State Taxation: Sales Taxes; Pipelines

摘要

Plaintiffs operate several pipelines. As part of their pipeline inspection program, they determine that some pipes need to be recoated which requires excavation and backfilling services as well as the installation of cathodic protection devices. The Comptroller determines that sales tax needs to be assessed on the value of both services. The parties do not contest the amount of taxes owed should the sales tax be held applicable to the two types of expenditures. The trial court, after holding a trial de novo, determines that the Comptroller's assessment of sales taxes is appropriate. Held: affirmed. Chevron argues that the remedial installation of the cathodic protection devices is non-taxable new construction rather than taxable repair and remodeling. It also argues that the excavation and backfilling services purchased in conjunction with other repair services are non-taxable "unrelated services" with Comptroller Rule 3.357. (Tex.Admin.Code § 3.357). The statute imposes a sales tax on real property repair and remodeling services. (Tex. Tax Code § 151.0101(a)(13)). Rule 3.357 is an attempt to define what falls within the terms repair and remodeling services. The addition of the cathodic protection devices did not expand the capacity of the pipeline but merely prevents the pipeline from corroding. Giving deference to the Comptroller's interpretation, the court affirms the finding that such services are taxable. While backfilling and excavation services may be non-taxable when done independently, the trial court's conclusion that these services were done in conjunction with repair and remodeling services takes mem out of the "unrelated service" category and renders such payments taxable events.