Be cause the intere sts of Chevron Pipeline Company and W es t Texas Gulf Pipeline 1 conver g e, we ref

er to a ppellants collec tively

as “Chevr on” unless other wise noted. Be cause the intere sts of the Comptroller of Public Acc ounts and the Attorney Gene ral 2 conver g e, we ref

er to the a ppellees c ollectively

as the “ Comptroller.” Catho dic pr ote c tio n is a

pr oc e ss u se d to ha lt o r r e du c e the c or ro sio n o f s te e l pi pe lin e s. 3 

### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-05-00449- CV

Chevron P ipelin e Com pany an d West Texas G ulf P ipelin e Com pany, Ap pellants

v.
Ca r ole K e e to n St r ay hor n, C om pt r oll e r of P ublic Ac c ount s o f the St at e of Te xa s, and Greg A bbott, Attor ney Ge neral of the State of Texas, App ellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 261ST JUDICI AL DISTRICT

NO. GN304712 , HO NORAB LE PAUL DAVIS, JUDGE P RESIDING

O P I N I O N
Chev r o nPi p e li n e Co mp an y an d We s t T e xa s G u lf

Pi p e li n e Co mp an y a

p p e a l t he 1 district court’s judg ment aff irming the Comptroller’s deter mination of tax l iability

for e x cavation 2 and bac kfilling ser

vices a nd the re medial installation of cathodic pr ot ec t i o n device s. Chevron 3 argues that i t s p u rc h ase of these ser vices wa s non-taxable. In two issues, Chevron cha lleng es the le g a l s u f f ic ie n c y o f th e e v id e n c e , c o n te n d in g th a t ( 1 ) e xc av a ti o nan d b a c k f il li n g s e r v ic e s ar e n on-I n addition to Hildebr and’s testimony , Chevron introduce d into evidence copies of a ll of 4 the invoices for

the excavation and ba ckfilling service s at issue. 2 taxab l e “u n re l ated services” under Comptroller Rule 3.357, see34 Tex. Admin. C ode § 3.357 (2005), and (2) the re medial installation of cathodic pr otection device s was non-tax able “ new construction,” a

nd not tax able “ rea l p ro p er ty repa ir and re modeling.” SeeTex. Tax . Code Ann. § 1 51 .0 10 1( a )( 13 ) ( Wes t 20 02 ). W e r e j e c t th e se c on te nti on s and a ff ir m th e dis tr ic t c ourt ’s jud g me nt.
F ACTS AND P ROCEDURAL BACK GR OUND The mate rial fa cts are undisputed. The Comptroller asse ssed taxes ag ainst Chevron Pipelin e Com

pa ny duri ngan a

ud it p e ri od

fr om Jul y

1, 19 91 , to Se pte mbe r 3 0, 19 97 , a nd a g a ins t West Tex as Pipeline Company for the a udit period of January

1, 19 9 2 , t o De cembe r 30, 1997. Chevron soug ht a rede termination of these tax assessments and a ref und from the Comptroller. See id . §§ 111.009, .104 (W es t 2 0 0 1 ). Afte r the Comptroller denie d the re quests, Chevron paid the defic iency under protest and filed suit in district court see king a ref und. Se e id . §§ 112.051, .052, .151 (West 2001).

Th e dis tr ic t c ourt

c on du c te d a

tr ia l de novo on Chevron’s c laims. Se e id
. § 112.054. The re cord r efle cts that Chevron owns and operates various pipelines throug hout T exas. Chevron prese nt ed two witnesses at trial—pipeline integrity technolog ists Mark Hildebra nd and Mar

k Ste ph e n Ca sk e y . Hi lde br and te sti fi e d on the iss ue of e xcavatio n and ba c kf ill ingse rv ic e s. 4 Hildebra nd explained that Chevron runs interna l inspection d ev ices throug h its pipelines, and he analy zes the collecte d data to make nece ssary repa irs an d o t h er rec ommendations. HildebrandHildebra nd testified, “The term ‘re coating ’ is a blanket term we use in the p i p eli ne 5 industry .” I t can mea

n repa inting for

above- g round pipelines, or it c an mean r ewr apping , or putting on an e po xy c oatin g or

oth e r s le e vin g fo r u

nd e rgro un d p ipe lin e s. I n addition to Caskey ’s testimony , Chevron also introduce d into evidence pictures of the 6 various ty pes of c athodic prote ction installations at issue. 3 testified that one ty

