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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. What is missing though is a simple explanation that people can connect with.  In conjunction with this explanation, we have created a 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.

Make sure you know the difference between New Construction and Remodel

One definition of New Construction is the obvious - from the ground up construction.  A building where there previously was not a building.  New construction is also the first build-out of a space; even if that building or suite has been sitting empty for five years since the building was first built, the first finish out is considered New Construction.  Anything after that, is Remodel.  Even if you gut the entire space and finish it out again, that's a remodel.  If all the walls of a building are taken down and only the slab remains, the subsequent work to rebuild the building is New Construction.  

One not so obvious example to be aware of plagues fence contractors.  What might appear to be a New Construction fence may not be. If the fence is bolted down 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.

Residential versus Commercial

I've recently consulted with quite a few contractors who aren't fully versed in what qualifies as residential and what is commercial property.  The State of Texas considers any property where people live for more than 30-days residential.  Let's take a deeper look at apartments.  Apartments are residential.  Any common areas of the apartment complex are residential; the pool, the fitness center, the clubhouse, the gate leading into the complex.  The only area of an apartment complex that would be considered commercial and therefore subject to different taxation than residential is the sales office.  Many apartment complexes have the sales office in the clubhouse.  If you are doing work for an apartment complex and there is work to do for both common areas and the sales office, you should bill those separately. If it's remodel work, the sales office work would be fully taxable where the common area work would be taxable depending on how you billed the job.  

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 Managing 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

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

  • Posted by Jim on January 21, 2019 5:34pm:

    Are landscaping (planting) services taxable if the materials (trees) are provided by homeowner? Trees were purchased from a separate vendor who charged sales tax on the trees.

    • Posted by Author photo of Susan Goertzsusangoertz on January 22, 2019 1:35am:

      Hi Jim. Yes, planting trees is landscaping which is taxed under the real property services rule. Both labor and materials are taxable so if you are only providing the labor, it is still taxable. Hope that helps. Please let me know if I can assist you further.

      Susan

  • Posted by MARCO on January 17, 2019 12:21pm:

    Hi, we are a G.C. that does parking lot and paving. We are based in IL but do work in TX. We use subcontractors in TX. We are charged sales tax on materials purchased on the jobs. Are we allowed to take a "credit" on these sales tax we pay "downstream" against the Sales and use tax we file every month?

    Ex: in Dec we paid $1000 in sales tax on materials. We collect $2000 in sales tax from the client on the job. Do we remit the entire $2000 or just the $1000 (when we file our sales and use return?

    Is TX a state that gives us credit for paying tax downstream?

    • Posted by Author photo of Susan Goertzsusangoertz on January 22, 2019 8:13am:

      Hi Marco. The answer to this question depends on the type of job and how the sub is billing you.

      For example: if it's a new parking lot and the sub bills you lump sum, there should be no tax on materials due from you. The sub will pay tax on the materials when they purchase from the vendor. If the sub bills you separated, materials and labor separately stated, then it depends on how you are billing your customer. If you are billing your customer lump sum, you should pay tax on the materials to your sub. If you are billing your customer separated, then you would give a resale certificate to the sub and they would not charge you tax on the materials (this all assumes that you are permitted in Texas).

      If the job is a repair / remodel job, then you should be taxing your customer on the full amount of the job and give a resale certificate to your sub. If you pay tax to the sub in error, you can reduce the amount of the taxable sale by the taxable amount you paid your sub. Your $2K / $1K example above.

      Hope that helps. Please let me know if you have any additional questions.

      Susan

  • Posted by Rachel on January 16, 2019 1:31pm:

    Susan,
    I sent you a question earlier about build outs but I think I answered my own question. I will have to take all the sales tax off of the sub/suppliers invoices, send them a Texas Sales and Use Tax Resale Certificate, and bill my customer the tax and report it. I sat down and was thinking about it and it popped in my head.

    • Posted by Author photo of Susan Goertzsusangoertz on January 22, 2019 8:21am:

      Hi Rachel. The first finish out of a space is considered new construction. Because you are billing your customer “separated” materials separate from labor, you should be taxing your customers on the materials only and giving a resale certificate to your vendors. If the job is not a first finish out, then it is remodel and the only change is that you tax your customer on the whole amount; labor and materials and your markup and you would give a resale certificate to your vendors. Hope that helps. Please let me know if you need more. Thank you!

      Susan

  • Posted by Rachel on January 16, 2019 12:02pm:

    Good afternoon Susan,
    When doing a commercial build-out construction (empty space only exterior walls no inside walls, lighting,) as a GC I do understand that this is taxable just like a re-model everything goes, but now my question becomes tricky for me. The job is being done as a cost plus %, so we have to show our customer all the invoices and then add on the percentage on MY invoice which does list each invoice. Each of our subs/suppliers have already charged tax on their invoice so in order for me to show tax on my invoice do I go take tax off of their invoice for show purposes and add all the tax together on MY invoice so I know how much to report at the end of the month?
    Ex: ABC invoice shows $5 with .41 tax total of $5.41
    My invoice, as pulled from quickbooks by checking the billable box, shows $5.41 for that line on my invoice, do I need to adjust each of my line items on my invoice to show the invoice amount for ABC as $5 then add all my suppliers tax together to come up with tax for the Tax on my invoice?

    I really appreciate this website and do thank you in advance for your help.

    • Posted by Author photo of Susan Goertzsusangoertz on January 22, 2019 8:21am:

      Hi Rachel. I replied on your other comment.

  • Posted by Kaci on January 15, 2019 12:03pm:

    Hi Susan,

    On a commercial remodel where everything is taxable, does this include the cost of payment and performance bonds? It has been my understanding that bond cost is not included in the taxable amount. Thanks in advance!

    • Posted by Author photo of Susan Goertzsusangoertz on January 15, 2019 12:49pm:

      Hi Kaci. If you include the price for the bonds in your lump sum price, the whole lump sum price is taxable. In order for the bonds to not be taxable, you would need to break them out separately.

      Hope that helps. Thank you for your question.

      Susan

  • Posted by John on January 11, 2019 11:18am:

    Facts: Sales tax regarding renovation and new construction for a school district which is a tax exempt entity.
    Question: What part if any of these 2 types of construction is a school district possibly responsible to paying sales tax? The specific question came from an attempt to possibly charge sales tax to the district for equipment rentals for the project? Please advise...

    • Posted by Author photo of Susan Goertzsusangoertz on January 13, 2019 4:55am:

      Hi John. If you charge your tax exempt customer for equipment rental, it is not taxable to them but is to you. You are the user of the rental so you have to pay tax when you rent it, even if you "resell" it to your customer. Hope that helps.

      Susan

      • Posted by John on January 13, 2019 8:01pm:

        Thanks for the answer. However, to follow up can the contractor who does the work for the school district that is tax exempt file or request a refund from the state as the work was done for a tax exempt entity?

        • Posted by Author photo of Susan Goertzsusangoertz on January 15, 2019 12:50pm:

          Hi John. I assume we're still talking about equipment rental? If so, then the answer is no. The equipment is being used by you and you are not exempt.

          Hope that helps, please let me know if I can assist you further.

          Susan

  • Posted by Tara on January 4, 2019 10:04am:

    I have a client that does janitorial services and wants to know if he is supposed to charge sales tax on a Make Ready clean of a newly constructed commercial building. It's a one time clean after construction has been done to have it ready to open for business. I cannot find anything that states yes or no on this particular issue. Any help you could provide would be greatly appreciated.

    • Posted by Author photo of Susan Goertzsusangoertz on January 7, 2019 8:32am:

      Hi Tara. Thank you for your question. Yes, construction cleaning is taxable. See this link for support:

      https://star.comptroller.texas.gov/view/8802L0856A01?q1=new%20construction&q2=cleaning

      Thank you and have a great week!

      Susan

      • Posted by Tara on January 7, 2019 8:55am:

        Thank you so much Susan, you are a great help.

  • Posted by Robert on December 14, 2018 2:07pm:

    Susan, Great replies to the questions I read. And my apologies if you already covered this same question. I did read about 20 and did not find the exact thing I have an issue with.
    We are a contractor with multiple offices around the county, including Houston, corporate in MA. We manufacture our own products in NC but of course do also buy job materials locally as needed in TX. We work on mostly retrofit projects, commercial office buildings, condominium projects, hospitals, . A few questions come up. First. we currently contract for design, materials, labor, one fixed price and apply tax 8.25% to that total. Then report and pay to the state, on all projects excepting ones that present tax exempt status, hospitals, education, state or fed. That is how I understood it works in TX. Is that correct?

    We have been asked frequently to break out the tax in our bid package to be on materials only, not labor. And I believe that is incorrect.. With the customer is always right issue I have to try and walk a line on my replies, and my uncertainty of the answer makes it even more difficult. In most every other state we only tax the materials not the labor at all.
    But from my questions you can see I am uncertain in know the correct answer or policy. TX does have some difficult to navigate tax laws.

    • Posted by Author photo of Susan Goertzsusangoertz on December 18, 2018 2:56am:

      Hi Robert. Yes, you are correct, it can get a little dicey especially when you have customers who request that you do something that within the tax law doesn't fit.

      Sounds like with the word "retrofit" those jobs are remodel jobs? If they are commercial, then yes, you should be taxing your customers on 100% of the job whether it's billed lump sum or separated. If they are new construction, you would only tax materials if billed separated.

      You mention condominiums. Anywhere people live for more than 30 days is considered residential so condos would be residential and not commercial. In the above scenario, you would not bill your customer tax if contracted lump sum and would bill tax on materials only if separated --- exactly the same as commercial new construction treatment.

      Sometimes these kinds of questions are better talked through live. If you'd like to discuss with me in more detail, please contact my admin, Amber at 469.352.9616 and she'll schedule a free consult for us.

      Hopefully, I've helped. Have a great holiday!

      Susan

  • Posted by Craig on December 14, 2018 10:46am:

    Susan,
    I have a question regarding rental equipment used for a commercial / ISD project. I rented aerial equipment and used it for a commercial / ISD job and have asked the rental company to remove the sales tax. I can not charge sales tax to a school district since they are exempt. I also have a contract with this school district to supply my services and materials. My question is since the rental of the equipment was only used for this customer, do I have to pay sales tax to the rental company for the equipment? I did supply the rental company with my Tax id number, however the keep claiming I need to pay them sales tax. Thank you in advance,

    • Posted by Author photo of Susan Goertzsusangoertz on December 18, 2018 2:58am:

      Hi Craig. Since you are the "user" of the rental equipment, you owe tax. The use of that rental on an exempt job doesn't exempt you from paying tax on it. Hope that helps. Please let me know if I can assist further. Thank you!

      Susan

  • Posted by Dee on December 13, 2018 4:50pm:

    I have a question that I hope you can answer and clarify for me. Let's say Company A hires Company B to do some repair work at a facility. They need doors replaced and or repaired. Company B then subcontracts Company C to do the work for them. Company B &C is in one state and Company A is in another state. I am with Company C that needs to Invoice Company B for the work that we performed for them. Do I charge them sales tax on the work that we performed? And if so, is it the tax for the state in which the work was performed. I am just confused because we were subcontracted and wasn't sure how the tax rules applied. Thanks and I look forward to your response.

    • Posted by Author photo of Susan Goertzsusangoertz on December 18, 2018 3:01am:

      Hi Dee. Hopefully, I've understood your question correctly. Sounds like the work was done out of state? If so, there would be no tax due to Texas. Only tax would be due to the other state if you have Nexus there and if you are permitted there. Make sure to keep good documentation about where the job was done.

      If the job was done in Texas, then you should get a resale certificate from Company B and not charge them tax. They should charge Company A tax.

      Hope that helps. Please let me know if you need further assistance.

      Susan

  • Posted by Frances on December 12, 2018 6:29am:

    My question is about Fuel Surcharges or Cost Recovery charges. Does it matter how you list the item to where it becomes taxable or non. Fuel surcharge is taxable if the related sale item is taxable. But Cost Recovery charges- if you are adding a line item to the invoice, would it still be taxable?

    • Posted by Author photo of Susan Goertzsusangoertz on December 12, 2018 6:31am:

      Hi Frances. What is a cost recovery charge for?

      Susan

  • Posted by Dora on December 10, 2018 7:33am:

    Good morning,
    I have a supplier that doesn't believe they should be charging me sales taxes on a freight. The goods is for a taxable project because its new0 construction. What would be another reason why they would ONLY charge me taxes on materials and not on freight? They are using a common carrier to deliver.

    We are located in Texas and shipment is for a Texas location as well.

    • Posted by Author photo of Susan Goertzsusangoertz on December 10, 2018 7:57am:

      Hi Dora. Freight is taxable to the extent that the "thing" being shipped is taxable. Third party freight is not taxable.

      How that applies to you. If you are purchasing material for a new construction job that you are contracted with your customer lump sum, then you should pay tax on the materials. The common carrier will bill the vendor to ship the material to you and does not charge your vendor tax (because it's third party freight). But, if your vendor adds freight charges to your invoice, then that freight is taxable.

      You can reference this document for your vendor if you need to:

      https://star.comptroller.texas.gov/view/9110H1140A01

      See the second full paragraph under "Conclusions of Law" that states:

      "effective October 1, 1987, all transportation charges, billed by a seller of a
      taxable item to the purchaser, are part of the taxable sales price.
      Transportation charges are not taxable only if the customer separately
      contracts for shipment, and pays the carrier directly."

      If your vendor refuses to tax the freight, you can always remit the use tax on the freight directly on your Texas sales and use tax return under the Taxable Purchases field of the return.

      Hope that helps. Please let me know if you need more assistance.

      Susan

      • Posted by Paul on January 18, 2019 9:43am:

        Hi Susan,

        I was hoping that you would clarify on your comment that third party freight is not taxable. In the Comptroller's Decision that you referenced the letter was responding to a seller's contention that the third party freight contracted separately by the customer was not the responsibility of the seller to assess, collect, and remit to the state. I am not aware of any exemption from tax for the purchaser just for the fact that a third party carrier was involved. The Texas Admin. Code §3.303(b) states that "a third party carrier will not be responsible for collecting or remitting tax as long as the third party carrier only provides transportation and does not sell the taxable item being delivered." Are you aware of any sources that state that third party freight related to a taxable item is not subject to use tax?

        Thank you for your help.

  • Posted by Paul on December 9, 2018 11:51am:

    Greetings Susan,
    First, let me say I love your original article and the follow-up questions and answers are excellent. I think the information folks can gain from it is amazing.

    I guess this brings me to my second statement or question really. I am an electrical contractor who only does service work in Texas. I pay tax on all the material I purchase and do not do any commercial work. When I invoice my customers, keeping in mind I do not do any billing or contractors , we do service calls only. On my invoices I do lump sum invoicing in that my labor and material are all in the final price. Now, I do state what my hourly rate is on the invoice and it would not take a genius to determine my material costs by subtracting the hourly rate, since I do not actual itemize or separate my material on the invoice is this still considered Lump Sum and thus I do not have to pay sales or use taxes above and beyond what I originally paid for the material.

    I also mark up the material slightly but again do not itemize it out or show costs, only the one final price so is that still lump sum and again do not have to submit any additional sales and use taxes to the state.

    Thank you again for an awesome article and great followups.

    • Posted by Author photo of Susan Goertzsusangoertz on December 9, 2018 2:06pm:

      Hi Paul. I assume since you don't do commercial, all your service work is residential? If so, you are fine to keep doing it how you are doing it.

      Thank you for your kind words and please let me know if you need additional assistance.

      Susan

      • Posted by Paul on December 9, 2018 4:20pm:

        Susan,

        Thank You. Yes, we only do reaidential electrical service work and again only put the final price on the invoices. Does it matter if we refer to our hourly labor rate (for reference only) or better to just leave that off the invoice and just lump it all in the final price. Thanks again for the great information.

        • Posted by Author photo of Susan Goertzsusangoertz on December 10, 2018 8:00am:

          Normally I would say no, it doesn't matter but you never know. If you get a hold of a particularly difficult auditor, they could attempt to say that it's a separated contract because you list your hourly rate. You could save yourself the headache of that fight by not putting it on your invoices.

          Susan

  • Posted by KA on December 7, 2018 8:56am:

    I am actually being audited at the moment and the auditor is stating that change of lights (not the fixtures but lightbulbs) does not qualify as maintenance but it is a repair. Is this correct? I would consider this maintenance since we do it periodically to ensure light bulbs do not go off in the middle of a busy day at the store.

    • Posted by Author photo of Susan Goertzsusangoertz on December 9, 2018 2:08pm:

      Hi KA. Yes, unfortunately, the auditor is correct. Lightbulbs are considered tangible personal property and not real property. Periodic and scheduled maintenance of real property is not taxable but replacing TPP is taxable. I'm sorry, there are a lot of electrical contractors out there who are under the same impression and it's unfortunate during an audit. Start taxing your lighting changes ASAP to avoid future exposure!

      Please let me know if I can assist you further!

      Susan

  • Posted by Toby on November 15, 2018 8:24am:

    Hi Susan!

    I have some, I believe, unscrupulous people doing my residential outdoor remodeling. this guy has supposedly been in business for 15 years and had me pay him in cash for a labor ONLY job as he told me that if I did it with a check it would be WITH the tax added. If just cash then I could forgo the taxes. I believe that this is illegal for just labor correct? (It was for tearing down a 12X26ft. screened in porch that was rotting from water damage. Also, for them finishing the other part of what I need them to do, (ie, build me a leanto 19x35ft. off the back of my home which will be connected to a newly capped cement slab over the old 12X26 one. The metal leanto will be attached to the house and to the newer cement base. So, my question, should he try the cash thing again, is do I own him any tax at all as we already signed a contract and it was a lump sum bid in the contract? (Side note... This guy didn't even have his own paperwork, contracts, or receipts. I had to type up everything so as to protect myself the best I could!!!) Thank you ahead of time for your answer. ;-)

    • Posted by Author photo of Susan Goertzsusangoertz on December 3, 2018 11:46am:

      Hi Toby. Well good news is, he's only hurting himself. By dealing in cash, he's attempting to avoid paying federal income taxes. What he's doing for you is residential remodel and for labor only, there is no tax due from you regardless how you pay. If he bills you lump sum for materials and labor, again no tax due from you. If he were to separate the materials and labor on and invoice or contract, then he should be charging you tax on materials only.

