Texas sales tax for contractors: residential vs. nonresidential work

Texas sales tax trips up a lot of contractors because the same job can be taxed differently depending on where it's done and how it's billed. These are the general rules from the Texas Comptroller's guidance on real property repair and remodeling.

Residential repair and remodeling: labor is generally not taxable

Labor to repair, remodel or restore residential property is generally not taxable. Residential property includes homes, apartment complexes, condominiums, nursing homes and retirement homes. Hotels and properties rented for less than 30 days are not treated as residential.

Nonresidential repair and remodeling: the total charge is generally taxable

For nonresidential property such as offices, warehouses, restaurants and stores, the total charge for repair or remodeling, including labor, is generally taxable. For a service business doing both kinds of work, this is the single most important distinction to get right on every invoice.

Lump-sum vs. separated contracts

• Lump-sum (one price): the contractor generally pays tax on materials when buying them and does not charge the customer sales tax on the job.
• Separated (itemized): the contractor can generally buy incorporated materials tax-free with a resale certificate and then collects tax from the customer on the materials, which are listed separately from labor.

Maintenance and new construction

Scheduled, periodic maintenance on property that isn't broken is treated differently from repair, and new construction has its own rules. Documentation matters: keep records that show what kind of work each job was.

Where bookkeeping comes in

Getting sales tax right starts with your books: jobs flagged as residential or nonresidential, materials tracked by contract type, and tax collected and reported in the right period. That's why our Texas sales tax add-on includes a review of taxable vs. non-taxable jobs, not just the filing.

Source: Texas Comptroller of Public Accounts, Publication 94-116, Real Property Repair and Remodeling. This article is general information, not tax advice. Rules have exceptions and can change, so confirm your situation with the Comptroller or a tax professional.