pe of r epair

involves “re coating ” the pipeline. Once Chevron dete rmined that 5 it wa s nece ssary

to rec oat a pipeline, H ildebrand e x plained that the pipeline w ould be marke d and excavated; the old coating would be removed, and a new coating would be applied; then the pipeline
wo uld be re -c ov e re d, or

ba c kf ill e d. Hi lde br and

te sti fi e d th a t th e re we re dif fe re nt c re ws wi th dif fe re nt d uti e s thro ug ho ut t

he pr oc e ss. F or e xamp le , one c re w w ou ld e xcavate ; ano the r w ou ld s tr ip the old coating ; stil l another w ould apply the new c oating ; and y et another cre w would bac kfill, or
cover up, the pipeline. On cross-e x amination, Hildebra nd testified that all of the pipelines in this case wer e underg round and that Chevron could not re coat its undergro und pipelines without ex cavation. Ac c or din g to H ild e br and , a ll of the e xcavatio n ser vic e s at issu e we re pe rf

or me d in c on

jun c tio n w ith additional repa ir work. Hildebr and also stated the re w ere no instances be fore the trial cour t in which Che vr on ha d c on tr a c te d f

or e xcavatio n o r b a c kf

ill ingse rv ic e s a

pa rt fr om o the r r e pa ir s. On the issue of c athod i c protection, Chevron pre sented the te stimony of Mar k Stephen Caskey
. Caskey explained that c athodic prote ction is a method of prote cting the pipelines 6 by installing an a

node, which se rves a s the o b ject of c orrosion instead of the pipeline. Caskey explained the differ ent methods of cathodic p ro t ec t i o n that Chevron used a nd testified that the anodes a re ty pically installed in separate beds a way from the pipeline, a

cable is run from the a

node bed to a r ectifie r, and the n from the r ectifie r t o t h e p i p el i n e. Caskey testified that the pipelines at4

issue all had existi n g cathodic pr otection device s and that Chevron ha d deter mined “throug h one
means or a

nother” that additional installations of cathodic pr otection device s were neede d. Caskey explained that the exis ting cathodic protec tion de vices wer e left in pla ce and that new holes or tr e nc he s w e re du g to i ns ta ll a dd iti on a l c a tho dic pr ote c tio n d e vic e s.

Whe n a sk e d on c ro ss- e xami natio n ho w and wh e re Che vr on de te rm ine d t o i ns ta ll additional cathodic pr otection dev i ce s , C askey testified that the existi ng g round beds of anodes would deplete ove r time and their useful life w ould come to an e nd. Acc ording to Caskey , Chevron used the re ctifiers to monitor the condition and e ffe ctivene s s of the e x isting g round beds at twomo nth int e rv a ls, and

on c e the ano de s r e a c he d th e e nd of the ir us e fu l li fe , Ch e vr on

wo uld ins ta ll a new g round bed at that location.

At the conclusion of trial, the court g rante d judgme nt in favor of the C omptroller. Chevron re quested finding s of fa ct and c onclusions of law, which the trial court enter ed on J une 16, 2005. Specifica lly , the trial cour t found:
4. Chevron and West Texas asser t that they are entitled to a re fund of sa les ta xes wro ng ly

a sse sse d b y

the Com ptr oll e r an d pa id by Che vr on and Wes t Texas on their purcha ses of installations of cathodic protec tion de vices a nd on their purcha ses of excavation and backf illing service s. The installations of cathodic protec tion de vices a nd the excavation and ba ckfilling service s we re purc ha se d by Che vr on and Wes t T e xas f ro m th ir d- pa

rt y c on tr a c tor s. 5. The part i es h ave ag ree d to the amounts in issue with respec t to the two matte rs in d isp ute a s f

oll ow s:
a. Cathodic protec tion - $184,678.48 b. Ex cava

tion and backf

illing - $89,837.235

6. Chevron and West Texas do not contest the vali d i t y or application of Comptroller Rule 34 Tex. Admi n. Code. § 3.357. 7. Chevron and West Texas owe t he sale s tax es as a ssessed by the Comptroller.
Wit h respe ct to the issue of c athodic prote ction installations, the trial court enter ed
a dd iti on a l f