      Sounds like you are okay from a sales tax perspective. Thank you for reaching out. I'm sorry you're going through this. Hope everything turns out beautiful for you!

      Susan

      • Posted by Toby on December 9, 2018 2:29pm:

        Thank you mam, it did! When it came time to pay him he acted like he never signed a contract with me. All he could do was continually show me the text on his phone where he said it was "X" price + tax. I repeatedly showed him the contract that we BOTH signed and agreed to with total price and everything that included shown clearly. He then acted like I stiffed him and left. Side note: Plus he LIED about what he told me up front about the first cash payment I gave him less the taxes when I brought it back up. He said he never said that. I asked him "then why did I pay you in cash as I always pay workers in check form?" He had no reply. Yeah right! So basically, he had it from the beginning to try and get all cash from me so he could pocket the federal income tax and also pocket the EXTRA I would have given him for the "taxes" if I had. Sorry buddy, you LOST! Next! ;-)

  • Posted by Ali on November 9, 2018 12:00pm:

    Hi, Susan! We are a construction contractor and do jobs for the State of Texas. It is my understanding with the client's exemption, that permanent materials are tax exempt and construction materials require that sales or use tax be paid. I say that I "understand" this, but what about services used to perform the installation of permanent materials? For instance, we received a crane invoice (rental and operator with permits) that did not include tax. Would we need to remit use tax for this invoice?

    • Posted by Author photo of Susan Goertzsusangoertz on December 3, 2018 11:48am:

      Hi Ali. Work done for the State of Texas is "naturally exempt" which means that you are not required to get an exemption certificate from them. You should be giving a resale certificate to the vendors where you purchase materials that are incorporated into the job.

      Any equipment or other rentals are taxable to you.

      Hope that answers your question. If you need more, please let me know.

      Susan

  • Posted by Shadow on November 5, 2018 1:44pm:

    Susan,

    We are a subcontractor installing fire alarm systems, monitoring systems and sprinkler systems for commercial accounts, remodels and residential accounts.

    We are the subcontractor most of the time and occasionally the G.C.

    I would like to make sure that I am understanding the answers and article regarding billing correctly.

    New Construction - G.C. should provide tax resale certificate to (subcontractor) us, and we should provide one to the vendor - always? What happens if a G.C. states the job is taxable, do I then only add taxes to materials on the invoices we bill to the G.C.? And is this rule the same as a G.C. billing the customer as well as the subcontractor billing the G.C.? Is design considered labor cost?

    Remodel projects - these should be taxable unless a tax exempt form is provided whether it is a first or second generation remodel is what I take from your article, as new construction is only from ground up, correct? Now, when billing remodels assuming everything is taxable, should there be tax on design or is that considered labor? Does any of this change if we bill in lump sums or break down the pay app; e.g. design, material, and labor...

    Residential - I need clarification if design falls under the labor category, and materials should be taxable and labor not taxed, is this correct as well?

    What rules apply for service calls? Thank you so much for your assistance.

    Our company will be calling for a free 30 minute consultation. Do we need to make an appointment to do so? Please advise.

    • Posted by Author photo of Susan Goertzsusangoertz on December 3, 2018 12:00pm:

      Hi Shadow. So sorry for my delay in responding.

      New Construction – for both residential and commercial, it depends how you contract with the GC. If the contract is lump sum (one amount for both materials and labor), you do not charge the GC tax (they do not need to provide you a certificate). You must pay tax on the materials that go into the job. If you contract with the GC separated, you must charge them tax on the materials only and give a resale certificate to the vendor where you purchase the materials.

      Remodel – for residential the rules are the same as for new construction (above). For commercial, the entire job is taxable unless the GC gives you a resale certificate. You should give a resale certificate to the vendor where you purchase the materials.

      Regarding your question about first or second generation remodel. New construction is from the ground up but also includes a first finish out. There are many examples of buildings that were built that sat empty for years before someone moves in. That first finish out is considered part of the new construction. Anything past that is remodel. Commercial remodel is 100% taxable, always regardless how you contract or bill or break down and AIA (unless they give you a resale or exemption certificate).

      Your follow up question about residential – just keep in mind that if you bill lump sum, the entire amount is not taxable to the customer and you pay tax on the materials when you purchase them. Only, if you separate materials and labor are the materials taxable to your customer and you can give a certificate to the vendor.

      Service calls are considered repair / remodel to the fire system so the same will apply regarding whether it’s commercial or residential billed lump sum or separated.

      Please call my office at 469.352.9616 and talk to Amber. She can schedule a free 30-minute call with me or one of our consultants to assist you further with your questions. Thank you for the questions here on STS and I look forward to hearing from you!

      Susan

      • Posted by Linda on December 11, 2018 11:35pm:

        Hello Ms. Susan, We have an HVAC company and have two questions:
        1) Do we tax on materials and labor for rental homes for repairs by the owners as commercial...since they rent out homes as income?
        2) Are apartment complexes treated as commercial for repairs?
        3) Are both the rental homes and apartments taxed based on how we bill them? Lump Sum vs Separate?

        • Posted by Author photo of Susan Goertzsusangoertz on December 12, 2018 6:24am:

          Hi Linda. Any where people live for more than 30 days is classified as residential for sales tax purposes. So apartments and rental homes are residential.

          You should tax them based on how you bill them. If you bill lump sum, you would not charge your customer tax but would pay tax when you purchase the materials for the job. If you separate the billing to them, you should charge them tax on the materials only and give a resale certificate to your vendor.

          Hope that helps. Good question. Many people assume that apartments are commercial but they aren't. The only part of an apartment complex that could be considered commercial is the sales office. Any of the common areas for the tenants is also considered residential (pool, club house, fitness center, sidewalks, entrance gate, etc.).

          Please let me know if I can assist you further.

          Susan

          Susan

      • Posted by Shadow on December 3, 2018 2:51pm:

        Thank you so much for answering my questions. We will contact Amber to set something up. I am still a little unsure about a few things but you have been a lifesaver. Your advice is greatly appreciated.

  • Posted by Lacy on October 31, 2018 12:29pm:

    Hi there! I was lost before finding your site and am learning lots of things as I read through all of your Q&A's, so thank you! I have my own question now.

    We are a General Contractor in Texas. Will be starting a commercial remodel job soon. As I am getting the subcontractors contracts together I am curious how the sales tax works for this? I know this is a bottom line tax job, and we will issue resale certificates for our purchase of materials. But that is just what the sheet says, MATERIALS.

    So do I also offer my subcontractor a resale certificate and he should not include sales tax on his proposal or am I missing something? Does he then issue resale a resale certificate when he purchases material for the job as well?

    And then of course, we pay tax on the whole amount of the job at the end, correct?

    • Posted by Debbie on November 27, 2018 6:01am:

      We are the general contractor for an outdoor construction company. We primarily do residential construction. We do lump sum invoicing and we pay sales tax to our vendors. The customer pays progress Payments as we start various phases of the project. His project will be partially completed in 2018. I have a customer who is starting to prepare his federal tax returns and wants a break down of sales taxes paid thus far. Since we do not pay sales taxes to the state for his project, I am assuming that I will tell him that there are no sales taxes he can claim for his project? Is that correct? Or can he claim the sales taxes that we pay to the vendors for materials for his project? Thanks!

      • Posted by Author photo of Susan Goertzsusangoertz on December 3, 2018 12:05pm:

        Hi Debbie. You are correct. He did not pay any sales tax, you did. He doesn't have a claim. Please let me know if I can assist you further.

        Thank you!

        Susan

    • Posted by Author photo of Susan Goertzsusangoertz on October 31, 2018 12:41pm:

      Hi Lacy. Yes, you've got it. I know the rules can be confusing especially when you start getting into the subcontractor part of it but you are absolutely right. You should give you material vendors a resale certificate, give your subs a resale certificate and they will also give a resale certificate to their material vendors or any subs they use.

      The tax is due from your customer on the full amount of the remodel job and then you will remit that tax to the State.

      Great Jo!!

      Please let me know if you need more help!

      Susan

  • Posted by Frances on October 29, 2018 11:53am:

    when we purchase an item and we get the vendor invoice, we mark it up and invoice the customer. we typically mark up the total we pay to the vendor, which includes sales tax.
    Can we go back and tax the sales tax off that we paid directly to the vendor, from out sales tax return, because they meet the requirements of we should have issued a resale cert and not paid the sales tax to the vendor?

    • Posted by Author photo of Susan Goertzsusangoertz on October 31, 2018 12:47pm:

      Hi Frances. Yes, since you are "reselling" the item to your customer and taxing your customer, you should not be paying tax to your vendor. If you did, you can reduce the amount of your taxable sales by the amount of the purchase on which you paid tax in error.

      Example:

      Purchased Item A for $100 plus $8.25 in tax for a total of $108.25. You sold to your customer for $125 plus tax of $10.31. Say that's the only taxable sale that you had that month. When you are reporting your taxable sales to the Comptroller, you would only report $25 ($125 taxable sales minus $100 in taxable purchases on which you paid tax in error).

      Hope that makes sense. Let me know if you need more!!

      Susan

  • Posted by Isabel on October 29, 2018 11:01am:

    Hi Susan,
    One question. We are a company that manufacture and install kitchens. We have been hired by a contractor to provide and install kitchen and bathrooms cabinets for a house that was flooded during hurricane Harvey. We bill them separated and my question is: since we are billing with a contractor shall I buy the material of this project w/o taxes and bill the contractor w/o taxes too? He is not the final customer. The final is a residential .

    And another question. We manufactured and installed kitchens to a company that construct warehouses. we billed them separated and collect tax for the total (material,shipping and installation) Because the warehouses were new should I supposed to consider them as a new construction?

    • Posted by Author photo of Susan Goertzsusangoertz on October 31, 2018 12:52pm:

      Hi Isabel. Thank you for your questions.

      Question #1 -- the disaster relief rule provides for non-taxable commercial labor. Materials are still going to be taxable. In the case of residential, the labor is always not taxable regardless if it's new construction or remodel. Since you are separating, you should bill tax on the materials only unless they give you a resale certificate. If they are separating to their customer, they would bill their customer tax on the materials only but if they are billing their customer lump sum, they should be paying tax to you on the materials portion of your contract (because you are billing separated).

      Question #2 -- If the warehouses were new construction and you billed separated, you should bill your customer tax on the materials only. If the warehouses are remodel, you would tax material and labor.

      Hope that helps.

      Susan

  • Posted by Gloria on October 17, 2018 11:59pm:

    Hi Susan

    We started a mechanical insulation company. Plumbing and Hvac contractors hire us to insulate their plumbing/Hvac systems. I'm not tax savvy im confused we charge a lump sum material/labor and it's only been commercial remodel work should they provide me with a resale certificate? I have a tax and use permit and I just received the quarterly tax doc would I just write and report zero. I didn't charge tax it was excluded.

    • Posted by Gloria on October 18, 2018 6:22am:

      Great. Do would I still have to report this on the Tax and Use Permit?

      • Posted by Author photo of Susan Goertzsusangoertz on October 29, 2018 10:47am:

        Hi Gloria. There are three fields on your sales and use tax return:

        Total sales = all your sales, in Texas, outside of Texas, taxable and non-taxable -- all sales

        Taxable sales = only those sales which were taxable

        Taxable purchases = purchases that you made on which you did not pay sales tax (e.g. internet purchases, purchases from out of state, etc.)

        Hope that helps. Please let me know if you need more.

        Susan

        • Posted by Gloria on November 1, 2018 10:33am:

          Thank you so much Susan

          I have two more questions if the work performed was say the airport it's a gov. place and tax excempt would I need special documentation for this since I won't be paying taxes. Also, I noticed the post office doesn't charge taxes is this a taxable purchase I would have to pay taxes on?

          • Posted by Gloria on November 1, 2018 11:39am:

            Thank you all these answers make me very happy and less concerned. I noticed p.o. box services are not taxed either.

          • Posted by Author photo of Susan Goertzsusangoertz on November 1, 2018 11:16am:

            Hi Gloria. Thank you for your questions. Postage isn't taxable. Are you purchasing other items from the post office?

            Governments and affiliated entities are naturally exempt from sales tax in Texas and therefore you do not need an exemption certificate.

            For example: The University of Texas is affiliated with the State of Texas -- it is naturally exempt.

            Hope that helps. Please let me know if you need more. Thank you!

            Susan

    • Posted by Author photo of Susan Goertzsusangoertz on October 18, 2018 3:59am:

      Hi Gloria. Yes, if you are only doing commercial remodel work, the contractors who hire you should give you a resale certificate. You should also give a resale certificate to any material vendors that you purchase from. Hope that helps. Please let me know if I can assist you further.

  • Posted by Kevin on October 17, 2018 11:20am:

    Would this be subject to remodel tax?

    The work is “temporary” as we are only building it out for office use during the duration of construction, as Justin noted. The agreement was to have everything we are doing to be able to remove, i.e. the mechanical and electrical will all be surface mounted. Lease language as follows:

    “Licensee [WT] will remove all improvements made by the Licensee except for those that the Licensor requests to remain”

    They then specifically request removal of the restrooms being built out, improvements to floors, walls and ceiling, electrical panels, HVAC system etc.

    We just wanted to confirm that this didn’t put us in an odd category since its similar to renting trailers building them out and then removing them from site, in this case it just happens to be within a permanent structure.

    • Posted by Author photo of Susan Goertzsusangoertz on October 18, 2018 4:10am:

      Hi Kevin. In order to answer this question, I'll need more information. One, who is using the temporary office, the contractor or the customer? If it's the contractor, then the whole thing would be taxable (akin to toilet rental). If for the customer, how is it billed through to the customer? Is the job new construction, remodel? Is it billed separately in the contract with the customer or included in the cost of the contract. If you could give me some more detail, I can give you a more precise answer. Thank you!

      Susan

  • Posted by Chase on October 15, 2018 5:19pm:

    Hi Susan,

    Thank you for this great feed. I have read through some of these and have 2 questions for you.

    I am a GC and I remodel kitchens and baths in Texas. I invoice my customers with the breakdown of materials and labor for each line item (plumbing, electrical, etc.).

    I have a texas sales tax permit, but I pay taxes on all my material purchases from my vendors. I charge the customer the same tax on the materials that I buy for them.

    1) Since I pay for the taxes on materials, then bill my customers for the taxes on the same materials, do I need to pay these material taxes to the state since I already paid them when I purchased the materials?

    2) When I file my quarterly sales tax, is this the same as my federal taxes that I file every year? EX: I pay $1500 in sales tax for every (4 total) quarter(s), total of $6,000.00. Do I then turn around and pay taxes again on my yearly tax return since I have already paid $6,000 on my sales for the year (all 4 quarters)?

    Thank you so much, I have been battling for quite some time on these two things.

    • Posted by Author photo of Susan Goertzsusangoertz on October 18, 2018 4:29am:

      Hi Chase. Thank you for the kind words.

      Sounds like you are billing your customers separated by type of work (e.g. Install new bathtub – materials $1,000; labor $500) – in this case, you should be giving the vendor where you purchase the materials a resale certificate and you should be taxing your customer on the materials only.

      With regard to sales tax versus federal income tax – tax you collect from your customers is neither a revenue or expense for you, it’s a pass through. You collect it from your customer and then pay it to the State. You are simply a conduit for tax collection for the State of Texas and it wouldn’t affect what or how you pay the IRS. On the other hand, if you are billing your customers lump sum (e.g. Install new bathtub $1,500) then you would pay tax on materials to your vendor and that would be part of your cost of goods sold and would affect your income tax because it would reduce your net income and the resulting amount of income taxes you pay.

      I know this can get very confusing. If you’d like to discuss live, please contact me via the contact information on my bio page.

      Susan

  • Posted by Chris on October 14, 2018 8:43pm:

    Hello,
    Im looking for clarification and best approach for handling taxes for commercial and residential service work. Our purchasing accounts are set up with no tax when we buy parts and materials. We bill our residential customers flat rate which includes labor/material. We bill commercial customers time and material though. Whats the best most accurate way to account for sales/use tax we have to pay monthly to the state? Ive considered just paying taxes on all purchasing accounts but this may cause me to pay more than I need to when billing commercial jobs.

    • Posted by Author photo of Susan Goertzsusangoertz on October 18, 2018 4:34am:

      Hi Chris. Can you give me more detail about the "service" that you are providing? The answer to your question depends on if you are providing real property services or if you are a contractor and the same person / company can be both depending on what they are doing.

      Thank you!

      Susan

  • Posted by Dora on October 4, 2018 2:50pm:

    Hi!
    I have two questions: Repair/ Remodel commercial project

    When do we report sakes taxes when billing progressively?

    Should they be paid when invoice was sent to owner and paid for or should sales taxes be PAID when contract is paid 100% regardless of how many progress billing have been billed.
    2. Are Sales Taxes paid on profit or just actual material cost

    • Posted by Author photo of Susan Goertzsusangoertz on October 7, 2018 7:24am:

      Hi Dora. You should remit the amount of tax collected on each progress payment.

      Sales Tax is due depending on the type of job. New Construction (commercial or residential) billed lump sum -- no tax due from your customer, tax paid on the materials by the contractor.

      New Construction (commercial or residential) billed separated, tax is due from the customer on the materials only, no tax on labor and no tax paid by contractor on purchase of materials.

      Residential Commercial Remodel - tax due on materials if billed separated, no tax due from customer if billed lump sum.

      Commercial Remodel -- tax due from customer on 100% of the job, no tax paid on materials by contractor.

      Hope that helps!!

      Susan

  • Posted by Frances on October 4, 2018 9:23am:

    What about the sales tax on consumables and small tools purchased, is there any tax break on those. Buckets, Paint Brushes, safety supplies. Does that follow the same rule for the other materials and equipment used in the job

    • Posted by Author photo of Susan Goertzsusangoertz on October 7, 2018 7:25am:

      Hi Frances. Consumables and tools are taxable because they are "used" by the contractor. Rental equipment "used" by the contractor is also taxable. Materials are taxable based on the type of job and how it's billed.

      Hope that helps and thank you for the question!

      Susan

      • Posted by Frances on October 11, 2018 12:42pm:

        wow, that was a bright light bulb you just turned on for me.

        thank you so much for all your comments and help.

