't help a contractor on a lump-sum new-construction contract — the contractor, not the farmer or rancher, is treated as the consumer of the materials under Section 151.056.

Accountants and tax professionals

This is a straightforward application of the general new-construction/repair-and-remodeling line (Rule 3.357, Section 151.0047) layered with the farm/ranch machinery exemption (Section 151.316) and the contractor-as-consumer rule for lump-sum realty contracts (Section 151.056). The letter also carries a standing STAR ALERT (added after the 1999 ruling) noting that agricultural exemption-certificate purchasers must now register for an Agriculture and Timber Registration Number under 2011's House Bill 268 — a registration-paperwork requirement layered on top of, not a substantive change to, the exemption analysis above.

Common questions

Q: Is labor to build a new farm fence or cattle guard taxable in Texas?
A: No. Labor for new construction of an improvement to realty, including fences, gates, cattle guards, and roads, is not taxable, whether billed lump-sum or with materials separately stated.

Q: Is labor to repair an existing fence or road taxable?
A: Yes. That's taxable real property repair and remodeling labor under Rule 3.357.

Q: How do I get the materials tax-exempt on a farm/ranch fence repair job?
A: The materials must be separately stated from the labor charge on the repair or remodeling job.

Q: Does the farm/ranch equipment exemption cover a lump-sum contract to build a new fence?
A: No. On a lump-sum realty-improvement contract, the contractor — not the farmer or rancher — is treated as the consumer of the materials, so the exemption doesn't apply.

Q: Can I rely on this 1999 letter for my own fencing job today?
A: No. It's based on the specific facts presented to the Comptroller and can be relied on only by the taxpayer it was issued to; other facts, even if similar, may produce a different result. Also note the registration requirement added by 2011's House Bill 268 for agricultural exemption-certificate purchasers.

Citations and references

Statutes and rules:

• Texas Tax Code Section 151.0047 (real property repair and remodeling)
• 34 Tex. Admin. Code Rule 3.357 (labor relating to nonresidential real property repair, remodeling, restoration, maintenance, new construction, and residential property)
• Texas Tax Code Section 151.316 (exempt farm/ranch machinery and equipment)
• Texas Tax Code Section 151.056 (contractor as consumer of materials on realty-improvement contracts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9909696L

Original ruling text

ALERT - Statutory change - Purchasers claiming exemption from tax on certain farm,
agricultural or timber products must now register and provide an Agriculture
and Timber Registration Number on the exemption certificate provided to suppliers.
(House Bill 268, 82nd Legislature, Regular Session, effective 01/01/2012)

September 22, 1999

Subject: Agricultural Construction

Dear **:

This is in response to your request for a ruling on the following fact
situation and questions:

Is sales tax due and payable for labor (included in a lump sum contract) for
the construction of fences, gates, cattle guards, roads; or for labor for the
repair of fences, gates, cattle guards, roads, etc.?

Also please provide the TAC cite for the answer?

Response: Labor to install/construct fence posts, gates, cattle guards, roads
qualifying as new construction of an improvement to realty is not taxable
whether billed lump-sum or separately stated from the charge for materials.
The labor to repair or remodel an existing fence, gates, cattle guard, or roads
is taxable real property repair and remodeling. See Rule 3.357 - Labor
Relating to Nonresidential Real Property Repair, Remodeling, Restoration,
Maintenance, New Construction, and Residential Property and Texas Tax Code
Section 151.0047. In order to be exempted, qualifying materials must be
separately stated from labor on repair or remodeling jobs performed on a farm
or ranch

Texas Tax Code Section 151.316, provides that fences, cattle guards, gates, and
chutes qualify as exempt machinery and equipment when purchased by a farmer or
rancher for use on a farms or ranch exclusively in building or maintaining of
roads or water facilities or in the production of:

(A) food for human consumption;
(B) grass;
(C) feed for animal life; or
(D) other agricultural products to be sold in the regular course of business;

Fence posts, cattle guards, gates, and chutes would not be exempt under a
lump-sum contract to improve realty because the contractor rather than the
farmer or rancher is considered the consumer of the items. See Texas Tax Code
Section 151.056

Sales tax rules are available on the Internet
www.sos.state.tx.us/tac/34/I/3/O/index.html

The Texas Tax Code is available on the Internet at:
http://capitol.tlc.state.tx.us/statutes/codes/TX000023.html

The State Tax Automated Research system may be accessed on the Internet at:
http://www.window.state.tx.us/

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:
[email protected]

Gilbert Zamora
[email protected]
Tax Policy