ind ing s o f f

a c t a s f oll ow s:
8. The c athodi c p ro t ec t i o n i n s t al l at i o ns in issue are the repa ir, restoration, remode ling or modification of an improveme nt to real prope rty that is not used as a residenc e or immediate ly adjac ent to a re sidence and par t of a residenc e. 9
. The c athodic p r o te c ti o n installations made over, r ebuilt, repla ced or upg rade d exis ting non- residential r eal pr operty . The c athodic prote ction installations brought ba ck as near a s can be to its original wor king or der non-re sidential rea l property that was broke n, damag ed or de fec tive. 10
. Th e c a tho dic pr ote c tio n in sta llatio ns br ou g ht b a c k as ne ar as c ou ld b e to i ts or ig ina l c on dit ion

re a l pr op e rt

y wh ic h w a s st ill op e ra

tin g a nd fu nc tio na l, but was fa ded, dec lined or dete riorate d. * * * 13
. Th e c a tho dic pr ote c tio n in sta llatio ns did no t add ne w, us e a ble sq ua re fo ota g e to an existi ng structure
. Wit h reg ard to e x cava

tion and backf

illing servic es, the trial c ourt found:
14. The e x cavation and backf illing in issue is not an unrelate d service
. 15. The e x cavation and backf illing in issue was require d to pe rfor m the repa irs and re c oatin g of

the pip e lin e s o wn e d b y

Che vr on and Wes t T e xas. 16. The re pair a

nd rec oating perf

ormed in conjunc tion with the ex cavation and backf illing is tax able.6

17. The pe rfor

mance of t h e ex ca v ation and bac kfilling is not distinct and ide nti fi a ble fr om t he ta xab le pip e lin e re pa ir s.
Ba sed on these f

indin gs , the trial cour

t concluded that the cathodic pr otection installations and ex ca v at i o n and bac kfilling ser vices in issue we re subjec t to sales tax and that Chevron and West Texas wer e not entitled to a re fund. This appe al followed.
STA ND AR

D O F RE VI EW Although the Comptroller conducte d a hea ring and issued a decision on Chevron’s
re qu e st f or re de te rm inatio n, jud ic ia l r e vie w i n a ta x re fu nd su it b ro ug ht b y

the ta xpay e r i s de novo
. Tex. Tax Code Ann. § § 112.054, .154 (West 2001). The Administrative Proc edure Act (A PA) provides that whe n “the manner of revie w authoriz ed by law for the decision in a conte sted ca se that is the subject of complaint is by trial de novo, the r eviewingcourt shall try eac h issue of fa ct and law in the manner

that applies to other c ivil sui ts in this state as though there had not been a n intervening ag ency action or de cision.” Tex. Gov’t Code Ann. § 2001.173 (West 2000). After a de novo trial, the trial cour t gr anted judg ment in f

avor of the Comptroller on
a l l i s s u e s . T h e t r i a l c o u rt s u p p o rt e d i t s j u d g m e n tw i thf

i n d i n g s o f

f a c tan d c o n c l u s i o n s o f

l aw . In a bench t rial, t he court’s finding s of fact have the s ame f orce and ef

fec t as a jury

verdic t. Catali na v. Blasdel , 8 81 S.W. 2d

29 5, 29 7 ( Te x. 19 94 ); GATX Terminals Corp. v. Ry lander , 78 S.W .3d 630, 633 (Tex. App.—Austin 2002, no pet.). L ikewise, a ppellate c ourts revie w the fa ctual and le g al
su ff ic ie nc y of the tr ia l c ourt ’s fi nd ing s o f f a c t and c on c lus ion s o f l aw a c c ord ingto t he same standards a s jury

finding s. Catali na , 881 S.W .2d at 297.7 On appe al, Chevron c halleng es the leg al sufficie ncy of the trial cour t’s conclusions that Chevron is liable for

the tax im posed on its purcha ses of e x cavation and backf illing servic es and t h e r em ed i al i n s t al l at i o no f c at h o d i c p ro t ec t i o nd ev i ce s . Ou r co n s i d er at i o n o f C h ev ro n ’s ch al l en ge is guided by the supreme court’s de cision in City of Keller v. W ilson , 168 S.W .3d 802 (Tex. 2005). I n r e vie wi ngth e legal suff ic ie nc y of the e vid e nc e , w e mus t vi e w the e vid e nc e in t he lig ht m os t favor able to the ve rdict, cr editing f avora ble eviden ce i f re asonable jurors could, a nd disreg arding contra ry evidenc e unless rea sonable jurors could not. Se e id
. at 807. The te st for leg al suffic iency is whether the evidenc e would ena ble re asonable people to r eac h the judgme nt be ing revie wed. Id
. at 827-28.
DI SCU SSIO N