  • Posted by Marie on October 2, 2018 9:50am:

    Thank you Susan for all your help.
    We are an engineering firm and have an in-house surveyor who performs only design or construction surveys for our projects, which I believe are not taxable services, unlike right-of-way or boundary surveys.
    When it comes to the survey equipment, we pay sales tax when we rent the equipment and we paid sales tax on the equipment that we own.
    My question is: Is it correct NOT to charge sales tax on the charge for the equipment showing separately on the invoice to the client since the taxability of the service provided with the equipment is not taxable?
    I am using the above 9/24/2018 post about scaffolding and the link provided in your response as a reference.
    Thank you again for your help.

    • Posted by Author photo of Susan Goertzsusangoertz on October 2, 2018 2:24pm:

      Hi Marie. Design surveys involve gathering topographic information and
      eventually producing a topographic map. Topographical surveys are not taxable.

      Can you tell me the difference between a design survey and a construction survey? I want to make sure I am answering your question fully.

      Thank you!
      Susan

      • Posted by Marie on October 2, 2018 2:39pm:

        Susan,
        I am getting my definitions from the TX Society of Professional Surveyors:
        Design Survey: a survey executed for the purpose of obtaining information for planning an engineering project or developing and estimating its costs.
        Construction Survey: a survey made prior to and while construction is in process to control elevation, horizontal location and dimensions, etc.
        Thank you.

        • Posted by Marie on October 12, 2018 6:53am:

          Susan,
          Have you had a chance to look at my question above regarding the sales tax on equipment charge?

          Is it correct NOT to charge sales tax on the charge for the equipment showing separately on the invoice to the client since the taxability of the service provided with the equipment is not taxable?

          Thank you again for your help.

          • Posted by Author photo of Susan Goertzsusangoertz on October 18, 2018 4:59am:

            Hi Marie. I apologize for the delay. There are a few rules that seem to be somewhat unfair and this is of them.

            You, as the consumer or "user" of the rental should pay tax to the vendor. If you then bill your customer for that rental (regardless of the taxability of the other work being performed), you must charge your customer tax on the rental as well.

            Many people argue that this is double taxation and in some ways I can understand that argument. However, keep in mind that sales tax in Texas is a transactional tax so each transaction carries it's own taxability and I think that was the intent of the Legislature when enacting this rule.

            You could avoid it by billing your customer one lump sum that includes the survey and amount of the rental including the tax that you had to pay, not calling out the rental separately. In that way, tax was paid once and you've recouped your cost of the rental including tax.

            Hope that makes sense. Please let me know if I can help you further.

            Susan

  • Posted by Melba on September 28, 2018 5:36pm:

    We are a security company providing patrol security to a contractor rremodeling apartments destroyed in Hurricane Harvey. Usually, pur service is taxable but we were told we are subcontractors under the general contractor and are exempt under them and the Harvey Disaster, if we get some certificate from the contractor. Does this sound right? What is name of certificate, if known
    I have searched the Comptroller website and can not find it. I called and the young man said, he remembered it used to be on.there and we needed a Certificate of Eligibility from General Contractor. It is confusing because we are not doing any "construction" ourselves, and that is all it references. Thank you.

    • Posted by Author photo of Susan Goertzsusangoertz on September 30, 2018 12:17pm:

      Hi Melba. I'm sorry but the information that you've received is not correct. Security services are taxable. Even if the GC is including the price of hiring your company in their price to their customer, they are the consumer of your services and therefore it is taxable. Please let me know if you have any questions or if you need help getting through this situation.

      Susan

      • Posted by Melba on October 1, 2018 4:00pm:

        So, even tho we are a subcontractor to the GC, that was hired by an insurance company, and our invoices have some supplies that taxes were paid, we are not exempt. I was going off this:
        The labor to repair real or TPP damaged within a disaster area by the condition or occurrence that caused it to be a declared disaster area is exempt from tax if the charge for labor is separately stated to the customer. The materials used to perform the repairs are taxable. The customer contracting for the repair should issue the service provider an exemption certificate in lieu of tax. The service provider must presume that all work is taxable until the customer issues an exemption certificate covering the separately stated labor portion of the bill. If the charge for the repair is a lump sum, the total charge is taxable. Rentals and consumables used to perform the repairs are taxable to the service providers.

        For this exemption to apply, the area must be declared a disaster by the Governor of Texas under Government Code Chapter 418 or by the President under 42 U.S. Code SEC.5141

        • Posted by Author photo of Susan Goertzsusangoertz on October 2, 2018 2:15pm:

          Hi Melba. In my first response to you, I was addressing the issue of security services. This comment appears to be a different question regarding materials. When you are the sub and performing commercial repair for a GC, they should ALWAYS give you a certificate. The taxability for the job lies between them and their customer. Take for example, Best Buy hires a GC to make repairs due to a hurricane. The GC should separate their billing to Best Buy and Best Buy should give them an exemption certificate indicating that the repair is due to a natural disaster. At that point, the GC would only tax the materials to Best Buy but not the labor. The GC should give you a resale certificate regardless how you bill them (lump sum or separated).

          As is the case whenever you are doing commercial remodel work for a GC, they should give you a resale certificate. The tax on the job is due from the end customer to the GC and not between you and the GC.

          I know it gets confusing. If you are not a sub and doing commercial repair work for an end customer, it would be the same as outlined above between Best Buy and the GC. You would bill your customer separated, they would give you an exemption certificate and you would only charge them tax on the materials and not on the labor.

          Hopefully that makes sense. If you need to talk to me directly to get more clarity, please call my office at 469.352.9620.

          Thank you!
          Susan

  • Posted by Frances on September 28, 2018 9:48am:

    We do lump sum new construction job. Materials are exempt, but if we rent equipment, We are the renter, we pay sales tax on that rental to the vendor. The only thing that is exempt is materials that we use to perform the lump sum service, and the key word is materials.
    am I thinking correctly

    • Posted by Author photo of Susan Goertzsusangoertz on September 30, 2018 12:19pm:

      Hi Frances. On a lump sum, new construction job, you should be paying tax on materials. Rentals are always going to be taxable to you as well.

      Hope that helps. Please let me know if you have any additional questions.

      Susan

  • Posted by Ivette on September 25, 2018 3:38pm:

    Under which circumstances would a GC be at risk of exposure for sales/use tax purposes when hiring a subcontractor that does not have a sales tax permit. We recently started checking the status of our subcontractors with the Secretary of State and the State comptroller. I am trying to determine if there is any risk or disadvantage if a certain subcontractor is not permitted. We typically operate under lump sum contracts unless a separated contract is required for tax purposes.

    • Posted by Author photo of Susan Goertzsusangoertz on September 26, 2018 3:01am:

      Hi Ivette. It depends on the type of job. If your jobs are commercial, new construction, billed lump sum, you would only have tax responsibility if your subs billed you separated. At that point, you are the consumer of the materials and owe tax on the materials. If your sub is not permitted, you can still remit the use tax on the materials (if appropriate) by reporting them as taxable purchases on your sales tax return.

      If your jobs are commercial, remodel, you should be giving your subs a resale certificate because the tax on the job is due to you from your customer. In that case, there is no exposure on the subcontractor side for you.

      If the jobs are residential, you would follow the same rule as the commercial, new construction outlined above and would only have tax responsibility on any materials billed separately.

      You can use subs that aren't permitted, just make sure to remit any use tax on your sales tax return if the sub doesn't bill you tax.

      Hope that helps.

      Susan

  • Posted by Frances on September 24, 2018 10:32am:

    We rent Scaffolding to perform services, I pay taxes on the vendor invoice where we rent the scaffolding. However, we invoice the customer quarterly for the rental of scaffolding, (which is what we pay monthly including sales tax) is that considered resale? How would I handle the sales tax on that?

    • Posted by Author photo of Susan Goertzsusangoertz on September 24, 2018 3:53pm:

      Hi Frances. The answer to this question is pretty involved and depends on the service performed and it's taxability. Please reference the following link and if you have specific questions about how it applies to you, please let me know:

      https://star.comptroller.texas.gov/view/200002020L?q1=scaffolding%20rental&q2=resale

      Thank you!
      Susan

  • Posted by RACHEL on September 21, 2018 8:45am:

    Hello,

    I have a builder who has submitted a resale form for new construction apartments. He is asking that the flooring material and installation be tax exempt. Can i accept his form?

    • Posted by Author photo of Susan Goertzsusangoertz on September 24, 2018 3:54pm:

      Hi Rachel. If you bill him lump sum, you would not charge him tax at all and you do not need a resale certificate. If you are billing him separated, materials and labor, you would bill him tax on the materials and accepting a resale certificate would be inappropriate.

      Hope that helps.

      Susan

  • Posted by Tony on September 20, 2018 5:11pm:

    Hi Susan,
    I'm a commercial reroof sub contractor, I work for several G.C's and I bill them for labor only , am I responsible for the sales tax on the labor or are they?

    • Posted by Author photo of Susan Goertzsusangoertz on September 21, 2018 2:22am:

      Hi Tony. "Re-roof" indicates remodel. If the job is commercial, you should ask your GCs for resale certificates and keep those on file. Commercial remodel labor is taxable but they should be giving you a resale certificate because they will be taxing their customer. Hope that helps.

      Susan

      • Posted by Tony on September 21, 2018 6:19pm:

        Thank you Susan ,
        I was unaware of a resale form until I got this audit in the mail last week and called my CPA. I do sale some commercials re-roofs as well ,and charge and pay sales tax on material labor. But when I called a few of the G. C.'S I provide labor for on re-roofs they said they don't even have a sales tax number and can not give me a resale certificate. How do I explain this to the auditor? Any help will be greatly appreciated!
        Thanks , Tony.

        • Posted by Author photo of Susan Goertzsusangoertz on September 24, 2018 4:12pm:

          Hi Tony. That's going to be a tough one. If you are only providing labor, then you should not tax new construction or residential work. But any commercial remodel work you should charge your customer tax unless they give you a resale certificate.

          Most likely, that's how the State found you. They've audited one of your customers who wasn't permitted and saw that you weren't charging tax without getting a certificate.

          I'm sorry, hope this helps. If you need assistance with your audit, please reach out to me.

          Susan

  • Posted by Frances on September 20, 2018 7:54am:

    I just want to take the time to Thank Susan for all your help, and having this webpage open for discussion. this is so helpful.

    again thanks Susan, and thank to everybody that post questions and comments.

    • Posted by Author photo of Susan Goertzsusangoertz on September 21, 2018 2:23am:

      Hi Frances. Thank you for your kind words. I am honored to be able to assist taxpayers in this manner.

      Have a great day!

      Susan

  • Posted by Michelle on September 17, 2018 7:58am:

    Hello Ms. Susan,

    I'm sorry if I missed if someone already asked this question, I've been reading your Q&A's and don't see the answer to my question.

    I work for a Pipeline Maintenance Company, we repair existing pipelines for major Industrial Companies. We bid our jobs majority of the time, T&M with at 15% mark up on all materials. Sometimes I might purchase material that my vendor has charged me taxes, for example I went to Walmart and bought batteries that I need to charge back to my customer.

    Batteries: 12.96
    Tax: 1.07
    Total: 14.03

    I believe the rule is in the state of Texas I bill my customer
    Material 12.96 * 15% mark up (1.94) = 14.90
    Tax: 1.07 with no mark up
    Total billed to customer: 15.97

    Is that accurate? I just need to know if I can mark up the total receipt with tax and all at 15% mark up?

    Thank you so much for your help!
    Michelle

    • Posted by Author photo of Susan Goertzsusangoertz on September 18, 2018 5:30am:

      Hi Michelle. You should bill your customer tax on the full amount that you are billing them, including cost, markup, etc. So if the invoice for the materials to your customer is $15.97, you should charge them tax on the whole amount. In this case, $1.32 in tax.

      Because you are billing your customers for the materials, you can purchase the materials tax free. There are some vendors that you won't be able to do that with, for example, Walmart but when you are reporting taxable sales on your return, you can reduce the amount of the taxable sales by the amount of materials you purchased on which you paid tax in error.

      So, let's take your example above. You go to Walmart and buy batteries for $12.96 and Walmart charges you tax on that; or $1.07. Let's say that your taxable sales that you are reporting to the Comptroller for that month is $100. You could reduce your reported taxable sales by $12.96 thereby capturing back the $1.07 that you paid in error.

      Take note to keep copies of all the purchase receipts on which you take these types of credits. Keep copies attached to your copy of the sales tax return. Do not attach the originals from stores like Walmart, Home Depot, etc because they will fade within 12 months.

      If you are ever audited, auditors will want to see why you took a credit and if you can't prove it, they will make you pay that credit back. So when in doubt, document, document, document.

      Hope that helps. Please let me know if you need more!

      Susan

      • Posted by Frances on October 15, 2018 9:46am:

        In this above example, you state that if the invoice for the material is 15.97 that the sales tax to the customer should be on the 15.97. in the 15.97 sales tax is already in the calculation, would that not be double taxing? if the calculation of markup already includes the sales tax, would you still tax customer?

      • Posted by Frances on September 25, 2018 10:23am:

        In the above e-mail you talk about reducing taxable sale, is that the taxable sales or are you talking about taking a credit at the top of the sales tax form. When you do take a credit at the top of the form, will they refund or will it come off your sales tax filing for that period?

        • Posted by Author photo of Susan Goertzsusangoertz on September 26, 2018 3:04am:

          Hi Frances. The portion of the return where you indicate that you are taking a credit on the return is informational only. The return doesn't actually do anything with it. If you are taking a credit, you must manually reduce your taxable sales or taxable purchases by the amount of the credit divided by the tax rate or, in other words, the taxable amount.

          Hope that helps!!

          Susan

      • Posted by Frances on September 19, 2018 2:18pm:

        If I have an vendor invoice, I bill the amount of the invoice plus %markup, and the customer I am selling to is Direct Pay, I can issue resale cert to vendor and not pay sales tax due to resale. is that correct and not invoice sales tax to customer, and let them pay it. is that correct?

        • Posted by Author photo of Susan Goertzsusangoertz on September 20, 2018 4:05am:

          Hi Frances. Yes, see my previous comment reply to you where I discussed direct pay permit holders.

          Susan

      • Posted by Michelle on September 18, 2018 8:39am:

        Hi Ms. Susan, you are the bestestest ever!

        So let me clarify the PO verbiage from my customer (Major Industrial Plant):
        "Taxes: All applicable state and local sales and use taxes will be paid directly under the direct pay permit listed at the bottom of this purchase order. Please do not add taxes on invoices. Seller (which is me) shall pay all taxes, assessments, excises, impositions, licenses and fees levied, assessed, or imposed upon or on account of the execution of the work under this purchase order or the receipts therefrom or the materials therefor. Any such taxes which Seller is obligated to collect shall be added to the invoice as a separate charge to be paid by Buyer. Buyer may provide sales or other tax exemption certificates, which will be accepted by Seller. When required to do so by instances where Buyer is required to obtain clearance from the state that seller has satisfied its tax liability to that state, delay payment hereunder up to the amount of the tax pending such clearance.

        With that said above, I'm not sure if I charge taxes to them. If I don't then I would need a certificate of exemption correct?

        Michelle

        • Posted by Author photo of Susan Goertzsusangoertz on September 18, 2018 11:44am:

          Thank you, Michelle - - you are very sweet to say that.

          This does present a different scenario. Your customer is claiming via their PO that they are a Direct Pay Permit Holder. In that case, you should get a direct pay certificate from them. Link if you need it: https://search.comptroller.texas.gov/viewer/index.jsp?start=0&proxy=%2F&sessionid=a515264e-60ff-4f11-b639-5e0d6e15da49

          Do not charge your customer tax but also do not pay tax when you purchase the materials that go into the job. If it's a vendor that you can give a resale certificate, do that but if it's a vendor like Walmart, you'll need to do what I outlined before.

          If you ever need to call me and talk through this to make sure you are doing it correctly, my office number is 469.352.9620.

          Thank you!

          Susan

          • Posted by Author photo of Susan Goertzsusangoertz on September 18, 2018 11:46am:

            Direct pay permit holders are typically very large companies that have applied to the Texas Comptroller for the right to not pay tax to their vendors and they remit any use tax directly to the Comptroller via their sales and use tax returns.

  • Posted by Natalie on September 13, 2018 10:15am:

    Hello,
    I recently started working for a General Contractor who builds new stand alone commercial buildings from the ground up. All of the Subcontractors bill Turnkey and do not charge sales tax on their invoices, all except for one. This particular contractor does the painting and some trim out work. For years he had billed a lump sum and charged sales taxes. The office manager feels that we should not be billed for Sales Tax. Are we liable for paying sales tax on Turnkey work for new construction projects?

    • Posted by Author photo of Susan Goertzsusangoertz on September 18, 2018 5:32am:

      Hi Natalie. No, if your subs are billing you lump sum for the work they are doing on the New Construction buildings, they should not be charging you tax on their contracts.

      Hope that helps, if you need more assistance, please let me know.

      Susan

  • Posted by Rob on September 4, 2018 8:59am:

    We are an out of state contractor working in texas on a contract job for an equipment supplier. We installed the equipment and worked directly for the supplier. While working on site, the end user (owner) requested we buy and install piping, duct, and anything else required to get the equipment functioning. These are two separate contracts for us and are unsure what is taxable. We have been paying tax on the materials we purchase.

    • Posted by Author photo of Susan Goertzsusangoertz on September 5, 2018 11:18am:

      Hi Rob. Is the second contract directly with the end user? Does the equipment you were installing qualify as manufacturing equipment?

      Susan

  • Posted by Jo on September 1, 2018 11:10am:

    Hi Susan, We are a small plumbing contractor working for a General Contractor doing a commercial remodel. We pay tax on materials at the time of purchase and don't stock anything. The General gave us a Resale Certificate claiming we are not to charge them tax. We are not charging them tax based on the resale certificate they provided. They are to charge the customer on the entire amount. Is there any liability on our part.

    • Posted by Author photo of Susan Goertzsusangoertz on September 3, 2018 11:58am:

      Hi Jo. No, you are fine. The tax responsibility for a commercial remodel job lies between the GC and their customer. You should not charge them tax. You should also give a resale certificate for the purchase of the materials that go into that job as well.

      Hope that helps. Thank you for the question.

      Susan

      • Posted by Stephanie on September 5, 2018 8:32am:

        Hi Susan, quick question...is landscape construction (planting trees, bed preparation, laying sod, etc.) taxable for new construction? If a GC is building a new structure and we are awarded the contract, do we charge sales tax on the materials only for a separated contract or is landscaping 100% taxable (labor and materials) whether new construction or remodel / repair? All of the work we do is non-residential. So confusing because the Comptroller told us it is 100% taxable because it is a landscaping service whether new commercial construction or not.

