Real Property Repair and Remodeling
Important Rules
Labor to repair, remodel, or restore residential real property is not taxable.
Residential real property includes family dwellings, apartment complexes, nursing homes, condominiums, and retirement homes. It excludes hotels or residential properties rented for less than 30 days. Ownership residence is not required.
Nonresidential real property (hospitals, offices, refineries, warehouses, parking garages, retail shops, restaurants, manufacturing facilities, etc.) is taxable for repair, remodel, or restoration work.
For multiple-use properties (both residential and commercial), contact the Texas Comptroller for specific guidelines.
Residential Repair and Remodeling
When repairing or remodeling residential property, you are considered a contractor.
Contracts types:
- Lump-sum contract: One price for the entire job.
- Pay tax on all supplies, materials, equipment, and taxable services when purchased.
- No tax charged to customer.
- Separated contract: Separate charges for materials and labor.
- Provide resale certificates for materials and specific services (surveying, landscaping, final cleanup, security systems).
- Collect state and local tax on materials and services.
- Labor charge is not taxable.
Nonresidential Repair and Remodeling
Taxable Jobs Include:
- Rebuilding real property
- Upgrading structures
- Replacing structural parts (excluding minor maintenance like machine belts)
- Repairing damaged, broken, or defective structure components
- Reroofing and repainting (unless maintenance)
Collecting Tax:
Collect state and local sales tax on the total charge, including passed-on costs (excluding building permit fees).
Using a Resale Certificate
Provide to suppliers for materials incorporated into real property.
Applicable for services like waste removal, janitorial, landscaping, surveying, and security systems integral to contract completion.
Accepting a Resale Certificate
Subcontractors can provide resale certificates instead of paying tax.
The prime contractor collects tax from the customer.
Natural Disasters
Labor for repairing nonresidential property in federally or state-declared disaster areas is not taxable.
Materials remain taxable.
Contracts must separately state labor and materials.
Real Property Repair and Remodeling Contracts with Exempt Organizations
Exempt Entities:
- Governmental agencies (federal, state, local)
- Some nonprofit organizations (with exemption certificate)
Exemption Applies To:
- Tangible property consumed at the job site
- Integral taxable services purchased for the job
Tax Still Applies To:
- Machinery, equipment, repair parts
- Office supplies, furniture, computers
Maintenance of Real Property
Maintenance: Scheduled, periodic, preventative work (non-broken property).
Charges are not taxable.
Contractor must pay tax on materials used.
Documentation must confirm services are scheduled and periodic.
Materials and incorporated parts remain taxable.
Can be under lump-sum or separated contract.
Increased Capacity of Chemical Plants and Petrochemical Refineries
Labor to increase production capacity or produce new products is not taxable.
Applies to petrochemical refineries and chemical plants.
Refer to Administrative Rule 3.362 for details.
Contracts:
- Lump-sum: Pay tax on purchases; no tax charged to customer.
- Separated: Provide resale certificates for materials; collect tax on materials.
New Construction
Non-Taxable Labor Includes:
- New structures
- Completing unfinished structures
- Initial interior/exterior finish out
- Building/repairing homes, duplexes, apartments, nursing homes, retirement homes (excluding hotels)
- Repairing disaster-area damaged property (labor stated separately)
Collecting Tax:
- Lump-sum: Pay tax on purchases; no tax charged to customer.
- Separated: Provide resale certificates for materials/services; collect tax on materials.
If Your Contract Involves New Construction and Real Property Repair
If remodeling > 5% of total charge, total presumed taxable.
Overcome presumption by separately stating charges.
Acceptable documentation includes contracts, bid sheets, tally sheets, schedules of values, blueprints.
Facing a Sales Tax Audit in Texas?
Contact our attorney for a consultation.
Frequently Asked Questions
Is labor for residential property repair or remodeling taxable in Texas?
No, labor to repair, remodel, or restore residential real property is not taxable in Texas. This includes homes, apartments, nursing homes, and similar properties, but excludes hotels or rentals for less than 30 days.
When is labor for nonresidential property considered taxable?
Labor for nonresidential real property, such as offices, hospitals, or restaurants, is generally taxable when it involves rebuilding, remodeling, or replacing structural components. Routine maintenance is not taxable.
What is the difference between lump-sum and separated contracts?
In a lump-sum contract, a contractor pays tax on materials and does not charge tax to the customer. In a separated contract, materials and certain services are itemized, and the contractor must collect sales tax on those charges but not on labor.
How are taxes handled for exempt organizations?
Exempt entities like government agencies and qualified nonprofits do not pay tax on materials and services used directly for the job. However, they must still pay tax on unrelated purchases like equipment or office supplies.
Does a natural disaster affect taxability of repair services?
Yes. In federally or state-declared disaster areas, labor for nonresidential property repair is not taxable if stated separately in the contract. Materials remain taxable regardless.