Chevron bring s two issues on appea l. First, Chevron co n t en d s that the reme dial insta llatio n o f c a tho dic pr ote c tio n d e vic e s is no n- ta xab le ne w c on str uc tio n, and

no t taxab le re pa ir
or re modeling. Sec ond, C h evron c ontends that the excavation and backf illing servic es purc hased in conjunction with other re pair ser vices a re non- taxable “unre lated serv i ce s ” within the meaning of Comptroller Rule 3.357. See34 Tex. Admin. Code § 3.357. The Comptroller re sponds that it has consistently

held that reme dial installations of cathodic protec tion devices a re not ne w construc tion, but instead constitute taxable repa ir or re modeling. T he Com p t ro l l er further responds that excavation and ba ckfilling service s purcha sed i n conjunction with other pipeline r epair work c annot be “unr elated se rvice s” wit hin the m eaning of Rule 3.357. Under the s tandar d of re view for leg al
su ff ic ie nc y , Che vr on mus t dem on str a te that no re a so na ble fa c t- fi nd e r co uld have c on c lud e d th a t itFor convenie nce, we cite to the c urre nt version of Rule 3.357. Althoug h Rule 3.357 has 7 been amende d during the pendenc y of this liti g ation, the par ties ag ree that the amendme nts do not alter the substance of

the rule or

its application to the fac ts of this case.

8 was not liable for

the tax on the reme dial installations of cathodic prote ction device s or its purchase s of e xcavatio n a

nd ba c kf ill ingse rv ic e s.
Rem edial Instal

lation s of Cathodi c Protec tion Devices The tax code de fines “r eal pr operty repa ir and re modeling” as t he re pair, re storation, remode ling, or

modification of an improve ment to rea l property . Tex. Tax Code Ann. § 151.0047 (We st 2 00 2)
. Th e le g isl a tur e ha s im po se d a ta x on r e a l pr op e rt

y re pa ir and re mod e lin g se rv ic e s in section 151.0101(a )(13) of the tax code. Te x . Tax Code Ann. § 151.0101(a) (13) (West 2002). The Comptroller has exclusive jurisdiction to determine whethe r ser vices fa ll i n t o this categ ory . Id
. § 151.0101(b). I n exercise of this jurisdiction, the C omptroller has adopted Rul e 3.357. See3 4 T e x. Ad min . Co de § 3 .3 57 (2 00 5)
. Chevron do es not c ha lle ng e the va lid ity or a pp lic a bil ity of Rul e 7 3.357. R

u l e 3
. 3 5 7 i n cl u d es t h e f

o l l o wi n g d ef

i n i t i o n s o f n ew co n s tru ct i o nan d re m o d el i n g, repa ir, and re storation: (8) New con s t ru ct i o n
— Al l n ew improve ments to real pr operty including initial fi nis h o ut w or

k to the int e ri or

or e xter ior of the imp ro ve me nt. An

e xamp le is a multiple story building that has had only its first floor finished and oc cupied. Th e ini tia l f

ini shout of ea c h ad dit ion a l flo or be fo re ini tia l oc c up anc y

or us e is considere d new construction. Ne w construc tion also includes the addition of new, usa ble s quare footag e to an e x isting structure . Ex amples ar e the a ddition of a ne w wingonto an exist ing building , or the a ddit i o n of a ne w mezzanine l ev el wi t h i nan ex i s t i n g b u i l d i n g. R ea l l o ca t i o no f e x i s t i n g s qu ar e f o o t age inside a structure is remodelingand does not c onstitu t e t h e addition of ne w,9 us a ble sq ua re fo ota g e . F or

e xamp le , th e re mov a l or

re loc a tio n o f i nte ri or

wa lls to e x pand the siz e of a room, or the finish out of an office sp ac e t h at was previously

used for storag e, is remode ling. Raising the c eiling of a room or the ro of of a bu ild ingis n ot n e w c on str uc tio n unle ss n e w, us a

