Overview
Labor to repair, remodel, or restore residential real property is not taxable… but there’s a BUT coming up!
Residential real property means family dwellings, including:
- Apartment complexes
- Nursing homes
- Condominiums
- Retirement homes
It does not include:
- Hotels
- Residential properties rented for periods of less than 30 days (this is the BUT)
- (See Code (a)(12) below)
Long-Term vs. Short-Term Rentals
If the rental properties you renovate are long-term rentals, labor is not taxable.
However, if those are short-term Airbnb rentals, labor is taxable (assuming the stay is less than 30 days).
Short-Term Rentals:
Treated as a commercial property job. The whole invoice is sales taxable.
Invoicing for Long-Term Rentals
Under long-term rentals, there are 2 ways of invoicing customers:
(See Code (b)(3)(4) below)
1. Lump Sum Invoices
- The lump sum invoice does not separately list labor and materials.
- You will pay all the taxes when you buy the materials needed for the jobs.
- Then, you will charge your customers a total for the job on the invoice, like “renovations.”
- No sales tax is needed on the invoice.
2. Separate Invoices
- The separate invoice lists labor and materials separately.
- You do not pay any taxes when you buy the materials needed for the jobs.
- You issue a resale certificate.
Then, you will charge your customers an itemized invoice for the job, like:
- “Renovations – materials”
- “Renovations – labor”
Sales tax needs to be added to the “renovations – materials.”
Legal References: Contractor Flowchart
RULE §3.291 Contractors
(a)(12) Residence or Residential Property
Property that is used as:
- A family dwelling
- A multifamily apartment or housing complex
- Nursing home
- Condominium
- Retirement home
Includes:
- Homeowners association-owned and apartment-owned swimming pools (for use of homeowners or tenants)
- Laundry rooms for tenants’ use
- Other common areas for tenants’ use
Does not include:
- Hotels
- Any facilities subject to hotel occupancy tax
(b)(3) Lump-Sum Contracts
(A) A contractor who performs lump-sum contracts owes tax on all materials, consumable items, equipment, taxable services, and other taxable items used in the contract. Contractors must:
- Pay tax to suppliers at purchase
- Accrue and remit use tax on out-of-state purchases if sales tax wasn’t collected
They cannot charge customers sales tax on lump-sum charges unless explicitly allowed.
(B) Contractors may maintain a tax-free inventory for resale items. They can issue resale certificates but must hold a sales tax permit.
(C) Contractors owe sales or use tax on resale items used in taxable manners.
(D) Contractors may not accept direct payment exemption certificates for lump-sum contracts.
(E) Ready mix concrete contractors must:
- Separate charges for concrete
- Issue resale certificates for components
- Collect and remit tax on concrete
- Apply local tax rates
- Consider fair market value for tax calculations
Contracts prior to September 1, 2007, are excluded from these rules if taxes can’t be passed through.
(b)(4) Separated Contracts
(A) Contractors performing separated contracts are retailers of all materials incorporated into the property and must:
- Collect tax on materials
- Apply tax to either contract price or purchase price, whichever is greater
- Collect tax on taxable services and consumables
- Accept valid resale or exemption certificates
(B) Contractors must hold a sales tax permit and collect, report, and remit tax accordingly.
(C) Contractors with tax-paid inventory must collect tax on resale but may claim credits on tax previously paid.
(D) Contractors may issue resale certificates for certain services, like:
- Landscaping
- Surveying
- Security services
- Construction site final clean-up
They cannot issue resale certificates for services consumed by them.
(E) Contractors improving realty for direct payment permit holders may accept exemption certificates on materials but owe tax on equipment used.
Conclusion
Is there sales tax on labor for residential rental property repairs in Texas?
The answer depends on whether the property is long-term or short-term rental. For long-term rentals, labor is not taxable; for short-term rentals, labor is taxable and treated as commercial property. Proper invoicing methods and understanding tax codes are crucial for compliance.
Frequently Asked Questions
Is labor on residential rental property repairs taxable in Texas?
Labor is not taxable when performed on long-term residential rental properties such as apartments, condos, or retirement homes. However, if the property is rented for less than 30 days at a time (e.g., Airbnb or short-term rentals), it is considered commercial, and labor becomes taxable.
What qualifies as a residential property under Texas tax rules?
Residential property includes family dwellings like apartment complexes, condominiums, nursing homes, and retirement homes. It also extends to tenant-only shared facilities like laundry rooms and pools. Properties like hotels and short-term rentals (less than 30 days) do not qualify.
How is labor taxed for short-term rental renovations?
Labor for short-term rentals is fully taxable because the property is treated as commercial use. Sales tax must be charged on the entire invoice, including both materials and labor, regardless of how it’s itemized.
What are the tax implications of using a lump sum invoice for long-term rental renovations?
With a lump sum invoice, where labor and materials are not separately stated, the contractor pays sales tax upfront when purchasing materials. Customers are billed a total amount for the job, and no sales tax is added to the invoice.
When should contractors use separate invoicing for tax purposes?
Contractors should use separate invoicing when they want to itemize labor and materials. In this case, they must issue a resale certificate when purchasing materials and charge sales tax only on the materials listed on the customer invoice. Labor remains non-taxable for long-term residential jobs.