The place to find business sales tax information

— as well as solutions, services and jobs!

Texas Construction Taxation: Sales & Use Tax Explained

author photo of Susan Goertz

If you are a construction company and/or contractor with Texas activity - and you are trying to make sense of sales and use tax issues - this post is one to bookmark.

The post includes an overview of key issues - and also includes a link to a very helpful Texas Construction Tax FLOWCHART (below) which provides a helpful visual element.

Texas Tax Rule 3.29 - How Contractors Should Tax Their Customers - Explained Visually:

Texas Tax Rule 3.291 outlines the rules for how contractors should tax their customers and how they should pay tax on the materials and other consumables that are used in construction jobs. This rule is quite simply one of the most difficult rules to get right. Contractors as well as the auditors who audit them have a hard time applying the rules properly. There are a lot of idiosyncrasies in the rule itself along with policies and procedures employed by the State during the audit process. There are also a large number of blogs and magazine articles out there that can be two or three thousand words long that try to explain how a construction company should collect and remit tax to the state. There is even a book being sold for $80.00 by a Texas CPA firm that you can buy if you wish. What is missing though is a simple flow chart which allows the contractor, estimators, controller or bookkeeper who works for the contractor to apply the appropriate taxability to a job depending on the many factors that must be considered. We’ve developed that flowchart that we share with all our contracting clients and would like to now share it with you—for free. Click the following link to access the Texas Construction Tax FLOWCHART.

Hierarchy of Prevailing Documents in a Texas Sales and Use Tax Audit:

Contractors have varying ways in which they keep their records. Some have complete and organized job files, and some don’t. Depending how the records are retained and organized, it can be very challenging during an audit for an auditor to make an appropriate decision about the job - which for some contractors can be detrimental. A very important part of the contractor rule that many (if not most) contractors are completely unaware of, is that there is a hierarchy of documents. In other words, if your invoice says one thing and your contract says another, which is the one that counts? In an audit by the State of Texas Comptroller’s Office the hierarchy of prevailing documents is:

  1. Contract
  2. Bid
  3. Invoice

Unfortunately, during an audit, it is not simply what you know happened—it’s what you can prove happened. If a contract exists it usually has all the information needed to prove the work was commercial or residential, new construction or remodel, billed lump sum or separated. These factors are very important in determining whether tax is due on the contract or if the contractor pays tax on the materials that are incorporated into the job. A bid typically has less detailed information and an invoice often even less. You do not want to leave it to the discretion of the auditor as it may not go in your favor.

A Sample "Gotcha" ? Consider Fence Construction:

What might appear to be a “new construction” fence may not be. If the fence is bolted down (for example) to a retaining wall or concrete footings, the State considers that fence tangible personal property and it is fully taxable; both labor and material. Also, if you have 100 feet of fence and you tear down 80 feet of that fence and replace with all new material, it’s considered a remodel, not new construction. If you leave any part of the existing fence, it’s considered remodel.

There are other nuances to the state tax laws concerning the construction industry so if you are unsure you can take advantage of our free 30-minute consultation offer and get some expert advice.

Susan Brown-Goertz is the Senior Partner of Brown Goertz & Co., a firm which offers state and local transaction services including refund engagements, compliance, sales and use tax planning, due diligence, audit representation, exposure analysis, and taxability matrices. Susan has extensive experience in the hospitality, technology, construction and manufacturing sectors.

Do you have questions about TEXAS (and/or multi-state) sales tax - or does your business need assistance with other tax issues? Susan welcomes inquiries from SalesTaxSupport.com users and offers a complimentary 30 minute consultation to established businesses with sales or use tax issues or concerns. Please use the "Request a Consultation" link on FIRM PROFILE page to submit your question or consultation request.

Other recent “Texas (TX)” posts by Susan Goertz:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

Comments

2 Responses to Texas Construction Taxation: Sales & Use Tax Explained

  • Posted by Kevin on October 10, 2017 7:57am:

    Hello,
    I was hoping you could tell me a good Sales and/or Franchise tax seminar to attend in Houston or around that area in late 2017/early 2018. Do you offer any such seminars?

    • Posted by Susan on October 10, 2017 4:28pm:

      Hi Kevin. Honestly, a review of your company, your products and services, contracts, invoices and processes would be much more beneficial to you. A seminar that is offered across many different industries would be too vague and leave you with more questions than answers. We do offer training specific to clients and their businesses. Two companies in the same industry may have different tax treatments depending on the products / services they offer, how they contract with their customers, how they bill their customers and how they interact with their vendors. We should have a phone conference to discuss your needs and how my firm can assist you in ensuring compliance in Texas and the other states where you interact business.

      I have availability Thursday morning and Friday morning if you are available for a call?

      Thank you for your request and I look forward to speaking with you.

      Susan Goertz
      Brown Goertz & Co.

Submit a comment or question - only your first name will appear

Disclaimer:

Access to any portion of SalesTaxSupport.com is contingent upon your acceptance of our Terms of Use. This Web Site and content provided by STS Publishing, LLC and its third party content providers, including, but not limited to information, documents, forms, comments, advice and opinions, is for informational purposes only, and is not a substitute for professional advice, nor does the use of this Web Site constitute a professional-client relationship. The Web-Site also includes advertisements, directory listings, job postings and links to third party web sites, all of which are provided for your convenience only and in no way constitute a referral, endorsement, or warranty by SalesTaxSupport.com of any product or service provided by such third parties. All content is provided “as is” with no guarantee regarding accuracy, suitability, or timeliness. Your reliance on any content accessed on or through the Web Site, or on any product or service provider is strictly at your own risk.