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Surprising Texas Sales Taxes for Residential Building Contractors

  • 27 October 2015
  • Author: Cari Holbrook
  • Number of views: 4197
Surprising Texas Sales Taxes for Residential Building Contractors

More people are building again these days, which is great for building contractors. But, as it is for other business owners who perform contract work, figuring out which goods and services are taxable can be a confusing endeavor.

The taxability for a building contractor on each project is based on three main factors: residential versus commercial, new construction versus repair/remodel, and separated billing versus lump sum billing. One area that is particularly tricky to master is residential repair/remodeling. According to the Texas Comptroller of Public Accounts:

Residential structures in Texas are defined as houses, apartments, condominiums, nursing homes and retirement homes. It’s important to note that hotels, motels, hospitals, rehabilitation centers, prisons and RV parks are not residential structures. Generally, labor costs to repair, remodel or restore residential property are not taxable in Texas. However, materials are.

In a separated contract with the homeowner (one in which materials and labor are charged separately), suppliers can be given resale certificates which will pass any applicable state and local sales taxes on to the homeowner. This replaces paying tax on materials the contractor incorporates into the customer's real property and on certain services if the charges for the services are separately identified to the customer. 

Under a lump-sum contract, the tax burden falls on the contractor, not the homeowner. The contractor pays taxes on all supplies, materials, equipment and taxable services when they are purchased. As the Texas Comptroller explains, the building contractor is considered the ultimate consumer under a lump-sum contract, whereas in a separated contract, the building contractor is a reseller.

Some “real property” services are not taxed in Texas if they fall under a contract to build a new residential structure or to improve property next to a new residential structure. Examples include new rooms, sidewalks, swimming pools, gazebos, garages, fences, sprinkler systems, decks, retaining walls, driveways, fish ponds and patios. Services that can be included in this “tax free zone” are certain types of landscaping, lawn and yard maintenance, garbage removal, cleaning services, structural pest control and surveying.

It’s certainly not an easy minefield to navigate. Each homeowner may require different tax considerations and tax considerations may vary from state to state. The considerations outlined above are for building contractors in Texas. Contractors in other states should consult a local taxing authority. For specific questions, feel free to contact us.

Image Copyright: iriana88w / 123RF Stock Photo

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