        • Posted by Author photo of Susan Goertzsusangoertz on September 5, 2018 11:20am:

          Hi Stephanie. Landscaping is taxable real property service even if for new construction. The only time you would not charge tax on your landscaping services (material and labor) would be if it were for an exempt entity who has given you an exemption certificate or for a new home builder and again, they need to give you an exemption certificate claiming that the landscaping was for a new residential home. The owner cannot claim the exemption, only the builder.

          Hope that helps.

          Susan

      • Posted by Jo on September 4, 2018 5:57am:

        Thank you Susan. This is a new GC & She claims they are they only ones doing this correctly. We have been in business. for over 22 years. We provide sump sum bids & invoices. We pay all tax on taxable items as we go. She wants us to deduct the tax from our bid because she says it is double taxing ( at the advice of her CPA). In my opinion, this CPA is steering them wrong and going to get them in trouble. We have explained to her how it works but it is like talking to a wall.

        • Posted by Author photo of Susan Goertzsusangoertz on September 20, 2018 3:56am:

          Hi Jo. I apologize for my delay in responding to this question. You should not pay tax on the materials purchased that go into a commercial remodel and then you would also not charge your customer tax because they are the GC and have given you a resale certificate. Hope that helps.

          Susan

  • Posted by Oralia on August 31, 2018 6:19am:

    Hello Susan,
    Been awhile, just want to confirm, new commercial construction, lump sum. We are being told Non-profit they are tax -exempt. Do we treat that as a Church or School, we provide resale certificate to our vendor, tax exempt job, no body pays taxes? Is that correct or does the contractor still pay taxes on materials purchase, we are the sub on this job.

    • Posted by Author photo of Susan Goertzsusangoertz on September 3, 2018 11:59am:

      Hi Oralia. You may give your vendor an exemption certificate indicating that the materials are for an exempt job. Hope that helps! Thank you for the question.

      Susan

  • Posted by Henry on August 30, 2018 4:37pm:

    Hello,

    We are a subcontractor working for a GC on a remodel of a condominium that was damaged during a named hurricane. Labor is non-taxable, but as I understand it, materials are to be taxed.

    Do we, as the sub-contractor, pay sales tax on materials purchased and installed, or do we pay taxes based on the marked up material installed. We're in Texas and it is a lump sum contract.

    Thank you,
    Henry

    • Posted by Author photo of Susan Goertzsusangoertz on August 31, 2018 5:31am:

      Good morning, Henry. Condos are residential so the labor to repair is already not taxable regardless of disaster. If you bill your customer lump sum, there is no tax on the sale to your customer but you pay tax on the materials. If you separate materials and labor to your customer, you would tax the materials and the labor would be non-taxable. In this scenario, you would pay tax on the materials when you purchase them.

      The non-taxable labor part of the disaster rule is relevant when it comes to commercial repair. Commercial repair / remodel is 100% taxable (labor and materials) regardless if it's billed lump sum or separated. In the event of a disaster, you can separate the billing to you customer, only tax the materials but not the labor. In both cases, either disaster or no disaster, you would not pay tax when you buy the materials because the job is a taxable transaction between you and your customer.

      Hope that helps. If you need more assistance, please let me know.

      Susan

  • Posted by Bryan on August 30, 2018 9:35am:

    Hello,

    Our company is GC specializing in hospitality renovations. We are nationwide but starting our first job in Texas this fall. The flow chart was very helpful and I understand that we will charge the customer sales tax but do we do that monthly, with each invoice, or at the end of the job. Also, do we pay the sales tax do we pay sales tax monthly or at the end of the job. Finally, how do we go about issuing a resale certificate for materials and obtaining a credit from the state?

    Thanks,

    Bryan Bednarczyk
    Director of Finance
    Humphrey Rich Construction Group

    • Posted by Author photo of Susan Goertzsusangoertz on August 31, 2018 6:16am:

      Hi Bryan. I looked up your company name on the Comptroller's website and I don't see that you are permitted to collect sales tax in Texas? If not, then you should do that.

      Since these are commercial remodel jobs, you will tax the entire amount on your contract. With each progress payment, you will remit the amount of tax relevant to that progress payment.

      Once you have a sales tax permit, you can issue a resale certificate (link below) to your vendors for materials purchased for the job.

      https://comptroller.texas.gov/taxes/sales/forms/

      Please let me know if I can assist you further. Thank you!

      Susan

      • Posted by Bryan on August 31, 2018 6:57am:

        Thanks Susan! Just registered for our permit.

  • Posted by Lisa on August 28, 2018 1:09pm:

    We are a GC and are considering renting a modular office for our client to work out of while we remodel his business. We feel this would be a better option than working "around" each other. The invoice will be charged to our company but since the owner is using the rental, would he be considered the end user? Can we issue a resale certificate and charge the owner tax on his monthly invoice from us?

    Any help would be appreciated.

    Lisa

    • Posted by Author photo of Susan Goertzsusangoertz on August 30, 2018 4:00am:

      Hi Lisa. I would bill your customer separately for the rental of the modular building and make sure the wording is very clear that it is for their use. You would charge them tax on the rental and give a resale certificate to the company from whom you are renting the building.

      Hope that helps, please let me know if you need more. Thank you for the question!

      Susan

  • Posted by Kathy on August 24, 2018 7:57am:

    We have a dump truck dirt hauling service. One of our customers is a large landscaping business. When we pick up the dirt from vendors, sometimes they charge tax and sometimes they don't. We pay it and were just billing him a lump sum for material and hauling fee. Then he asked us about sales tax so we started adding the tax just on the material that we paid to his bill separately. From what I've been reading, we should not be doing that. I don't want to have to send money to the comptroller if I don't have to. So if we just bill lump sum would that be ok?

    • Posted by Author photo of Susan Goertzsusangoertz on August 25, 2018 9:21am:

      Hi Kathy. It depends on the type of work that they are doing and you should always charge tax on the full amount you bill them unless they give you a resale certificate. You can give a resale certificate to the vendors where you purchase the dirt.

      If the landscaper is preparing a lot for new construction, the work they are doing is non-taxable and they should pay tax on the dirt (and hauling charge) that you are selling them.

      If they are merely doing landscape work (flowerbeds, leveling lawns, planting trees, etc.) they would give you a resale certificate because they would charge their customer tax on the full landscape job.

      Hope that helps. Please let me know if you have any questions.

      Thank you!

      Susan

  • Posted by Lisa on August 24, 2018 6:22am:

    I am trying to figure out the tax situation on supplies when we are do change orders,remodels, and new builds. My husband and I are at odds about it.

    • Posted by Author photo of Susan Goertzsusangoertz on August 24, 2018 6:39am:

      Hi Lisa. I saw your request for a consult come through earlier. I will call you on it this morning.

      Susan

      • Posted by Lisa on August 24, 2018 6:53am:

        Thanks

  • Posted by Clint on August 20, 2018 4:36am:

    I am a residential builder/remodeler. If I hire a sub to install new glass to a shower, and they bill me labor and materials separated, should they tax me on the labor?

    • Posted by Author photo of Susan Goertzsusangoertz on August 23, 2018 8:25pm:

      Hi Clint. If the sub bills you separated, they should tax the materials but not the labor. Hope that helps.

      Susan

  • Posted by Jerry on August 12, 2018 5:48pm:

    I am contracting to add an awning to a commercial metal building, a rake end extension. It will be will connected to the building, it will rely on the existing building for support. Its quite a bit of money, can I treat part of this as new construction and not charge sales tax?

    • Posted by Author photo of Susan Goertzsusangoertz on August 13, 2018 7:51am:

      Hi Jerry. If the building is new (either currently being constructed for the first time or your customer is the first tenant in the space) then yes, it would be considered new construction and would not be subject to sales tax if billed lump sum.

      If it is not a new building, then it would be commercial remodel and no matter how you billed it, you would need to charge your customer tax.

      Hope that helps. Have a great day!

      Susan

  • Posted by Christina on August 7, 2018 1:15pm:

    Hi Susan, I own a residential and commercial cleaning company.When customers want home cleaning and carpet cleaning, we subcontract out the carpet to a local carpet cleaner. We collect all payment online with the customers booking and we take a small referral fee. When we pay out the carpet subcontractor do we also pay them a portion of the sales tax we collected? Or do we only pay them their fee minus the sales tax. Also, they have already filled a 1099 with us.

    • Posted by Author photo of Susan Goertzsusangoertz on August 12, 2018 10:59am:

      Hi Christina. You should be charging your customer tax on the full amount and remitting that to the State. Give your subs a resale certificate so they do not charge you tax. Hope that helps.

      Susan

  • Posted by Trey on August 2, 2018 3:22pm:

    Hi Susan,
    We're going to start a company that does dirt work (brush clearing, road grading, dirt hauling), etc for rural residential and non residential customers. We'll use our own equipment that we operate and will bill hourly rates for the equipment used and our labor. I don't expect that we'll sell any materials. We have paid sales tax on all of our equipment at purchase and will do so on repair/maintenance. My understanding is that if we breakout the equipment hours on the invoice we'll have to charge sales tax on that portion but if we combine the rates and charge for labor hours this will be a nontaxable service. Is that correct? Any pitfalls I should be aware of?

    • Posted by Author photo of Susan Goertzsusangoertz on August 12, 2018 11:42am:

      Hi Trey. Thank you for your question.

      Site preparation for new construction is not taxable. If the excavation service is part of a new construction job, it is not taxable, nor is the separate charge for bringing in fill dirt. The charge attributable for hauling away excess dirt in connection with a new construction contract is not taxable.

      In your question, you said that you are billing separately for the equipment and the labor (I assume equipment operators). If you bill separately, then you should tax the equipment (Texas sees that as you renting the equipment to your customer). If you bill lump sum, you are providing a non-taxable service (e.g. equipment with an operator) and would not charge your customer tax.

      If you decide to bill separately, you might think that you could take a credit for the tax paid for the equipment but in this case, you cannot because you are not turning care, control and custody over to your customer - because your operators are running the equipment.

      Hope that helps. This is a pretty convoluted issue to navigate. If you would like to discuss further, please call my office at 469.352.9620.

      Thank you and hope your weekend is great!!!

      Susan

      • Posted by Frances on August 13, 2018 7:59am:

        In a Texas refinery tank farm. We are setting up scaffolding and painting these new tanks being built. on New construction, this is tax exempt. correct? We invoice on lump sum/progress status. Do I pay sales tax to my vendors for the paint supplies, or is that exempt to me as well.

        • Posted by Author photo of Susan Goertzsusangoertz on August 14, 2018 5:02am:

          Hi Frances. You are correct, the job is not taxable to your customer because it is a lump sum, new construction job. You should pay tax to your vendors for any materials that are used in the job. You also mentioned scaffolding. If you are renting the scaffolding, that is also taxable to you. Thank you for your question.

          Susan

  • Posted by Isabel on August 1, 2018 2:38pm:

    Susan
    Thanks so much for your answers you've been amazing! I just need to clarify
    I'm a contractor who built and install cabinets for comercial and residential.
    When Im billing under separated billing contract to a residential , Do I collect tax for the delivery/shipping?

    • Posted by Author photo of Susan Goertzsusangoertz on August 2, 2018 6:41am:

      Hi Isabel. Freight is taxable to the extent what you are selling is taxable. Since you are billing your residential customers "separated", the materials are taxable and therefore the freight is taxable.

      Thank you for your kind words. I am thankful that I get to help people in this manner.

      Susan

      • Posted by Isabel on October 21, 2018 4:01pm:

        Hi Susan,
        One more question. We have been hired by a contractor to provide and install kitchen and bathrooms cabinets for a house that was flooded during hurricane Harvey. We bill them separated and my question is: since we are billing with a contractor shall I buy the material of this project w/o taxes and bill the contractor w/o taxes too? He is not the final customer.

        And another question. We manufactured and installed kitchens to a company that construct warehouses. we billed them separated and collect tax for the total (material,shipping and installation) Because the warehouses were new should I supposed to consider them as a new construction?

  • Posted by Brian on August 1, 2018 1:10pm:

    Hi Susan, I just finished a $200k outdoor improvement project, which included a new pool, a patio/roof extension with new BBQ area, irrigation and septic expansion and reroute, and landscaping. The pool company said, that they bill on a lump sum basis and that their isn't a tax line item; however, "ultimately, you do pay taxes on your project, but as pass through costs from us and the subs on materials we and they purchase; you aren't directly taxed." With that in mind, I have three questions:
    1) Can I be obligated to pay taxes on this project in any way?
    2) Can I write off any of this work?
    3) Is the pool company in any way obligated to reflect the "pass through" taxes they're saying I indirectly paid on my invoice?

    • Posted by Author photo of Susan Goertzsusangoertz on August 2, 2018 6:47am:

      Hi Brian. Thank you for your question and congrats on all the new upgrades to your home! Please see answers below:

      1) Can I be obligated to pay taxes on this project in any way? -- [Susan] No, it is residential billed lump sum so all the contractors are paying tax on the materials when they purchase them and that is the correct way to handle it. When they say they are "passing through the tax"; essentially their quoted amount is based on their cost of the materials which includes tax plus a markup (I would assume).

      2) Can I write off any of this work? -- [Susan] - I assume you are asking if you can write off any of the work on your income tax return? I'm not a federal income tax specialist by any means. I would suggest you pose this question to your CPA.

      3) Is the pool company in any way obligated to reflect the "pass through" taxes they're saying I indirectly paid on my invoice? -- [Susan] - no they are not. If they were audited by the State Comptroller, they would be required to prove to the auditor that they paid tax on the materials that went into the job but you do not.

      Hope that's helpful. Please let me know if you need more.

      Susan

  • Posted by Mike on July 31, 2018 8:53am:

    We are a contractor who generally works for a CG. We quote our work to the GC and separate out materials from labor and show tax for the materials. This work is new construction for multi-family residential ( apartments, condos). We issue a resale certificate to our vendors that we purchase materials from. We bill the GC on a AIA form and then remit sales tax to the state for the portion of the sales related to the materials but not labor. Is this correct?

    • Posted by Author photo of Susan Goertzsusangoertz on August 2, 2018 6:49am:

      Hi Mike. Yes, that is correct. You are billing residential new construction, billed separated. Tax is due from your customer on the material portion and you do not pay tax on the materials when you purchase them from the vendor.

      Great job!!

      Susan

      • Posted by Michael on August 8, 2018 3:22pm:

        Hi this is a different Mike - Michael,
        I am a sub who does work for GC's; new construction commercial only. When I submit my G702 & 703 and break everything down (materials and labor) to bill separate, does the GC have the right to reject it and make me bill combined?

        • Posted by Author photo of Susan Goertzsusangoertz on August 12, 2018 11:50am:

          Hi Michael. That depends. What does your contract look like? If your contract with the GC is lump sum, then the G702 and 703 do not matter when it comes to sales tax. Some auditors try to make it matter, but it doesn't matter -- thus why I am in business...:)

          Hope that helps...let me know if you need more.

          Susan

      • Posted by Mike on August 2, 2018 8:46am:

        If a GC sends a contract just stating an amount for the contract, does that automatically imply a lump sum contract? This is a follow up to my previous question. Same scenario. Thanks

        • Posted by Author photo of Susan Goertzsusangoertz on August 12, 2018 11:55am:

          Hi Mike. Usually, yes as long as the "payment" portion of the contract references one amount. Be careful though and read the entire contract. If there is wording that references another Exhibit or Attachment that separates the amount or there is another "paragraph" that breaks it out, that could change the whole game. I've seen this alot so make sure you read the whole contract and if you are unsure, please reach out to me so I can help you.

          Susan

  • Posted by keith on July 30, 2018 2:52pm:

    we are a generator retail and installation company in Texas. is the labor charged to customer(commerical & residential)
    on installation taxable?

    • Posted by Author photo of Susan Goertzsusangoertz on August 2, 2018 6:51am:

      Hi Keith. If the generators become part of the real property, then you would follow the contractor rule (flow chart in blog) to determine taxability. If the generators do not become part of the real property, could be moved without causing damage to the property or the generator, then they are considered tangible personal property and are fully taxable for material and labor regardless if commercial or residential.

      Hope that helps. Please let me know if I can assist you further. Thank you!

      Susan

  • Posted by James on July 26, 2018 2:22pm:

    I own a home in downtown fort Worth. I recently hired a landscaper to do the work and today he invoices me for the first time with taxes being charged. I told him I've been told residents don't pay Texas for the residential services and he replied with this "You are correct it did not occur until the State changed the law in 98/99. Now anyone in Lawncare/Landscaping Business, with an annual gross income over a certain amount have to collect and pay Sales Tax. I hate it to, but if you want to keep your license you must pay" Is this accurate?

  • Posted by James on July 26, 2018 2:21pm:

    I own a home in downtown fort Worth. I recently hired a landscaper to do the work and today he invoices me for the first time with taxes being charged. I told him I've been told residents don't pay Texas for the residential services and he replied with this "You are correct it did not occur until the State changed the law in 98/99. Now anyone in Lawncare/Landscaping Business, with an annual gross income over a certain amount have to collect and pay Sales Tax. I hate it to, but if you want to keep your license you must pay" Is this accurate?

  • Posted by James on July 26, 2018 1:08pm:

    I hired a contractor to do my lawn every 2 weeks. He is charging me taxes for that. I'm a residential customer. There's no contact involved or anything. He invoices me. He takes a credit card payment and that's it. I told him residents don't pay taxes for Lamar services and He responded with "You are correct it did not occur until the State changed the law in 98/99. Now anyone in Lawncare/Landscaping Business, with an annual gross income over a certain amount have to collect and pay Sales Tax. I hate it to, but if you want to keep your license you must pay."
    Is this information correct?

    • Posted by Author photo of Susan Goertzsusangoertz on July 26, 2018 1:11pm:

      Hi James. Yes, he is correct to be charging you tax. Landscaping falls under real property services which is different than the contractor rule that this blog post references. Regardless, residential or commercial, landscaping, lawn care, cleaning, etc are all considered real property services and are taxable.

      He's not correct about the certain dollar amount or keep your license comment. It's taxable regardless.

      Hope that helps.

