Taxability of Silt Fences and Other Consumable Supplies for Exempt Jobs

Based on a recent court case, the Comptroller has revised its policy regarding consumables. Prior to this case, the most recent ruling was in 2003, in which the Comptroller issued guidance stating that silt fencing was not a consumable item because it was used repeatedly throughout a single construction project. It was not used up or destroyed after “one use.”¹

In Austin Engineering v. Combs, however, the Third Court of Appeals disagreed with the Comptroller’s analysis.² Austin Engineering provided construction services to government entities, and the company (or its subcontractors) purchased and installed silt fences. In its decision, the court stated, “If the ‘use’ in question spans the length of the construction project, the fencing may in fact be used up at the end of one use.”

The court noted that the fencing and other erosion control items were not used up instantly in the same manner as gas or electricity, but the court determined that a single use occurred over the lifespan of the project. Presented testimony indicated that the fencing fabric was generally not reusable while the posts and other staking material might or might not be reusable. Under the court’s analysis, silt fencing would be eligible for exemption as long as the component materials were not reusable after the construction project was completed. 

Based on the facts and circumstances, the Comptroller has stated that fencing components used by a contractor, remodeler or repairman to perform a single construction project will be eligible for exemption, subject to the requirements below, if the components are not reused.

The requirements are as follows:  

• Consider whether the fence is provided by a rental company (subcontractor) responsible for installing and removing it according to the terms of an actual rental contract.² If this is the case, the fencing rental will not be eligible for the exemption.

• Once you have established that the fencing was not rented, ask whether the taxpayer will reuse the silt fence components from one project to the next, or whether those items will be abandoned or disposed of at the conclusion of the project.

• Review the taxpayer’s books and records to determine how actual purchases of fencing components are booked by the taxpayer. Generally, charging purchases of silt fencing to a particular project (as either a direct material or direct overhead item specifically charged to that project) indicates that the components will not be reused and are therefore subject to the exemption. On the other hand, charging purchases of silt fencing to a general overhead or general inventory account (as distinguished from an overhead account directly charged/cost to a specific project) may indicate that the items are reusable and not eligible for the exemption. However, a taxpayer in this instance could still provide sufficient evidence to show that a fencing component was ultimately used on and not retrieved from a specific exempt job as an indicator that the item was not reused.

• Specific terms of exempt contracts may also help you determine whether new or used fencing components are required by contract.

• The best source of determining reusability is an actual visual identification of an inventory of used components at the job site or at a location used to store material which is maintained by the construction company.

For questions about this regulation or other state and local tax matters, please contact us.

^{[1] See STAR Document 200303931L (Mar. 28, 2003) (superseded).
[2] 2011 Tex. App. Lexis 6122 (Tex. App. Austin 2011, no pet.).}