ble sq ua re fo ota g e is cre ated. * * * (11) Remodeling or modification—To rebuild, replace, alter, m odify, or upgrade e x ist ing re al p ro

pe rty . Howeve r, the re place ment of an item that is within an operational and func tional improvement to rea lty is not tax able remodeling or modification when the work is sche duled and pe riodic maintenanc e as def ined in para g raph ( 7) of this subsection. . . . Work that is perfor med af ter the initial finish out has been completed is remodeling e ven whe n the improvement ha s no t be e n o c c up ie d o r u se d. F or e xamp le , a

pr os pe cti ve ten ant w ants the un it of a c ompletely

fi n i s hed out shopping complex repainted be fore the tenant lease s the unit. The re painting is r em odeling . Partial demolition of exi sting n o n re s i d ential re alty

is tax able r emodeling . The c omplete demolition of an exis ting nonr esidential improvement to real property is neither r emodelingnor modification and is not taxable. (12) Repair—To me nd or bringback r eal p ro p er ty that was broke n, damag ed, or defe cti v e as near as possible to its orig inal workingorder . Howeve r, minor re pa ir wo rk that is p e rf

or me d o n o pe ra

tio na l and fu nc tio na l im

pr ov e me nts to rea lty is not tax able r epair

if the work is done in acc ordanc e with para g raph ( 7) of this subsection. * * * (1 4) Re sto ratio n—

An a c tiv ity that is pe rf

or me d to br ingba c k r e a l pr op e rt y that is still operational and functional but that has faded, declined, or deteriorated, as ne ar as po ss ibl e to i ts o ri g ina l c on dit ion . M ino r r e sto ra tiv e wo rk that is pe rf or me d w ith in t

he me anin g of

pa ra g ra ph(7 ) o f t

hi s su bs e c tio n is maintenanc e, not re storation.
34 Tex. Admin. C ode § 3.357(a )(11) - (12) , (14) ( emphasis adde d).

I n support of its argument that th e r e me dial installation of cathodic pr otection device s is n e w c o n s t r

u c t i o nan d

n o tr e m o d e l i n g o r

r e p a i r , C h e v r o nar g u e s th a tth e e v i d e n c e c on c lus ive lyAl tho ug h Wrig le y F ie ld w a s o ri g ina lly bu ilt in 1 91 4, the Chi c a g o Cu

bs did no t a dd lig hts 8 until 1988. The first nighttime g ame wa s play ed on August 8 ag ainst the Philadelphia Phill ies, but it was rained out after thre e-a nd-one- half inning s. Seewww.c hicag o.cubs.nlb.com/NASApp/mlb/ chc/ba llpark/index.j sp. 10 established that re medial installation of additional cathodic protec tion devices wa s new c onstruction beca use it resulted in “the a ddition of new usable squa re f ootag e.” Che vron’s a

rgument misses the point. To qualify

as newconstruction under Rule 3.357, the activity must result in “the addition of new, usa ble square footag e to a n e x ist ing st ru c tur e .” See34 Tex. Admin. C ode § 3.357(a )(8) (empha sis added ). Although Ca skey testified that the re medial cathodic protec tion devices we re installed in ne w h o l es o r n ew trenche s, this activity does not meet the de finition of “new construction” in Rule 3.357.

There is no evidence that t h e re m edial ins tallations of cathodic pr otection device s expanded the ca

pacity of the e x isting pipeline. Rather the evidenc e demonstrates that reme dial i n s t al l at i o no f c at h o d i c p ro t ec t i o nd ev i ce s s i mp l y p re v en t s t h e e x i s t i n g p i p e l i n e f ro mco rr o d i n g. Caskey testified that all of t he pipelines at i ssue already had existi ng cathodic pr otection device s and that Chevron would only install ne w anode g round beds when the rec tifiers indicated t h at the
e xistin g g ro un d b e ds we re de ple te d o r f a ili ng . Ca sk e y

a lso te sti fi e d th a t th e e xistin g c a tho dic protec tion devices would be left in place to provide whatever protec tion remained. The reme dial installations of cathodic prote ction device s d o not add “ne w, usable squa re f ootag e to an e x isting structure ” within the meaningof Ru l e 3
. 3 5 7 and, ther efor e, do not satisfy the rule’ s definition of “new construction.” To borrow an analogy from major- league base ball, the re medial installation of cathodic pr otection device s is like adding stadium lights t o Wrigley Field. I t allows y ou to use the 8Se c tio n 1 51 .0 10 1( b) state s: 9 The c omptroller shall have exclusive jurisdiction t o interpre t Subsection (a) of 11 exis ting struc ture for