      Susan

  • Posted by Marty on July 26, 2018 12:21pm:

    Hello,
    I am a customer replacing my entire residential fence. One side has a retaining wall on my property line the fence attaches to. I received a lump sum bid that is charging me tax. There is an optional concrete curb that can be added for an additional charge. Should I be charged tax for this?

    • Posted by Author photo of Susan Goertzsusangoertz on July 26, 2018 1:16pm:

      Hi Marty. That's a bit of a tricky one. One the surface, you are residential and you have a lump sum bid which would be not-taxable. However, the retaining wall where the fence will be connected changes things a bit. Fences are generally considered real property improvements because they are core drilled into the ground and anchored with cement. They become part of the real property. When fences are attached to a retaining wall, they are generally "bolted" to the retaining wall. The State considers this tangible personal property (instead of real property) because it doesn't become a permanent part of the real property. Theoretically could be unbolted and moved. Most likely won't happen but that's their take on it. TPP (tangible personal property) is fully taxable regardless residential or commercial or lump sum versus separated). If the fence contractor is coring the posts into the retaining wall, then you have real property improvement and not taxable.

      The curb would normally be considered new construction and not taxable if billed lump sum. I would have them quote that line separately and not charge tax on that line. The fence really depends on how they are attaching it to the retaining wall, core drilled versus bolted down.

      Hope that helps. Let me know if you need more.

      Susan

    • Posted by Author photo of Susan Goertzsusangoertz on July 26, 2018 1:16pm:

      Hi Marty. That's a bit of a tricky one. One the surface, you are residential and you have a lump sum bid which would be not-taxable. However, the retaining wall where the fence will be connected changes things a bit. Fences are generally considered real property improvements because they are core drilled into the ground and anchored with cement. They become part of the real property. When fences are attached to a retaining wall, they are generally "bolted" to the retaining wall. The State considers this tangible personal property (instead of real property) because it doesn't become a permanent part of the real property. Theoretically could be unbolted and moved. Most likely won't happen but that's their take on it. TPP (tangible personal property is fully taxable regardless residential or commercial or lump sum versus separated). If the fence contractor is coring the posts into the retaining wall, then you have real property improvement and not taxable.

      The curb would normally be considered new construction and not taxable if billed lump sum. I would have them quote that line separately and not charge tax on that line. The fence really depends on how they are attaching it to the retaining wall, core drilled versus bolted down.

      Hope that helps. Let me know if you need more.

      Susan

    • Posted by Author photo of Susan Goertzsusangoertz on July 26, 2018 1:16pm:

      Hi Marty. That's a bit of a tricky one. One the surface, you are residential and you have a lump sum bid which would be not-taxable. However, the retaining wall where the fence will be connected changes things a bit. Fences are generally considered real property improvements because they are core drilled into the ground and anchored with cement. They become part of the real property. When fences are attached to a retaining wall, they are generally "bolted" to the retaining wall. The State considers this tangible personal property (instead of real property) because it doesn't become a permanent part of the real property. Theoretically could be unbolted and moved. Most likely won't happen but that's their take on it. TPP (tangible personal property is fully taxable regardless residential or commercial or lump sum versus separated). If the fence contractor is coring the posts into the retaining wall, then you have real property improvement and not taxable.

      The curb would normally be considered new construction and not taxable if billed lump sum. I would have them quote that line separately and not charge tax on that line. The fence really depends on how they are attaching it to the retaining wall, core drilled versus bolted down.

      Hope that helps. Let me know if you need more.

      Susan

  • Posted by Anita on July 24, 2018 8:54am:

    We are a swimming pool service, maintenance and repair company in Rockwall, Texas. We also do pool remodeling using sub-contractors for replastering, re-tiling and re-coping, etc. The amounts I bid include both materials and labor since that is how I am billed by the subcontractor. Could you please explain the tax laws regarding this situation?

    • Posted by Author photo of Susan Goertzsusangoertz on July 24, 2018 1:49pm:

      Hi Anita. I assume your question is just with regard to the pool remodeling? If so, then it depends on the type of pool (residential or commercial) and how you contract with your customers.

      If the pool is residential and you are billing / bidding / contracting with your customers lump sum, then you would not charge tax to your customer and you would pay tax depending on how the subs bill / bid / contract with you. If they separate their billing to you, then they should be charging you tax on the materials. If they are billing you lump sum then you would not owe tax on their work. They pay tax on the materials when they purchase them for the job.

      If you are billing your residential customer separately (materials and labor amounts separately stated) then you would bill your customer tax on the materials but not on the labor. You would then give a resale certificate to your subs and material vendors.

      If the pool is a commercial pool (golf club, hotel, etc.) then you would always bill your customer tax on the full amount of the job regardless if it's billed lump sum or separated and you would give your subs and material vendors a resale certificate.

      One note that I find that most people do not know; apartment pools are considered residential. Anywhere where people live for more than 30 days is considered residential and any of the facilities that are common use for the tenants is also considered residential.

      Hope that helps. Please let me know if you have additional questions.

      Susan

      • Posted by Anita on July 26, 2018 11:12am:

        Thank you Susan. That helps so much. One last question...since its all lump sum amounts and no tax is involved, would you recommend setting up a separate Sales Tax Code for remodel jobs, or just choose the 'Tax Exempt' code when entering the Estimate/invoice?

        • Posted by Author photo of Susan Goertzsusangoertz on July 26, 2018 1:21pm:

          Hi Anita. Sounds like you are asking about how to process in Quickbooks? Either way is acceptable, it's really what you prefer.

          Susan

          • Posted by Anita on August 16, 2018 9:41am:

            Not Quickbooks but a new software 'Evosus' created for the pool and spa industry.
            Thank you again for your clarification and wisdom. I love having this site as my 'go to' reference on tax issues.

  • Posted by Amy on July 23, 2018 11:23pm:

    My dad is a self employed electrician.
    He pays taxes on all materials he purchases.
    He works on buildings for a company. Most of them are already standing and its service calls/repairs. He taxes the entire job invoice. He then pays the comptroller taxes on all his invoices.
    Is he double paying?

    • Posted by Author photo of Susan Goertzsusangoertz on July 24, 2018 5:58am:

      Hi Amy. Yes, he is. He is taxing his customers and remitting it to the State which is correct. He should give a resale certificate to his vendors so he isn't paying tax on the materials that go into the job.

      Sounds like your dad has a refund of overpaid tax coming back to him. He can give the resale cert to the vendors and request that they refund all the tax he's paid for the last four years or he can request from the State. If you would like me to show you how he can do that, please reach out to me. Some of the vendors may not be willing to refund back that far. My office number is 469.352.9620.

      Thank you for your question!

      Susan

      • Posted by Amy on July 24, 2018 9:10am:

        Most of the time its home depot, I dont know anything about resale certificates.

        • Posted by Author photo of Susan Goertzsusangoertz on July 24, 2018 1:51pm:

          Okay, then best to request a refund from the State via your sales tax return. Please call my office at 469.352.9620 and I will assist you with how to do that.

          Susan

  • Posted by Maria on July 18, 2018 4:02pm:

    Susan,
    Your knowledge on this topic is impressive due to all the different rules that apply, it is a lot to absorb. I attended a sales tax use seminar a few years ago and it was no help. I am hoping you can help me out. I have a few things I am not sure about.
    1)We are electrical contractors, 95% of our business is new construction for schools which are tax exempt. We do not pay taxes on material and we do not charge tax to our customer for these contracts. We do however pay taxes on all our rentals regardless of the job but we don't charge the customer. Would we even owe anything to the comptroller for any of these?
    2) We perform about 1% for our work on service calls. We pay the tax on materials and then charge the tax to our customers. Is that the amount that is to be reported to the comptroller?
    3) The rest of our jobs are new construction and taxable, we only pay tax on materials and we do charge that to our customers.

    FYI- All of our contracts are lump sum amounts but we draw monthly

    I am really confused about what gets reported to the comptroller due to different explanations. I hope you can help clarify things for me. Thank you for your help in advance.

    • Posted by Bo on July 19, 2018 12:29pm:

      Thank you for tackling this confusing subject. i have a construction business. We put metal panels on the outside of car dealerships. First we buy the raw materials. Ship them to SC. Manufacture them to order. Then ship them to Texas and install them on site. How do I handle use tax? Most states consider my business the "consumer" and so I pay the difference in sales tax paid and the sales tax rate on site as a use tax. Thank you for your time.

      • Posted by Author photo of Susan Goertzsusangoertz on July 19, 2018 12:40pm:

        Hi Bo. It depends on the type of job. If it's new construction, then you should pay tax on the full amount of the raw materials. If the materials are purchased in Texas, pay tax to the vendor. If they are purchased from outside Texas, you'll need to remit use tax on the new construction jobs directly to the Comptroller via your sales and use tax return.

        If the job is a remodel, you should bill your customer tax on 100% of the job and not pay tax when you purchase the raw materials. The amount of tax you collect from your customer should be remitted on your Texas sales and use tax return.

        Hope that helps. Please let me know if you need more. Thank you!

        Susan

    • Posted by Author photo of Susan Goertzsusangoertz on July 19, 2018 8:04am:

      Hi Maria. Thank you for your kind words. I’ve worked with many contractors over the last eighteen years.

      You are correct in your first statement / question. You should be paying tax to the rental vendor regardless of the job. You are the “user” of the rental and therefore tax is due. You do not need to remit anything to the Comptroller for this.

      With regard to question #2, if the service calls are for commercial customers, you should charge tax on 100% of the service call and do not pay tax on the materials purchased. If the service call is for a residential customer and you bill them lump sum, you would not charge tax to the customer but would pay tax on the materials when purchased. If the service call is for a residential customer and you separately state the materials and labor on your invoice to them, you would charge them tax on the materials but not the labor. You would not pay tax when you purchase the materials. Any tax collected from your customers should be remitted to the Comptroller.

      As for question #3, you stated that all your contracts are lump sum so for new construction you should not be charging your customer tax and paying tax when purchasing the materials.

      You mentioned a couple of times that you “charge the tax to the customer” which is a bit confusing to me given the scenarios in which those statements were made. Given my experience with contractors over the years, I get the sense that you might benefit from a consulting engagement with our firm. Let us sit down with you, look at specific jobs and help you 1) understand the flow of the taxability and 2) help you create a process that makes all of this much easier to manage.

      One issue that I always find with electrical contractors is the determination to carry a taxed or non-taxed inventory. For larger jobs, you may purchase the materials specifically for that job but normally carry an inventory for the service jobs. If you are always paying tax when purchasing your inventory, you may be overpaying tax. If you are not paying tax when you purchase your inventory, you are likely setting yourself up for a big issue should an audit land on your doorstep. Please let me know if you are interested in our assistance.

      I don’t view this forum as a way to sell my services, I really do want to assist taxpayers navigate the difficult sales tax laws in Texas but every once in awhile, I get the sense that someone could use a bit more than I can provide via this site. If you are interested in discussing further, please let me know.

  • Posted by Waylon on July 18, 2018 1:56pm:

    Hello Susan,
    Thank you for your knowledge on this tricky subject. I own an appliance repair company in Texas. We do in home repairs of residential appliances. I pay the taxes on all parts purchased and used when I pick them up. I then bill the customer in one lump sum and do not charge them tax. Am I doing this correctly? Thanks in advance.

    • Posted by Author photo of Susan Goertzsusangoertz on July 18, 2018 2:26pm:

      Hi Waylon. It really depends on the type of appliance. If the appliance is permanently attached to the residence (plumbed or wired), it is considered real property and because you bill lump sum, the repair would not be taxable to your customer but you should pay tax on the materials you purchase for the repair.

      Free standing appliances that are simply plugged in to an electrical outlet or hose are tangible personal property and are fully taxable to your customer (material and labor) but you would give a resale certificate to the vendor where you purchase materials.

      In general, appliances like dishwashers, stoves and ovens would be real property and washing machines, dryers and microwaves would be tangible personal property.

      Hope that helps. Please let me know if you need additional assistance.

      Susan

      • Posted by Waylon on July 18, 2018 2:44pm:

        Thank you for your quick reply. This doesn't make any sense coming from the state. So I would need to charge tax on the entire repair for a gas dryer because it's got a plumbed in gas line. But wouldn't charge tax on and electric dryer because it's simply plugged in the wall?

        • Posted by Author photo of Susan Goertzsusangoertz on July 18, 2018 2:55pm:

          Actually, I think a better way to think about it is whether it is free standing or built into the cabinetry. So a dryer is free standing regardless of how it's connected. Stoves and dishwashers are generally in the cabinetry and therefore are considered part of the real property. Free standing doesn't become part of the real property. I know, its a confusing, weird line but welcome to tax law in the State of Texas.

          Susan

  • Posted by Jerry on July 17, 2018 4:06pm:

    I am starting a new company. I have a few questions. We do construction repair work on commercial buildings. As I understand it we charge the local sales tax based on where the job is located. So if there is not a local sales tax we only charge the state amount?
    Also, as I understand your flow chart, we can issue our resale certificate to our vendors and then we don't have to pay sales tax on item we purchase from them?
    Is this correct?

    And if we do pay any sales tax on materials we purchase we can get a refund from the state?

    Just starting, so sorry for such simple questions.

    Thanks!

    Your site is Great!

    • Posted by Author photo of Susan Goertzsusangoertz on July 18, 2018 5:21am:

      Hi Jerry. I am so thankful that this site is available for you and wish that everyone had the opportunity to get the right information from the beginning. Our firm represents businesses that are being audited by the State for Sales and Use Tax and Mixed Beverage Gross Receipts tax and it can be detrimental to the life of a business if that taxpayer didn't know the right rules.

      You are correct in your assessment of the taxability. You should bill your commercial remodel customers tax on 100% of the job and give a resale certificate to the material vendors. You should always pay tax on any rentals (equipment, porta-potties, etc.).

      If you do pay tax in error to your vendor, you can take the refund on your sales and use tax return. Going through the State's refund process is daunting. It's easier and legal to take it on your return. If you need help with how to do that, please let me know.

      Thank you for your question and best of luck in your new business!!

      Susan

  • Posted by Shari on July 17, 2018 12:39pm:

    I hired a subcontractor for a concrete install job for one of my customers. I received a lump sum estimate (no tax as we provided resale certifcate and taxed the customer on the ump sum bill). The customer is saying they shouldn't have to pay tax, is that correct?

    • Posted by Author photo of Susan Goertzsusangoertz on July 18, 2018 5:24am:

      It depends. Is it commercial or residential and what are the specifics of the "concrete install job"? If this is new concrete (where there was none before) then it would be considered new construction and since you billed lump sum, you should not charge your customer tax and you would pay tax to your sub depending on how they bill you (lump sum or separated).

      If it's a repair job (replacing a portion of concrete), then it would depend on whether it is residential or commercial. If residential, then because you billed lump sum, you would not charge your customer tax. If separated, then you would bill tax on the material portion of the job. If commercial, then the entire amount would be taxable to your customer.

      If you'd like to give me more specifics about the job, I can give you a more specific answer.

      Thank you for your question.

      Susan

  • Posted by Rod on July 17, 2018 9:22am:

    In building/developing a 150 lot residential single-family project we are required by City and State code to leave completed project soil/surface in properly compacted and stabilized hence we seed/re-vegatate the entire site(30ac) Is seeding taxable in this instance.

    • Posted by Author photo of Susan Goertzsusangoertz on July 17, 2018 11:06am:

      Hi Rod. That depends on the "purpose" of the seeding. If it is for erosion control (must be provable via language in contracts or other contract documents) then it is a non-taxable service. If for landscaping, it is taxable. Please reference this document for further explanation:

      https://star.cpa.texas.gov/view/9506H1356A01

      Hope that helps. Please let me know if I can assist you further.

      Susan

      • Posted by rod on July 17, 2018 3:45pm:

        Thank you Susan, very helpful. Your case examples were for State Hwy projects not residential development, would that have any affect. Isn't their provision in the code to exempt residential development from sales tax?

        • Posted by Author photo of Susan Goertzsusangoertz on July 18, 2018 5:28am:

          Hi Rod. Thank you for your question. The difference has to do with the intent of the seeding, however you are correct in that there is an exemption in the real property services rule for landscaping done for the home builder (not the owner). If landscaping is done for the home builder during the build of the home, it is exempt. The builder needs to give an exemption certificate to the vendors (subs, in this case the landscape company).

          Thank you for your follow-up and clarifying question. Please let me know if I can help more.

          Susan

  • Posted by Yolanda on July 12, 2018 7:19am:

    Morning Susan,

    My question is about dumpsters. We are doing work on a lump sum contract for a tax exempt school and we have to rent dumpsters for our work in Texas. Should dumpsters be tax exempted? If so is there a code number in the law that states this?

    Thank you so much for your help.

    • Posted by Author photo of Susan Goertzsusangoertz on July 17, 2018 4:09am:

      Hi Yolanda. You should pay tax on the rental of the dumpsters. You are the "user" of the dumpsters and you are not exempt so you would owe tax. Hope that helps. Please let me know if you need more. Thank you!

      Susan

      • Posted by Yolanda on July 19, 2018 4:07am:

        Thank you so much for your response. Your site is very helpful!

        • Posted by Author photo of Susan Goertzsusangoertz on July 19, 2018 8:08am:

          You're welcome. I'm glad that I can help. I see it so often with our audit clients that they just didn't know the law and didn't know how to get the answers.

  • Posted by Teresa on July 10, 2018 10:53am:

    We are a GC working in Texas. I want to make sure I have this correct. For commercial repair/remodel, lump sum contract we charge sales tax on the entire amount to the customer. If we break that down we charge sales tax on the materials only and not labor? On a commercial new construction no sales tax charged to customers.

    • Posted by Author photo of Susan Goertzsusangoertz on July 17, 2018 4:11am:

      Hi Teresa. You had that partially right. Commercial repair / remodel is 100% taxable in Texas regardless if you bill lump sum or separated. On commercial new construction, if you bill your customer lump sum, no tax is due from your customer. If you bill separated, you would tax the materials only. Hope that helps. Please let me know if you need more. Thank you!

      Susan

  • Posted by J.D. on July 8, 2018 6:30am:

    Thank you for all the helpful information. In my situation, I do residential remodel work for a company that owns rent houses. If they send me a list of items to do; replace a sink, paint the walls, install a microwave, trim the shrubs, repair the air conditioner, etc, and they tell me the lump sum price for all of this (labor and materials) is $10,000. I purchase all the materials, paying sales tax as I go. At the end of the job I invoice them for $10,000 total; no sales tax added. Are we in compliance?

