A backhoe cut a natural gas pipeline at a construction company's job site. The gas company billed the construction company for the repair, separating out labor, materials, equipment, gas loss, and overhead — without charging sales tax. Should the gas company have charged sales tax on that invoice?

Plain-English summary

A construction company's backhoe cut a natural gas pipeline at one of its job sites. The gas company that repaired the line billed the construction company, separately itemizing labor, materials, equipment, gas loss, and overhead — but didn't charge sales tax on any of it. The taxpayer asked whether the gas company should have charged tax, given that the costs were itemized separately.

The Comptroller's answer: mostly yes. The charge to repair the pipeline is taxable as a nonresidential real property repair service under Rule 3.357, and the total charges for the repair — labor, materials, equipment, and overhead — are taxable, regardless of how the invoice itemizes them. The one carve-out: the gas loss charge is NOT taxable, because it's unrelated to the repair work itself and doesn't represent a sale or purchase of the gas (it's compensating for gas that escaped/was wasted, not a transaction in gas or in repair labor).

What this means for you

Utility companies and contractors billing for pipeline/utility line repairs

Itemizing labor, materials, equipment, and overhead separately doesn't make those items nontaxable — the whole bundle is still taxed as a real property repair service under Rule 3.357. Only genuinely unrelated charges, like a gas-loss charge that doesn't represent repair work or a gas sale, fall outside the taxable base.

Businesses whose equipment or crews accidentally damage utility infrastructure

Expect the utility's repair bill to carry Texas sales tax on the repair-related charges (labor, materials, equipment, overhead) — but a separately stated gas-loss charge should not carry tax.

Accountants and tax professionals

A clean example of how real property repair taxability (Rule 3.357) captures the WHOLE repair charge regardless of line-item breakdown, while carving out charges that are genuinely unrelated to the repair service itself (here, gas loss) rather than just separately labeled.

Common questions

Q: Is a bill for repairing a damaged gas pipeline taxable in Texas?
A: Yes — as a nonresidential real property repair service under Rule 3.357.

Q: Does separately itemizing labor, materials, equipment, and overhead make those charges nontaxable?
A: No — the total repair charge is taxable regardless of how it's broken out on the invoice.

Q: Is a gas-loss charge on the same invoice taxable?
A: No — it's not taxable because it's unrelated to the repair and doesn't represent a sale or purchase of gas.

Q: Can I rely on this letter for my own pipeline-damage repair billing?
A: No. This opinion is based on the facts presented, and additional or different facts could change the opinion; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.357 (real property repair and remodeling services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9912944L

Original ruling text

December 17, 1999

Subject: Tax Question

Dear **:

Thank you for your recent e-mail concerning the taxability of charges made to
your firm by a gas company for repairs made to a natural gas line.

The gas line was cut by a backhoe at one of your company's job sites. The gas
company sent a bill that separated out the charges for labor, materials,
equipment, gas loss, and overhead costs. The gas company did not charge sales
tax on the invoice.

Question: Because the cost is separated out, should the gas company show sales
tax on the invoice?

Answer: The charge to your company is for the service to repair the pipeline.
The repair of the pipeline is taxable as a nonresidential real property repair
service under Rule 3.357. The total charges for repair are taxable, except for
the charge for gas loss. The gas loss charge is not taxable because it is
unrelated to the repair and does not represent a sale or purchase of the gas.

The referenced Comptroller rule is available at
.

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 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts. My e-mail address is
.
Sincerely,

Eddie C. Washington
Tax Policy Division