a long er pe riod of time, but it does not increa se the usable square footag e of the exis ting structure
. Chevron’s arguments are contra ry to this Court’s opinion in GA TX Te rm ina ls Corporati on v. Ry lander , in which we held that the plain languag e of Rule 3.3 5 7 co n t em p l ates something more th an “t h e addition of new equipment .” See78 S.W .3d at 641. The e vidence demonstrates t h at t he existi ng cathodic pr otection device s remaine d in place. T here fore , the trial court could have proper ly inferr ed that the reme dial installations of additional cathodic prote ction de vic e s si mpl y

up g ra de d o r r e pla c e d th e pro tec tio n p ro vid e d b y e xistin g de vic e s. Vi e wi ngthi s
e vid e nc e in t

he lig ht m ost favo rabl e to t he ve rd ic t, a

nd c re dit inga ll f

avo ra ble e vid e nc e that a
rea sonable fa ct-finde r could be liev e wh i l e disreg ardingall contra ry evidenc e except that which a
re a so na ble fa c t- fi nde r c ou ld n ot i g no re , w e c on c lud e that th e e vid e nc e wa s le g a lly su ff ic ie nt t o support the trial court’s finding s of fa ct and its conc lusion that Chevron was liable f or the tax imposed on the i nstallations of remedial cathodic protec tion devices. See City of Keller , 168 S.W .3d at 829-30. To the extent Chevron cites other Comptroller decisions in suppor t of its c laim that
reme dial installations of cathodic prote ction devi ces qua lify as non-taxable new

construction, Chevron’s eff

orts are unavailing
. Be cause the Comptroller has exclusive jurisdiction t o i n t erpr et whether a par ticular ser vice f alls within the categ ories of “tax able se rvice s” enume rate d in section 151.0101(a) of the tax code, we de fer to the Comptroller’s construc tion of Rule 3.357. See Tex. Tax Code Ann. § 151.0101(b)
. None of the dec isions cited by

Chevron involve re medial installations 9this section.

Tex. Tax Code Ann. § 151.0101(b)
. 12 of cathodic protec tion de vices. I n contra st, the Comptroll er ha s previously and consistently

reje cted simil ar c laims that remedial installations of cat h o d i c protec tion devices a dd new, usa ble square footag e and, there fore , constitute non-taxable, new c onstruction. SeeHea ring Dec ision No. 31,964 (Tex. Compt roller of

Pub. Accounts 1996); He aring Dec ision No. 28,327 (Tex. Compt roller of Pub. Acc ounts 1992). We overrule Chevron’s f irst issue.
Excavation and B ackfilling Servic es

I n it s se c on d iss ue, Ch evr on c ha lle ng e s th e le g a l su ff ic ie nc y of the e vid e nc e to
su pp or t th e tr ia l c ourt ’s fi nd ing s that excavatio n an d ba c kf ill ing se rv ic e s ar e no t “unre late d s e rv ic e s” and its conclusion that such ser vices a re subjec t to taxation. Chevron ar g ues that bec ause e x cavation and backf

illing servic es ar e non-tax able whe n provided on a stand-alone basis, such ser vices constitute “unre lated ser

vices” within the meaningof Comptroller Rule 3.357(a) (15). We disag ree . The leg islature has imposed a tax on each sale of a “taxable item.” Te x . Tax Code Ann. § 151.051 (West 2002). The term “tax able item” inc ludes “taxable ser vices.” Id . § 151.010 (We st 2 00 2) . A lth ou gh e xcavatio n a nd ba c kf ill ingse rv ic e s are no t in c lud e d in the lis t of

ta xab le service s in se ction 151.0101 of the tax code, se e id
. § 151.0101(a) , the C omptroller i mposed a tax on those excavation and backf illing service s purcha sed by Chevron in c onjunction w ith its purcha ses of pi peline recoating services. The parties ag ree that the pipeline re coatingservice s purcha sed by Chevron ar e taxable re pair ser vices. See Tex. Tax Code Ann. § 151.0101(a )(13) ; 34 Tex. Admi n.13