    • Posted by Author photo of Susan Goertzsusangoertz on July 17, 2018 4:12am:

      Hi J.D. Yes, sounds like you've got it down. Good job!

      Susan

  • Posted by Doug on July 3, 2018 2:16pm:

    We own a medium sized cabinet shop in Texas. We have a sales tax exempt certificate to purchase materials for resale. Am I supposed to charge sales tax on delivered and installed cabinets in residential projects? Should I separate materials from labor to calculate the sales tax amount? Or do I just tax for the total amount of the contract and then pass the collected amount on to the comptroller?

    • Posted by Author photo of Susan Goertzsusangoertz on July 5, 2018 1:18pm:

      Hi Doug.

      If you are billing your residential customer lump sum, then you should be paying tax on the materials that go into the job. Since it sounds like you're currently buying materials tax free, you should separate the invoice to your customer and tax the materials.

      Hope that helps. Please let me know if you have additional questions.

      Susan

      • Posted by Doug on July 17, 2018 7:17am:

        That's a tough thing to do unless a "best guess" on taxable materials is sufficient. We usually estimate that actual untaxed materials used in a cabinet package at 'about' 30 to 35%. is estimating the taxable part of the invoice OK? There is no way I can think of that someone could tell whether the total taxable material is more or less than what I estimate.

        • Posted by Author photo of Susan Goertzsusangoertz on July 17, 2018 11:14am:

          Let me explain further. Say you have a cabinet job in a home that is $10,000. Your cost on the materials is $4,000 but your price to your customer including fabrication and installation of the cabinets is $10,000. If you bill your residential customer lump sum, you would not charge them tax but would pay tax on the $4K cost of the materials to the vendor.

          If you bill your customer, separated. For example, Materials $6,000
          Labor $4,000

          You would charge them sales tax on the $6,000 price you are charging them for the materials and you would not pay tax to your vendor.

          Based on your previous message that you are not paying tax to your vendors for the materials, you could simply separate your billing to your customer and charge them tax on the sales side. However, you could also just start paying tax to the vendor and bill your customers lump sum.

          Hope that helped and didn't confuse more. Let me know if we should discuss further. Thank you!

  • Posted by John on June 28, 2018 7:32am:

    Hi Susan,

    I have a question regarding commercial construction. We are a paving contractor performing commercial work. In this case it is repair and maintenance, not new construction. If we use rental equipment on a job and then charge the customer sales tax on the entire cost of the job and pay that to the state do we also have to pay the sales tax to the vendor of the rental equipment? That seems like double taxation to me.

    Thanks for your time

    • Posted by Frances on September 19, 2018 6:58am:

      1-. Do you know if Scheduled maint work is non taxable, and is there something somewhere I can get confirmation on that
      2. – If I do a lump sum billing that is taxable, that lump sum value has Rental equipment and purchases that I have paid sales tax on, so if I tax the lump sum, would that not be double tax?

      • Posted by Author photo of Susan Goertzsusangoertz on September 20, 2018 4:04am:

        Hi Frances. Scheduled and periodic maintenance of real property service is not taxable. You must have a contract that indicates the scheduled and periodic nature of the agreement. If while performing the maintenance, you discover repairs that are needed and you bill your customer for those repairs, then you should bill them tax for the repair (labor and material).

        If you customer is a Direct Pay Certificate holder, they may give you a certificate exempting the sales tax on the remodel work.

        Thank you for your question. Hope this helps.

        Susan

    • Posted by Author photo of Susan Goertzsusangoertz on July 1, 2018 1:54pm:

      Hi John. Yes, as the "user" of the equipment, you have to pay tax even if it's in the cost of the job you perform for your customer. It is in a way double taxation and many industries get caught on this in an audit because it seems counter-intuitive.

      Susan

  • Posted by Melissa on June 27, 2018 7:28am:

    Hello,
    We are a pipeline maintenance company based out of Oklahoma. We are bidding projects within the state of Texas where we will be doing both New Construction and Repair/Maintenance. We provide both labor, materials and equipment (some owned and some rented by us for the project). We always pay sales tax on our materials since Oklahoma doesn't tax on labor at all, so the sales tax issue has never been a problem before now.

    I have three questions:

    1. If the customer considers the project "New Construction" but wants the invoices itemized, is that still considered a non-taxable situation? The contracts are a little hazy since they say "Bid" but want invoicing done on a T&M Not to Exceed basis.

    2. If the project is considered Repair/Maintenance but it is done on as a Hard Bid, do we apply the sales tax over the whole amount?

    3. If the project has labor that is taxable, does that mean that equipment is taxable as well? Even the equipment we own and will operate ourselves?

    Thank you in advance for your help.
    Melissa

    • Posted by Author photo of Susan Goertzsusangoertz on July 1, 2018 2:26pm:

      Hi Melissa. Thank you for your questions. Please see my responses below:

      1. 1. If the customer considers the project "New Construction" but wants the invoices itemized, is that still considered a non-taxable situation? The contracts are a little hazy since they say "Bid" but want invoicing done on a T&M Not to Exceed basis.

      a. The criteria for new construction doesn’t change with the change in billing. First, determine if the job is indeed new construction. There are so many contractors who don’t understand the difference between new construction and remodel, you should always make sure that it fits based on your knowledge of the difference. If it is new from the ground up or even from the slab up (think a demolished building to the slab) then it is new construction. If it is the first tenant or occupant of a space, and you are building out the space for them, that is new construction. If there are any walls standing or if it is for an existing business / building or not the first occupant of a building, regardless how extensive the remodel is, it is remodel.

      b. Second, the taxability of the job depends on whether it is New Construction or Remodel (I assume this is all commercial?) and how it’s billed taking into consideration the hierarchy of the documents. Contracts take precedence over Bids and Bids take precedence over Invoices. So – if you have a contract that is lump sum it doesn’t matter how you invoice your customer, the contract is the controlling document with regard to taxability. The same with Bids versus Invoices. If there is no contract or bid, then the invoice is the controlling document.

      c. I hesitate to give a definitive answer on a situation until I’ve seen the documents. Sometimes I don’t know what I’m looking for until I see it. If I had a dollar for every time I read a client’s contract only to find wording that just completely flipped the whole thing on its head…..let me know if you would like me to take a deeper look at a specific situation for you. Hopefully, I’ve given you enough above to make a determination but if not, let me know and we’ll help you further.

      2. If the project is considered Repair/Maintenance but it is done on as a Hard Bid, do we apply the sales tax over the whole amount?

      a. If it is commercial, yes, the entire amount to the customer is taxable and you would give a resale certificate for the purchase of the materials (assuming you’re purchasing the materials in Texas).

      3. If the project has labor that is taxable, does that mean that equipment is taxable as well? Even the equipment we own and will operate ourselves?

      a. If the project has taxable labor, then I assume it is a commercial remodel job. Everything you bill your customer for on a commercial remodel is subject to tax which includes any equipment charges (whether rented or you charging them for your own equipment costs), pass through expenses (travel, hotel, meals, etc.).

      Hope that helps. I know the contractor rule can get very confusing. Please let me know if you need more.

      Susan

  • Posted by Hai on June 27, 2018 5:50am:

    Hi Susan, thank you in advance for helping the community. I have a situation I hope you can assist with. We are a new GC that just completed a remodel of an existing tenant space which is taxable. We are instructed to file and pay the comptroller the taxes on our income every month regardless if it is labor or material. This is the tax we charged to the owner on a lump sum contract which is a separate line item.

    I have a AIA A401, a lump sum contract, with a HVAC subcontractor which we paid in full recently. His proposal prior to the contract excluded taxes. They are now after us to pay taxes on the full amount of their proposal which doesn't break down material and labor. The contractor's CPA is demanding that if we don't pay the requested taxes, that we must provide a tax exemption form. There is no exemption on this job.

    Am I obligated to pay the taxes he is demanding? Thank you for your time and expertise.

    • Posted by Author photo of Susan Goertzsusangoertz on July 1, 2018 2:28pm:

      Hi Hai. You would need to give him a RESALE certificate, not an exemption certificate. The taxability on the job is between you and your customer and everyone else back up the line (subs) shouldn't charge tax.

      Hope that helps.

      Susan

  • Posted by Jeanne on June 25, 2018 10:53pm:

    Hi Susan, I am trying to get an answer to this situation. I started my cleaning business doing Janitorial/Residential. I have been told by bookkeeper 1 not to tax on residential but do on 2 party commercial contracts and not on 3rd party contracts. The residential is not what my business is supposed to be based off of but at times I do receive work from realtors and charge had charged as commercial work with sales tax. I would like to know which is taxable and not for sure as there seems to be so many tax knowledgeable people with misinformation.

    • Posted by Author photo of Susan Goertzsusangoertz on July 1, 2018 2:30pm:

      Hi Jeanne. Cleaning is taxable real property services and is taxable to all your customers unless they give you an exemption certificate (think churches, non-profit organizations, etc.). You are correct, it doesn't matter if your customer is residential or commercial, your services are 100% taxable.

      Hope that helps. Let me know if you need more.

      Susan

      • Posted by Jeanne on July 4, 2018 6:22pm:

        Hi again Susan,

        Thank you for this information. After reading further down these posts I am understanding more and greatly am appreciative to these blogs. I am wondering if I am understanding this one right: On residential houses that are homes people occupy, it is not taxable sales if they supply most of the cleaning supplies and I provide labor and equipment, correct? If a customer decides to write a check to the business as opposed to me for just cleaning their home is this taxable too?

        Thank you

        • Posted by Author photo of Susan Goertzsusangoertz on July 5, 2018 1:23pm:

          Hi Jeanne. Thank you for your very kind words.

          Cleaning is taxable real property service regardless who supplies the cleaning supplies and who they write the check to. Keep in mind there is a difference in what's called the "contractor rule" which is what this blog is about and the "real property services rule" which is where cleaning falls.

          Hope that helps, I know this can get confusing.

          Susan

  • Posted by JoAnne on June 19, 2018 8:56am:

    Hi Susan,

    What a great site you have and I agree with Nan, you are so generous with your knowledge, and I appreciate even being able to ask for your help.

    I'm a (fairly new) freelance bookkeeper and I have a potential client who sells floors, commercial and residential. They invoice their customers and include sales tax, but the customer sometimes pays in installments and may take months or even years to pay the invoice completely.

    The client's CPA told him to pay the sales tax when he collects it, so he doesn't pay any sales tax on an invoice until the entire invoice is paid in full, months or even years later.

    I want to help him, but I'm not sure how to do it? What is the right way for him to pay his sales tax liability?

    Thank you so much for your help.

    • Posted by Author photo of Susan Goertzsusangoertz on June 19, 2018 9:07am:

      Hi JoAnne. Thank you for your question and your kind words...:)

      I usually recommend to my clients that they remit sales tax on a cash basis (as opposed to accrual basis) so as to not remit tax on money that hasn't and may never be paid.

      If you are or your client is using QuickBooks, setting up QB to track it for you is the best way. Then you can run a sales tax liability report to give you the exact figures to report. If you don't know how to do this, we can show you. I recently assisted one of our roofing clients in getting their QB to do the work for them instead of the very manual way that they were doing it.

      If you aren't using QB, then you need to remit tax based on the amount collected. For example, say the invoice is for $1,000 and the tax amount is $82.50 but the customer is paying $100 a month. A portion of that $100 is for the material sold and a potion is for the tax. The best way to determine what to report is to divide the amount collected by 1.0825 (assuming the tax rate is 8.25%). So in the example above, $92.38 of the $100 is for material and $7.62 is the amount of the tax in that payment. On your sales tax return the taxable sales amount would be 92.38 and the return would calculate $7.62 in tax due.

      Hope that helps. If you need more assistance, please feel free to reach out to me.

      Susan

      • Posted by JoAnne on June 19, 2018 9:23am:

        That is perfect. Thank you so much.

  • Posted by Kez on June 18, 2018 11:36am:

    Hi could you please help me? I just started my residential a/ccompany in central texas, i was just wondering if i pay sales tax at the parts store and i charge my customers the flat rate say $120
    Do i then charge them sales tax?
    Also am i suppose to save a certain percentage from each invoiced $profit i make for income tax or how do i start is there a certain texas hvac bible PLEASE HELP SUSAN THANK YOU!!!

    • Posted by Author photo of Susan Goertzsusangoertz on June 18, 2018 2:35pm:

      Hi Kez. Thank you for your question. Sounds like you are an HVAC repair company and you only service residential customers. If you charge them one lump sum for the repair, then yes you pay tax on the materials at the parts store but don't charge your customers tax.

      Hope that helps. Thank you!

      Susan

      • Posted by Kez on June 18, 2018 2:42pm:

        Thank you! So should i be saving a certain % from what i make $ for fed income tax? I hv a dba or should i ask state comptroller?

        • Posted by Author photo of Susan Goertzsusangoertz on June 19, 2018 9:09am:

          Hi Kez. I would consult a CPA for advice regarding federal income tax. I love state and local tax but stay away from federal tax and even have my own CPA who assists me there....good luck and let me know if I can help you further!

          Susan

  • Posted by Nan on June 16, 2018 9:08pm:

    Hi Susan,
    You have to be one of the most generous individuals on the internet! I have been so impressed by the knowledge you've shared on your blog, patiently answering your readers' questions.

    I am so confused by the whole "when to add sales tax" question... even looking at your flow chart hasn't helped me. Here is my situation.... I work for a young Kitchen and Bath design company. All of our work is residential remodel. We design the space then order the custom cabinetry, countertops, tile, wallcovering, plumbing and electrical work, drywall installation and painting, the usual things that go with a remodel project, using contractors who perform the work.

    We order fixtures from suppliers and have the appropriate contractors install them. We invoice for the client for each piece of the project separately, rather than as a lump sum for the whole project.

    For the cabinetry, electrical/plumbing/drywall/painting, should we be paying sales tax to the vendors for materials and/or labor? So far, none of the contractors is charging us sales tax for their work and almost all invoices from them say lump sum. What is correct for this scenario? Should we be paying sales tax to the contractors? Should we be charging the clients sales tax for the contractors' work?

    We give vendors our resale certificate and do not pay sales tax on the fixtures we purchase but we do collect and report sales tax from the clients for those items.

    I want to be sure we are doing everything correctly on the sales tax front.

    Thank you so very much for your time !

    • Posted by Author photo of Susan Goertzsusangoertz on June 17, 2018 4:44pm:

      Hi Nan. Thank you so much for your kind words. I really enjoy helping taxpayers and quite honestly, it's a small piece of my time that might help someone else wade through the confusion of the tax law.

      For your question, it might be best for us to talk live so I can make sure I fully understand your question. You said: "We invoice for the client for each piece of the project separately, rather than as a lump sum for the whole project." which to me means that if you are replacing the cabinetry, countertops, flooring, etc. in the kitchen; you are separating each part of the job but not necessarily the materials and labor?

      In our audit work, we do encounter residential remodel companies who separate the "areas" of the remodel but within that separation both the labor and material are included in the price. In that event, it's still considered lump sum so you would not charge your customer tax and depending on how your sub bills you determines whether you owe them tax. If you are purchasing materials, you would pay tax. If the sub is billing you lump sum and providing the materials, they would pay tax on the purchase of the materials. If they are billing you separately, they would bill you tax on the materials only. If they are only providing labor, they would not charge you tax.

      Please feel free to contact me via phone 469.352.9620 or email me at susan.goertz@bgc-tax.com and we can discuss more in detail to make sure that I fully understand your question to give you a correct answer.

      Susan

  • Posted by Dusty on June 12, 2018 2:01pm:

    I am an electrical subcontractor to a GC in Texas. We are working on a ground up facility (new construction). Our bid to them was lump sum. They requested a break out of labor, materials, and tax at the time of contract negotiations. We gave them our numbers as requested. The contract was written for a lump sum amount including the break out of labor, materials, and tax. Two months into the project we are being asked to provide a deductive change order for the amount of estimated tax. I have already paid tax on some materials. They did issue a resale certificate. How do I handle this issue?

    • Posted by Author photo of Susan Goertzsusangoertz on June 13, 2018 7:45am:

      Hi Dusty. To be able to assist you fully, I would need to see the contract. Please feel free to reach out to me at 469.352.9620 or email susan.goertz@bgc-tax.com.

      Susan

  • Posted by Paul on June 1, 2018 10:11am:

    Susan, we are opening an exercise studio and having the finish out completed. The contractor is asking for a letter from us stating we are subbing out the work to him and that we are the general contractor.
    Do we pay then the sales tax or does he collect it from him?
    Thanks

    • Posted by Author photo of Susan Goertzsusangoertz on June 7, 2018 3:35pm:

      Hi Paul. It's kind of an odd request and really wouldn't have anything to do with the taxability of the job.

      If you were the first tenant in that space, the taxability would depend on how he contracted / billed you. If he billed you lump sum, you do not owe him tax and he should have paid tax on the materials. If he billed you separated, then he should bill you tax on the materials but not the labor. If he refuses to do so (because perhaps he's not permitted), then you would owe use tax directly to the Comptroller and I can assist you with how to do that.

      If you were not the first tenant in the space, it doesn't matter how he contracted / billed you, you owe tax on the whole amount of the job. Again, if he doesn't bill you tax, you would owe the use tax directly to the Comptroller.

      If he's asking you for a resale certificate claiming that you're the General Contractor, don't give it to him. That would be inappropriate.

      Let me know if you need more. I'm a little skeptical of this request from him....???

      Susan

  • Posted by Jessica on May 29, 2018 11:44am:

    Good afternoon,

    Our client provided a Texas Sales and Use Tax Exemption Cert with the reason: "Manufactured machinery and equipment used directly in natural gas processing". We have (2) vendors who provided work that is to be rebilled to this client (who gave this exemption). The work includes (a) adding piping and nozzles to a deluge (water sprinkler) safety system that is emergency use only and (b) fiber optic cable terminations that emit signals. This is all being done to the main equipment (natural gas processing plant). My question is: do we prove if the equipment itself is exempt or these individual services performed on the equipment? The client has referenced Tax Code 151.318 and I can see where the equipment may fall under this exemption. However when examining each vendor service performed it seems theirs are both taxable.
    Thank you for your time and efforts.