Code § 3.357(a) (12). The parties likewise agr ee that excavation and backf illing s ervic es are nontaxable when provide d on a stand-a lone basis. SeeTe x. Tax Code Ann. § 151 .0 10 1( a ). Th e dis pute at issue thus conc er n s h o w t o treat, for taxation purposes, excavation and ba ckfilling service s purc ha se d in

c on jun c tio n w ithpip e lin e re pa ir se rv ic e s. Rul e 3. 35 7( a )( 15 ) p ro vid e s:
A servic e is unrelated if: ( A ) i ti s n o tt h e r e p a i r , r e m o d e l i n g , o r r e s t o r a t i o no f

n o n r e s i d e n t i a l r e a l p r o p e rty, nor a se rvice or l abor that is tax able unde r any other provision of the T ax C ode, Chapter 151; (B ) it is of a ty

pe that is commonly

provided on a

stand-alone basis; and (C) the per formanc e of the servi ce i s d i s t i n ct an d i d en t i fi ab l e. Ex amples of unrelated servic es t h at m ay be excluded fr om the tax base are the cr eation of eng ineer ing pla

ns or ar chitectur al desig ns, new construction, incr ease d c a p a c i t y, an d

m a i n t e n an c e o nr e a l p r o p e rty.
Id . § 3. 35 7( a )( 15 ). Th e ru le thu s e sta bli sh e s a thr e e -p ro ngte st fo r de te rm ini ng wh e the r a se rv ic e is an “unr elated se rvice .” Se e id
. The pa rties ag ree that the excavation and ba ckfilling service s at issue
me e t the fi rs t pr on g of

thi s te st— i.e. , t h ey ar e no n -t ax ab l e se rv i ce s . T h ei r d i s p u t e c en t er s o np ro n gs tw o a nd thr e e and wh e the r e xcavatio n a

nd ba c kf ill ingse rv ic e s are a

ty pe of se rv ic e that is c omm on ly prov i d ed o n a stand-alone basis and whe ther the pe rfor mance of such se rvice s is dist inct and identifiable. At trial, Chevron witness Mark Hildebr and testified that a lthough Chevr on at times ha s e xcavate d and ba c kf

ill e d its pip e lin e s wi tho ut re pa ir ing the m, that is no t w hat ha pp e ne d in thi s
case . Acc ording to H ildebrand’ s testimony , Chevron had alre ady deter mined that the pipelines we re14

in need of

repa ir, and Chevr on excavated the pipel ines for the sole purpose of perf orming the
nece ssary repa irs. Hildebra

nd testified that the under g round pipelines could not be r ecoated without excavatingand bac kfilling a nd that there wer e no instance s befor e the trial court in which Che vron contra cted solely

for e x cavation and backf

illing servic es. On cross-e x amination, Hildebra nd ag ree d tha t th e b a s ic p u r

p o s e o f a ll th e c o n tr a c ts a t is s u e w a s f o r r e p a ir an d r e c o a ti n g s e r v ic es for which
e xcavatio n w a s r e qu ir e d, and no t f or e xcavatio n a

nd ba c kf ill ingse rv ic e s o n a

sta nd -a lon e ba sis
. Whe n, a s h e re , a

no n- ta xab le se rv ic e is b un dle d w ith th e purc ha se of a ta xab le
se r v ic e , T e xa s c o urts a

p p ly th e “ e s s e n c e o f th e tr an s a c ti o n ” d o c tr in e to d e te r mi n e w h e th er the transac tion as a whole is taxable or non-tax able. See B ullock v. S t a t i stical Tabul ating Corp. , 549 S.W. 2d 16 6, 16 7 (Tex
. 19 77 ) (a

pp lying“ e sse nc e of

tr ans a c tio n” te st t o d e te rm ine wh e the r s a le is ta xab le ); Ry lan de r v . Sa n An ton io S MS A Lt d. P’ sh ip , 11 S.W .3d 484, 487 (Tex. App.—Austin 2000,
no pe t.) (s ame ); Sharp v. Direc t Res. for Print, Inc. , 9 10 S.W. 2d

53 5, 53 8- 39 (T e x. Ap p. —Aus tin 19 95 , w ri t de nie d) (s ame ). I f t he re a l ob je c t of a mixe d tr ansact io n is th e purc ha se of a ta xab le
se rv ic e , a nd oth e r n on -t a xab le se rv ic e s a re inc ide nt t o th a t pu

rc ha se, th en th e entir e tr ans a c tio n is taxable. See Statistical Tabulat ing Corp. , 5 49 S.W. 2d a t 16 8; San Antonio SMSA , 11 S.W .3d at 487; Di re c t R es. , 910 S.W .2d at 538. I f, howeve r, the essenc e of the transa ction is the purcha se of anontaxable service , which incidenta lly includes the purc hase of another taxable se rvice , then the entire transac tion is non-taxable. See San A ntonio SMSA , 1 1 S. W.3 d at 48 7; Di re c t R es. , 910 S.W .2d at 538. Th e e vid e nc e pr esen ted a t tr ia l in dic a te s th a t Ch e vr on ’s purc ha se s o f n on -t a xab le excavation and backf

illing service s wer e incident to its purcha ses of taxable r epair and re co at ingWe rejec t Chevron’s conte ntion that ex cavation and backf illing service s should be treated 10 as non-taxable in those instance s where the costs for suc h service s are itemiz ed, or br oken out, from the total invoiced amount. The C o m p t ro l l er has previously deter mined that “sepa

rate billing for differ ent components of a single transac tion will not cause the components to be taxed separ ately .” SeeL etter Ruling No. 20010267L (Tex. Comptroller of Pub. Ac counts 2001). The Comptroller’s deter minat i o n is consistent with thi s Court’s holding in Rylander v . San Antonio SMSA Limited Pa rtn e rsh ip , 11 S.W .3d 484 (Tex. App.—Austin 2000, no pet.). 15 service s. Chevron hired the same third-par ty contra ctors to pe rfor

m both e x cavation and backf illing service s as well as the repa ir an d re co ati ng service s. Moreove r, as e x plained by Hildebra nd, the proce ss worked like one continuous assembly line. One c rewwould excavate the pipeline; another would repa ir or re coat the pipe line; and another cre w would follow alongand bac kfill the pipeline once the repa irs wer e completed. I n addition, Hildebra nd testified on cr oss-examination that all of the invoices reflec ted costs for both excavation and backf illing s ervic es as well as pipeline repair or
re c oatin g se rv ic e s. 10

Vi e wi ngthe re c or d a s a

wh ole , g ivi ngc re dit

to a ll e vid e nc e fa

vo ra ble to t he ve rd ic t, we f ind t h at n o reasonable f

act- finder c ould have ig nored H ildebrand’ s uncontrover ted testimony that Chevron did not contra ct s olely for ex cavation and backfilling service s and that the underlying purpose of

all of the c o n t ra ct s at issue was taxable re pair a nd rec oating service s. Moreove r, no
re a so na ble fa c t- fi nd e r co uld have de te rm ine d that the e sse nc e of the tr ans a c tio ns a t is su e wa s so le ly the purc hase of

non-taxable excavation and ba ckfillin g s er v ices. Ac cording ly , we c onclude ther e was leg ally sufficie nt e vidence to support the trial court’ s findings that excavation and bac kfilling service s were require d to perfor m the repa ir and recoating se rvice s and that such se rvice s were not distinct and identifiable and, therefor e, did not constitute an “unr elated se rvice ” within the meaning of Rule 3.357(a)(15). We also conclude that the evidenc e wa s leg ally sufficie nt to support the trial16

c o u rt’ s c o n c lu s io nth a t C h e v r o n ’ s p u r c h a s e o f e xc av a ti o nan d

b a c k f il li n g s e r v ic e s w a s s u

b je c t t o tax. We overrule Chevron’s se cond issue.
CO NC LU SION

Ha vin g e xami ne d the e vid e nc e pr e se nte d at tr ia l, w e c on c lud e that th e re wa s le g a lly
s u f f i c i e n te v i d e n c e t o s u

p p o rtth e t r i a l c o urt ’ s f

i n d i n g s o f f a c tan d c o n c l u s i o n s o f

l aw . A c c o r d i n g l y,
we a ff ir m th e tr ia l c ourt ’s jud g me nt.

__________________________________________ J an P. Patterson, J ustice Be fore J ustices B . A. Smith, P atterson a nd Pury ear Affir med Filed: August 4, 2006