    • Posted by Author photo of Susan Goertzsusangoertz on May 29, 2018 3:11pm:

      Hi Jessica. I would need to see the invoices from your subs to see what they are doing and how it's billed. Sounds like some of it could be taxable and an auditor will make it your responsibility to know within the manufacturing rule what is and is not subject to the exemption. We can discuss more in detail, if you'd like to call me, my office number is 469.352.9620. Thank you!

      Susan

  • Posted by Chuck on May 23, 2018 7:56pm:

    Hello,
    I have a question regarding construction tax. We were asked to do separate jobs at a customers home that were billed separately. Our first job we custom built 4 wooden gates that we attached to a concrete wall. Our second job was a custom 60' latices that we bolted to the top of a concrete wall. These items did not exist prior to our work. We did not remove or tear down any like items. Are these items tangible? and can we charge labor and material tax on these items?

    • Posted by Author photo of Susan Goertzsusangoertz on May 27, 2018 10:39am:

      Hi Chuck. Thank you for your question. Yes, it sounds like the gates and lattices were all bolted to existing structures which would make them tangible personal property and both material and labor are fully taxable.

      Susan

  • Posted by Curtis on May 23, 2018 4:42pm:

    2 part question:

    1. We are building new (not remodel) retail buildings in an area in Dallas that is experiencing gentrification. We act as our own GC and sub out the labor. We buy all our own materials for all the trades. I was told I since its new construction, I could submit a Sales Tax Exemption Certificate to not have to pay taxes on these materials. Is this correct?

    2. We have one project that we hired a GC. It is for a large 250 unit multifamily project. The GC is billing us lump sum. They are charging us taxes on materials, but not labor. Is this correct?

    • Posted by Author photo of Susan Goertzsusangoertz on May 27, 2018 10:44am:

      Hi Curtis. Thank you for your questions.

      Question 1 - If your contract with your customer is lump sum then materials purchased for new construction are taxable to the purchaser. You cannot give a resale certificate as you are the purchaser and responsible for the tax.

      If your contract with the customer is separated (material and labor) you would charge your customer tax on the materials and give the material vendors a resale certificate.

      Question 2 - Multi-family properties are considered residential for Texas sales tax purposes. If the GC is billing you lump sum, they are responsible for the tax on the materials and should not bill you tax on anything.

      Hope that helps.

      Susan

  • Posted by Oralia on May 15, 2018 12:47pm:

    I am not too clear on this one. When reporting Sales tax on my monthly to the state to pay. On repair jobs we provided resale certificate to our vendors and charge our customer sales tax. The tax is already being reported as taxable sales tax. When I run my report on all Material and Purchases should I pay taxes on material use on repairs when we are billed the customer and are included in our report. It feels like double paying?

    • Posted by Author photo of Susan Goertzsusangoertz on May 16, 2018 2:34am:

      Good morning, Oralia. If your repair jobs are commercial in nature then you are correct to tax your customers and give your vendors a resale certificate. You do not need to pay taxes on materials for those jobs. If the repair jobs are residential, then it depends on how you bill your customers. If you are billing your residential customers lump sum, then you would not tax your customers but should pay tax on the materials used in the job. If you are billing your residential customers separated (material and labor separately stated), then you would bill your customers tax on the materials and not pay tax to the vendors when you purchase the materials.

      Hope that helps, if you'd like to discuss further, please contact me via the orange “Request a Consultation” link on my Firm Profile page.

      Thank you!
      Susan

  • Posted by Cheyenne on May 10, 2018 3:41pm:

    I find your post helpful. I have a question that I’m having a lot of trouble finding the answer too. I am a heavy equipment mechanic working on industrial CAT machines for the oilfield and some pipelines. My customers always provide parts but should I be charging tax on my labor? I seem to get a different answer every time I go to the comptroller office

    • Posted by Author photo of Susan Goertzsusangoertz on May 14, 2018 4:44pm:

      Hi Cheyenne. Thank you for your question. The repair to heavy equipment is taxable repair. Labor and materials are taxable so even though you are only providing the labor, it is taxable to your customer.

      Hope this helps!

      Susan

  • Posted by Angela on May 8, 2018 10:52am:

    Susan,

    We are a GC who occasionally hire other sub-contractors to do our jobs. However, our company invoices our customer for the full job. We have an apartment complex needing a new roof. Our sub-contractor has provided us with an itemized bid which does not include tax. We in turn, will be submitting the bid to our customer under our company name. Should we include tax on it or not?

    • Posted by Author photo of Susan Goertzsusangoertz on May 14, 2018 4:48pm:

      Hi Angela. Very good question! If I'm reading your question correctly, you have a residential roof remodel and you are billing your customer lump sum. That means that you do not bill your customer tax. It also seems that your subcontractor is billing you separated (separately stating amounts for the materials and labor). If that is the case, you should be paying tax to your subcontractor for the materials. If they are not permitted and can't legally charge you tax (if they are billing you separated, they should but some are not because they don't know any better), then you can be in compliance by reporting the taxable material purchases on your sales and use tax return (taxable purchases field) and remit the use tax directly to the Comptroller. Make sure you keep a copy of the subcontractor's invoice with your copy of your sales tax return so you can support the amount reported as taxable purchases in the event of an audit.

      Hope that helps and thank you again for the question.

      Susan

      • Posted by Angela on May 15, 2018 10:06am:

        Thank you Susan for your reply.
        A few things I may need to clarify...it is a commercial
        Roof remodel for an apartment complex. The subcontractor's
        Bid itemizes the work that will be done, because our customer wanted to see the bid like that.
        Ie: tear down $5000, install of new. $10,000
        No where on the proposal, does it show the word labor or
        Materials.
        If the bid is approved, the subcontractor will bill my
        Company one lump sum. No tax.
        So,do I bill my customer tax all because they want a general
        Itemized bid?
        Very confusing...

        • Posted by Author photo of Susan Goertzsusangoertz on May 16, 2018 2:38am:

          Hi Angela. Apartment complexes are considered residential, not commercial. Anywhere anyone lives for more than 30 days is residential.

          Your subcontractor is billing you lump sum even though each phase of the job is being itemized. The "install" amount of $10,000 includes both materials and labor. You should not pay tax to your sub (they will pay tax on the materials when they purchase them) and in your first post you said you also bill lump sum so you would not charge your customer tax.

          Please let me know if you'd like to discuss further. Thank you!

          Susan

  • Posted by Eduardo on May 3, 2018 12:53pm:

    Hi Susan,

    I am a GC based in Texas, I thoroughly understand sales tax for all the work I perform in the state. However, how do sales tax work when I bid and perform work in another state? Do I have to pay sales tax in Texas for that job, or would I have to get a tax permit in the state where the job is and pay sales tax for that state?

    Your input will be greatly appreciated.

    Regards,
    Eduardo Treviño

    • Posted by Author photo of Susan Goertzsusangoertz on May 14, 2018 4:53pm:

      Hi Eduardo. That would depend on the State. Different states have different rules for contractors. As for Texas, you do not charge tax on jobs performed outside the state of Texas. Take note though, if you take delivery of the materials in Texas for the out-of-state job, you owe tax on the materials. If you purchase or take delivery of the materials outside the state of Texas, you do not owe Texas use tax on the materials.

      If you need specific guidance on other states please reach out to me via the link in my firm profile page.

      Susan

  • Posted by Sonia on May 2, 2018 8:07am:

    Good Morning Susan – We are a Texas based company. We purchase and install insulated panels for new and remodel construction projects. Our contracts are often times directly with the owner and sometimes with a GC. Generally, I get the concepts of new vs remodel commercial construction:
    • new construction (lump sum) - pay tax to vendors for materials incorporated into a project and charge customer tax on materials incorporated into project, and
    • remodel – do not pay tax to vendors for materials, instead charge customer sales tax on entire project and then remit to state
    Because managing vendors and invoices (i.e. a resale cert is applicate to job X but NOT applicable to job Y) gets cumbersome; we’d like to issue a resale certificate to all job materials related vendors, so they don’t charge us tax on any purchases, and then we can manage on our end payment of the tax on the new construction materials and make payment to the state. I spoke with the state and they indicated this was “ok”… That said, in one of your posts, you note “Many companies tell their vendors "I'll pay the tax directly to the State" which also is not acceptable.” which contradicts what the state told me. Can you please elaborate on your statement? Things would be so much easier, accurate and organized (in the case of an audit) if we could just manage payment of the tax to one entity; the state rather than multiple vendors. Thanks in advance for your guidance.

    • Posted by Author photo of Susan Goertzsusangoertz on May 14, 2018 5:04pm:

      Hi Sonia. Thank you for your questions.

      One correction - on the new construction (lump sum) - you indicate that you pay tax to vendors for materials incorporated into a project and charge customer tax on materials incorporated into project. For a Commercial New Construction job billed lump sum, you do not charge your customer any tax and pay tax on any materials that are incorporated into the job. If you are subbing any of the job out, how your sub bills you will determine if you pay them tax. If they bill you lump sum, you would not pay them tax (they pay tax when they buy the materials). If they bill you separated, then you pay tax to your sub on the material amount only.

      I agree with you about giving certificates per job. It can get very confusing for you, for your vendor and it's highly likely someone is going to make a mistake. My comment about telling vendors that you'll pay tax directly to the State is not acceptable was a post about direct pay permit holders and in all situations except contractors I would not advise my client to accept that from their customers. They will get stuck in an audit with no way to prove that their customer paid the tax and they will be assessed the tax.

      For contractors - going all in one way or the other is much easier and acceptable. Either don't pay tax on any materials and accrue and remit on the taxable material purchases or pay tax on all materials and request a refund each month when you file your return. Most people will opt for number one, simply for cash flow reasons or because they may not have enough taxable sales each month to absorb the amount of the tax refund.

      Hope this isn't too confusing. You are absolutely on the right track, just double check your Commercial New Construction billed lump sum comment and then I think you've got a good handle on how this works!!!

      Thank you again!

      Susan

      • Posted by Frances on May 29, 2018 12:25pm:

        New Construction lump sum billing to customer (Refinery) jobs.
        No tax to customer at all?
        No sales tax to me from my vendor?
        New Construction is completely exempt?

        • Posted by Author photo of Susan Goertzsusangoertz on May 29, 2018 3:08pm:

          Hi Frances. It depends. Is your vendor a sub and billing you lump sum in which case, they would not charge you tax and would pay tax when they purchase the materials for the job. If the vendor is a material vendor and you are purchasing materials for the job, you would pay tax on the materials.

          Hope that helps.

          Susan

          • Posted by Frances on May 30, 2018 8:36am:

            My vendor is a material vendor, So I pay tax on the material, but since it is new construction (refinery) I do not bill my customer sales tax when doing lump sum billing and labor and materials are all included in the single line item price.

  • Posted by Scott on April 30, 2018 1:01pm:

    Hello,
    We are an industrial insulation contractor preforming work in the West Texas Oil & Gas Fields on plant and operational facilities. Our contracts and bids are lump sum. We pay all sales tax on materials used. Our internal accounting is now saying that we need to invoice Texas sales tax on our total from our lump sum invoice. Is this correct?
    Thank you

    • Posted by Frances on May 7, 2018 6:17am:

      question, We have a dumpster rental business for c&d contractors. We delivery the dumpster to different sites I collect the money via phone with credit card. What city and county tax would we collect. Where the dumpster is delivered to, or where you collect the payment?

      • Posted by Author photo of Susan Goertzsusangoertz on May 14, 2018 5:08pm:

        Hi Frances. You should collect the local tax where the waste is collected or picked up for removal.

        Thank you for your question. Please let me know if I can assist you further.

        Susan

    • Posted by Author photo of Susan Goertzsusangoertz on April 30, 2018 7:24pm:

      Hi Scott. If your contracts are new construction billed lump sum then you would not charge your customer tax and you would pay tax on the materials purchased. So in that regard, you are correct.

      If the contracts are repair / remodel, then the entire amount is taxable to your customer and you would purchase the materials tax free.

      If you'd like to discuss further, please let me know.

      Susan

      • Posted by Frances on May 15, 2018 6:01am:

        And this scenario is for the refineries as well. Correct?

        • Posted by Author photo of Susan Goertzsusangoertz on May 16, 2018 2:39am:

          Hi Frances. Are you asking about refineries for the dumpster question or Scott's question regarding insulation?

          Susan

  • Posted by Phyllis on April 24, 2018 12:40pm:

    I work for Lowes in Texas,
    I remember working for Home Depot and in Texas when I moved here ten years ago, that customers did not have to pay tax on the kitchen products (cabinets) we sold them if they also used our installer.
    Is this still true?

    • Posted by Author photo of Susan Goertzsusangoertz on April 24, 2018 3:57pm:

      Hi Phyllis. I would assume that most people who will be purchasing cabinets from HD or Lowes will be residential. I also assume that HD and Lowes would bill the sale of the cabinets one lump sum, installed, then you are right, there would be no tax due from the customer.

      Hope that helps!

      Susan

  • Posted by Oralia on April 20, 2018 11:45am:

    Sorry forgot to ask , AG exempt on a new construction lump sum, Again I feel, it is handle the same as lump sum, we as the GC are still responsible for the taxes correct or is it an acceptable exemption, so we should provide resale exempt certificates to our vendors on material purchase?

    • Posted by Author photo of Susan Goertzsusangoertz on April 20, 2018 12:07pm:

      Correct. They can only give you the AG exemption if you separate the materials and labor.

      Be careful though, make sure that it is appropriate for them to give you an AG cert for the work. The work must be for the direct production of food.

      A really silly example is a fence. A fence to keep cows in is exempt. A fence to keep them out of your yard is not.

      If you want to run some examples past me, let me know. Thank you for the question!

      Susan

      • Posted by Oralia on April 20, 2018 12:11pm:

        Thank you so much! You have been very helpful.

  • Posted by Teresa on April 17, 2018 10:26am:

    We are a residential windows, glass and mirror company providing installation of windows in new constructions and replacing windows in older homes. We also replace the glass in broken windows. We do cut glass and mirrors in shop for customers, sometimes they pick up and sometimes with mirrors when deliver and install. We pay tax on all of our purchases from vendors. So we should be doing a lump sum invoice to customer, and charge them no tax, correct.
    Next question is if our total sales is say 15000 for the month and we've paid taxes on our materials, would our taxable sales would be zero ?
    Next question, lets say one vendor didn't charge us sales tax : ie we bought a sheet of glass for 120.00 and paid no sales tax. would the 120.00 be our taxable sales?
    Also on the invoice if its lump sum, can you put tax included on one line and labor included on another line? This is what the person before me was doing. So this is so very confusing to me, I'm helping out at this office and I really don't know anything about taxes but I'm learning.
    I've been looking back at past taxes paid to state and taxes had been paid to vendor at time of purchase, so shouldn't their taxable sales been zero? And if so do I go back and amend this reports because company has paid quit a bit of money to state for taxes, whenever they had already paid taxes on materials at time of purchase.
    Hope this all makes sense to you, cause I've kind of confused myself even more. Thanks for your help in advance
    Teresa

    • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 4:03am:

      Hi Teresa. I feel for you! Sounds like you have a big job and maybe a mess on your hands. I'll do my best to help you here but honestly sounds like you would benefit from a brief consult where we could not only look at the documents that you are working with but also help you devise a system to make all of this easier for you going forward as well as figure out if you need to file any amended returns to insure compliance.

      If you are only doing residential work this will be a bit easier than trying to navigate the residential and commercial differences.

      Question #1:
      We pay tax on all of our purchases from vendors. So we should be doing a lump sum invoice to customer, and charge them no tax, correct.

      Answer #1:
      This depends. Most companies bill their customers they way that they want to. Some don't want their customers to see the breakdown between labor and materials and others either don't care or their customers prefer to see the breakdown. Once you decide how you're going to bill your customers, that will determine if you pay tax on the materials. If you bill your customers lump sum for new window installation, window replacement, and glass replacement; then you would need to pay tax on the materials purchased from your vendor. If you bill your customers separated, you should not pay tax on the materials when purchased. It really all depends on how you bill your customers.

      Question #2:
      Next question is if our total sales is say 15000 for the month and we've paid taxes on our materials, would our taxable sales would be zero ?

      Answer #2:
      This is essentially the same answer as #1. First, if you collected any tax at all from your customers, that tax MUST BE remitted to the State. Even if you shouldn't have collected it, you still must remit any tax collected to the State. However, if you billed your customers lump sum, there is no tax due from your customer. If you billed them separated, then you should collect tax on the materials portion of the billing to them.

      Question #3:
      Next question, lets say one vendor didn't charge us sales tax : ie we bought a sheet of glass for 120.00 and paid no sales tax. would the 120.00 be our taxable sales?

      Answer #3:
      If you should have paid tax to your vendor on this purchase because that material was used in a lump sum residential job, then you would owe "use" tax on the purchase. There is a field on your sales tax return called "taxable purchases". You would enter $120 in that field and pay the tax directly to the State for that purchase. Keep a copy of the vendor invoice with your copy of the sales tax return so you can support the amounts reported for taxable purchases in the event of an audit.

      Question #4:
      Also on the invoice if its lump sum, can you put tax included on one line and labor included on another line?

      Answer #4:
      I wouldn't suggest this and really would need to understand the essence of the transaction in order to advise you properly. Be careful with "tax included" on your invoice to your customer. That is very vague and subjective terminology and an auditor will consider it tax collected. Again, as stated above, any tax collected must be remitted.

      One other thing I want to throw in here. You mention that sometimes your customers pick up the glass or the mirrors. Unless they give you a resale certificate, you should always charge them tax on these sales. That tax would then be remitted to the State and you would not pay tax to your vendor for the materials purchased for that sale. If you paid tax on the materials (because you said that you always pay tax on materials), you can get that tax refunded to you by reducing your taxable purchases reported or your taxable sales reported. Again keep a copy of the vendor invoice on which you are requesting the refund from the State with your return to support why you are claiming the refund.

      I'm going to assume that this may have confused you more and I would urge you to reach out to me for a possible consult. Quite honestly, we could probably get you straightened out spending only an hour with you going over your jobs and your documents. My office number is 469-352-9620. I look forward to speaking with you.

      Susan

  • Posted by Oralia on April 17, 2018 9:22am:

    On a lump sum new construction, we have been provided a direct tax. How is this handle, do we still pay sales taxes on materials purchased. If they are claiming direct tax, why? If a new construction is not taxable. I am going to assume there is no change to the way we draw up the contract and the tax responsibility still lies on the contractor, is this correct?

    • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 4:06am:

      Hi Oralia. You are correct. A direct pay permit holder shouldn't give you a certificate for lump sum new construction. As you stated the sales side of that transaction is not taxable and you cannot use their permit to exempt the purchase of the materials. You should pay tax on the materials for that job.

      You are correct in all that you stated in your question. Great job! Please let me know if I can help you further.

      Susan

      • Posted by Oralia on April 19, 2018 5:44am:

        Thank you, Now, if we gave the customer a new construction lump sum contract then, customer claims direct tax and they request we separate labor and materials. Is that handled different? We have a customer that we gave them a lump contract and then stated direct tax, on their PO they are separating labor and material base on the amount we give them on every progress billing and they add the taxes, not sure how to handle this one.

        • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 6:37am:

          If your customer wants the contract separated, then you could accept the direct pay certificate and not charge them tax on the materials. Make sure that you re-issue your contract separated though. Their PO is not a controlling document in the transaction and an auditor would still consider the job lump-sum if you did not reissue the contract separated and then would assess you tax on the materials for the job.

          Hope that helps. Thank you for your questions!!

          Susan

          • Posted by Oralia on April 19, 2018 8:13am:

            Sorry forgot to add, AG exempt on a new construction lump sum, Again I feel, it is handle the same as lump sum, we as the GC are still responsible for the taxes correct or is an acceptable exemption, so we should provide resale exempt certificates to our vendors on material purchase?

  • Posted by Eric on April 13, 2018 2:31pm:

    We are a out of state contractor doing utility installation work in the state of Texas. I have been reading on the sales tax for Texas and it’s very confusing. We only provide labor no material is provided by us. We install utility lines on the right of way for different companies. My question is should we being paying tax on the labor.

    • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 4:51am:

      Hi Eric. Installing utility lines would qualify as new construction. New construction labor is not taxable in Texas. Hope that helps. Let me know if you need additional help. Thank you for your question!

      Susan

  • Posted by Kelley on April 13, 2018 12:13pm:

    As an interior designer, remodeling an HOA amenity center, do I charge sales tax/pay sales tax on everything? I called the HOA accountant who said the center "is not tax exempt". Painting labor? Countertop installation? Drapery hanger? My invoices separate out each item, including my design fees which are not taxable in Texas (so far). If you have already answered this, point me to a thread. Help.

    • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 4:58am:

      Hi Kelley. Remodeling a non-exempt HOA is the same as commercial repair / remodel and is 100% taxable, labor and materials. Below is an outline of the taxability of your services.

      1. Design Services included in cost of Fee.

      A separately stated charge for interior design services is not taxable. A fee for design services that is included in a lump-sum billing for the sale of tangible personal property is taxable. The design fee cannot be a percentage of the item's cost without being seen as part of the sales price (see Question 2).
      A fee for design service that is included in the charge for the performance of a taxable service will be taxable if the portion relating to taxable services
      represents more than 5% of the total charge.

      2. Purchasing Fees charged as a percentage of cost of Fee.

      A purchasing fee that is a percentage of the taxable item's (either tangible personal property or taxable service) cost will be considered a mark-up and
      will be taxable.

      3. Administrative charges added to consultants' bills.

      Administrative charges are taxable if made in connection with charges for taxable items.

      4. Administrative charges added to reimbursable expenses.

      A reimbursable expense occurs when the interior designer pays tax to the furniture or supply vendor and passes the charge on to their customer. The
      decorator must separately state the item and the associated tax on their invoice to show that it is just a reimbursement. An administrative charge added
      to a reimbursable expense is taxable when it is a percentage of the taxable items sale price. The administrative charge is not taxable when it relates to nontaxable interior design services.

      5. Sales tax on freight, move-in and storage.

      Sales tax is due on freight and move-in fees associated with sales of taxable items. An interior decorator will not need to collect tax on professional fees to arrange the furniture. An interior decorator is not responsible for collecting sales tax on freight or move-in charges for items that they do not sell. Reimbursed items are not considered "sold" by the interior decorator. Storage fees are not taxable.

      6. Merchandise sold to clients (cost and mark-up).

      The sale of tangible personal property or taxable services (i.e.; remodeling of commercial real property) including any mark-up is taxable.

      7. Consultation fee alone.

      A consulting fee for interior design work is not taxable.

      Hope all this helps. Please let me know if you have additional questions.

      Susan

      • Posted by Kelley on April 20, 2018 11:23am:

        Thank you Susan. Just the thought that you would take the time to think about sales tax issues at 4 in the morning, is more than I can imagine. I appreciate your help and expertise. I am sure everyone else on this thread feels the same way I do.

        • Posted by Author photo of Susan Goertzsusangoertz on April 20, 2018 11:40am:

          You're welcome. I actually did wake up thinking about all the questions on STS that needed my attention...:)

          Thank you for your kind words. I am very thankful for the opportunity to assist.

          Susan

  • Posted by Judy on April 12, 2018 7:30am:

    We are an electrical contractor that does new commercial contracts. When we bid a project to a general contractor it is a lump sump price with no tax. We do not pay tax on the material we purchase. The general contractor will have various subcontractors. What is the code reference to back up this practice? The GC is having a sales tax audit with a young inexperienced auditor with no construction experience. Thank you!

    • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 5:06am:

      Hi Judy. You stated that you are performing commercial new construction work for general contractors and that you bill lump sum. You are correct that there should be no tax on the contract between you and the GC but you SHOULD BE paying tax on the materials that you purchase for the job.

      Couple of points here. One, you may want to encourage the GC to reach out to me for audit assistance. We assisted a very large electrical contractor last year for an audit with an auditor who is not new but still attempted to tax our client for jobs incorrectly. The contractor rule is confusing for everyone (especially auditors) and why I wrote the blog, why I correspond via this medium to help educate taxpayers as well as the flow chart that we developed and is included in this blog. If you haven't downloaded it, you should and give it to everyone in your organization who is involved in quoting, billing and speaking with vendors and customers. Second, I want you to be aware that many audits in Texas are "audit leads" which means that you may be targeted for an audit simply because this GC is being audited. Since you haven't been paying tax on the materials purchased, you may want to do an audit of your jobs and determine what your exposure would be (how much tax should you have paid) and attempt to get compliant before they come audit you and add penalties and interest to that amount.

      Hope this helps. Please let me know how I can assist you further.

      Susan

  • Posted by Charlie on April 11, 2018 12:19pm:

    Hi Susan, first off I want to thank you for taking the time to answer questions in regards to Texas Sales and Use Tax.

    My first question is about use tax: Should I automatically assume that if an invoice (not applicable to a construction job, but considered Overhead) does not have sales tax tied to the grand total, that a use tax may be required to be remitted to the Comptroller's office? I have a couple invoices that I am questioning if use tax needs to be remitted. They are vendors based out of California, purchasing products for our IT department.

    My second question is about Sales Tax: We do not normally deal with vendors that are not located in the United States. However, we have purchased some products for a construction job from a subcontractor based out of Canada. Would we be required to remit sales tax on the material for a new construction jobs? No where on the invoice/pay app does it show any sales tax included. So I am not exactly sure how to handle vendors located out of the United States.

    • Posted by susangoertz on April 19, 2018 6:04am:

      Hi Charlie. Thank you for your kind words and your question.

      Your first question regarding out-of-state purchases. You are correct. If the item you are purchasing is taxable (products for your IT department are taxable), then you should be remitting use tax to the Texas Comptroller via the "taxable purchases" field on your sales tax return.

      Materials for construction projects are taxable depending on the type of project and how it's billed. If the job is lump sum new construction, then you would remit use tax on the material purchases from Canada via the taxable purchases field on your sales tax return. If the job is separated new construction or commercial remodel, you would not need to remit use tax as the tax would be collected from your customer. The same would be true for separated residential work (remodel or new construction).

      Hope that helps. Have you downloaded the flow chart? Please let me know if you need anything additional from me.

      Susan

  • Posted by Eric on April 11, 2018 8:24am:

    Hi Susan,
    We are currently having a new home built. The vendor for the kitchen appliances lists all of the appliances on the quote then adds "Installation" as a line item at the bottom just before taxes. They are charging tax on the installation. I questioned them and they said "No, the install is taxed, we learned that the hard way years ago from an Audit." Is this correct?

    • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 6:24am:

      Hi Eric. No that's not correct. Unfortunately, auditors get things wrong all the time and taxpayers make changes based on what the auditor told them. Sounds like that's what happened to your contractor.

      Decision No. 26,226, from the Comptroller upholds that appliances (e.g., stoves and refrigerators), drapes, doors, and hot water heaters, all capable of being removed without substantial damage to the realty, are treated as improvements to realty when installed by a contractor when constructing a building or residence.

      They are billing you separated so they should tax you on the cost of the appliances but the labor to install is not taxable.

      Here are links to the hearings I'm citing in case you need to show them something:

      https://star.cpa.texas.gov/view/200108504h?terms=appliances%20%22new%20construction%22

      https://star.cpa.texas.gov/view/9012h1060c11?terms=26,226

      Please let me know if you need anything else.

      Susan

      • Posted by Eric on April 19, 2018 6:50am:

        Thank you, Susan.

  • Posted by Carol on April 11, 2018 8:07am:

    We are a GC who does mostly new construction but some times we do tenant improvements as well as remodels. Do we charge the customer sales tax on a tenant improvement (we repaired a damaged column for our customer)?

    • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 6:31am:

      Hi Carol. Tenant improvements for a first time tenant in a space is considered new construction. Even if the building was built five, ten, fifteen years ago, if no one was in that space until now, it's still new construction. I know that sounds silly but I recently had an audit where the building was built in 2008 right before the crash and sat empty until 2017. The auditor was trying to tax it as a remodel but we were able to prove to him that it was in fact the first tenant and therefore new construction.

      If the tenant improvement is for a subsequent tenant or a tenant who's been in the space, then it is considered repair / remodel and is 100% taxable.

      Hope that helps. Please let me know if I can assist you further.

      Susan

      • Posted by Tiffany on June 1, 2018 6:01am:

        I recently had an issue like this with a customer and had to get the Comptroller's office out of Austin involved and he told me and the customer something different than this. We install voice and data cabling and the customer was finishing out a suite in a new office building. The Comptroller agent (the specialist in new construction, cabling...says he actually wrote the book and teaches about this) explained that the installation of the backbone cabling to support the suite's finish out that is installed during the construction phase is what is considered part of the new construction install and labor is not taxable. However, he said once the walls are completed and we go into a customer's suite to install drops at their requested locations this is now considered a remodel. Whether they are the first tenant or not.

        • Posted by susangoertz on June 4, 2018 9:57am:

          Hi Tiffany. Yes, unfortunately with cabling it can be different and extremely difficult to prove if the cabling was done as part of the initial finish out or not.

          Consider this. If a space is being built out for the first time, it's considered new construction. If you are doing the cabling before the drywall is put up, it's new construction and non-taxable when billed lump sum. However, if you come in after the drywall is put up and install the cabling, it's still new construction (as long as the space has not been occupied) but proving it is very difficult. How can you prove when they moved in? After they move in, it's remodel.

          In your case, it's better for you to bill them as if they are remodel to save yourself the headache and likely tax due later on during an audit.

          Thanks for the comment. Very helpful for those who are seeking assistance and clarification!

          Susan

  • Posted by Debbie on April 3, 2018 8:13am:

    Susan,
    We install outdoor patios. We have our first commercial project that we are putting together a bid for a customer. They are adding an outdoor patio to their existing building to entertain their customers. It is an open grassy field in the back of their building that they would like to add on a patio. Would this patio be considered a remodel or a new construction?

    If it is a remodel, I would charge sales tax on the whole invoice amount. Correct?

    And if it is new construction and we do lump sum billing and pay tax to our vendors , then no tax is charged. Correct?

    Thanks!

    • Posted by Author photo of Susan Goertzsusangoertz on April 3, 2018 8:16am:

      Hi Debbie. Yes! You've got it!

      Adding a patio where there was none before is new construction. Essentially, anytime you add square footage, it's considered new construction. If you are billing lump sum, you pay tax on the materials and no tax is charged to your customers.

      Thank you for your question. Please reach out anytime you need assistance!

      Susan

      • Posted by Debbie on April 3, 2018 8:21am:

        Thank you! Your blog and flow chart is very helpful!!

  • Posted by Josh on April 3, 2018 6:47am:

    Susan, your blog is very helpful. I’ve asked our controller to set up a meeting, I’d like to meet you to discuss sales tax. Meanwhile, we are a commercial GC. I have a potential project that is half first time finish out half remodel. We plan to have one lump sum contract. Is there any way to save labor tax on the first time finishout portion even though it was all bid as one project? Thanks!

    • Posted by Author photo of Susan Goertzsusangoertz on April 3, 2018 7:48am:

      Hi Josh. Thank you for your kind words. I am thankful that I can assist Texas taxpayers navigate the muddy waters of sales and use taxes in Texas. Please feel to reach out to me via email at susan.goertz@bgctax.com or 469-352-9620 to schedule a meeting.

      As for your question, if more than 5% of the job is remodel then then entire job will be considered remodel and would be fully taxable, if quoted as one job. You may consider quoting the remodel separately from the new construction portion of the job in order to minimize the tax due from your customer. I assume the aim is to make sure that your bid is as competitive as possible and sometimes tax creates the difference between getting the job and not getting the job. Not sure how your customer would feel about two contracts for the same job but if it saves them money, they may be all for it.

      Hope that helps. I look forward to hearing from you!

      Susan

      • Posted by Frances on April 3, 2018 7:54am:

        I would really like to have a short telephone conference/training on some Texas Sales tax.

        how much do you charge?

        • Posted by Author photo of Susan Goertzsusangoertz on April 3, 2018 8:03am:

          Hi Frances. We offer a free 30-minute phone consultation. Please contact me at 469-352-9620 so we can help you with your questions.

          Susan

  • Posted by Oralia on March 28, 2018 3:18pm:

    Confuse about lump sum contracts. We are new contrcution mostly and our contract are mostly lumpsum. Our subcontract sometimes provide lump quotes as well to us. If they quote it separate, do we have to pay them the tax on materials or can we provide a resale certificate?

    • Posted by Author photo of Susan Goertzsusangoertz on March 28, 2018 5:36pm:

      Hi Oralia. Thank you for your question. The answer depends on whether your jobs are commercial or residential and new construction versus remodel. Can you give me some more detail so that I can give you the best answer? Thank you!

      Susan

      • Posted by Oralia on March 29, 2018 6:05am:

        This regarding commercial, I had been providing them a resale certificate, but it seem that we should pay the taxes. At the end of each month I pay taxes on materials and purchase use to the state comptroller office. Not sure how to handle it now, since I been told that on a lump sum contract we pay the taxes to our vendors. Being that this is a subcontractor is this different?

      • Posted by Oralia on March 28, 2018 5:40pm:

        New construction commerical

        • Posted by Author photo of Susan Goertzsusangoertz on March 30, 2018 8:24am:

          Hi Oralia. If you are billing your commercial customers lump sum for new construction, you should pay tax on any materials that you purchase for the job. If your subs are billing you separately, you should pay tax on the materials that are separately stated. If the subs are billing you lump sum, they pay tax on the materials that they purchase for the job.

          Hope that helps. Sometimes when contracts start to take on layers of sub-contractors, it can get very, very confusing. Please feel free to let me know if you need more help. We could look at specific examples if you like to make sure that you are compliant.

          Susan

  • Posted by Tonya on March 28, 2018 9:17am:

    We are trying to determine if performance bonds are taxable in Texas? Unfortunately, we haven't been able to find any research on the topic that states one way or the other. We saw a charge for taxes on bonds on an invoice so we are questioning it. Thank you for your insight.

    • Posted by Author photo of Susan Goertzsusangoertz on March 28, 2018 1:44pm:

      Hi Tonya. You stated that there was tax on an invoice for a Performance Bond line item. Was the job commercial remodel and was there a contract or proposal preceeding the invoice?

      Susan

  • Posted by Frances on March 27, 2018 7:04am:

    We are a scaffold building and painting company.
    which we build scaffolding for other parties to perform maintenance on sections of refineries/chemical plants. We then also paint and sandblast the Tanks in the refineries.
    so i am guessing that all of that is repair/remodel and the flow states to charge tax on whole invoice amount, and issue resale cert for material used. Why resale cert for materials? would we not be passing the sales tax along

    • Posted by Author photo of Susan Goertzsusangoertz on March 27, 2018 10:08am:

      Hi Frances. The taxability of the sandblasting and painting depends.

      If you are performing those services during a scheduled turnaround of the refinery, you should bill your customer separated. Tax the materials but don't tax the labor. I know this is different from what my flowchart says but there are special rules for refinery turnarounds which are considered periodic and scheduled maintenance and not real property repair / remodel.

      Most refineries are direct pay certificate holders and therefore if the refinery is your direct customer, they will give you a direct pay certificate and you would not charge them tax. If they are not a direct pay certificate holder, you would charge them tax on the materials only.

      If you are a sub to another company who is performing turnaround activities for the refinery, that company would give you a resale certificate and you would not charge them tax because they will tax the refinery or the refinery will give them a direct pay certificate for tax on materials.

      Without a certificate though, you should charge tax on the separated materials. In all the cases above, you would give a resale certificate to the vendors where you purchase the materials (sand, paint, etc.) to perform the work.

      If, however, the work you are doing is not during a turnaround and your customer is the refinery, you would charge them tax on the entire amount unless they give you a direct pay certificate. You would not pay tax on the materials because the tax is being paid on the full amount of the job (material and labor) by your customer.

      If you are a sub and again, not during a turnaround, you should get a resale certificate from the GC performing the turnaround activities.

      I'm sorry, I know this is a lot to take in and if you'd like to talk live so we can talk through additional questions I'm sure you'll have or if you want to just make sure you're really clear on all of this, please reach out to me at 469-352-9620.

      Thank you and have a great day!

      Susan

      • Posted by Frances on March 29, 2018 5:48am:

        I would really like to be able to reach out and have about a 10-15 minute discussion, I just need to be able to have all my questions in order.
        I do appreciate this information. it is very useful
        thanks so much for assistance

        • Posted by Author photo of Susan Goertzsusangoertz on March 30, 2018 8:26am:

          I am out of the office today for Good Friday. Please feel free to contact me next week and we can discuss further and make sure you're on track. My office number is 469-352-9620. Thank you!

  • Posted by nick on March 24, 2018 3:09pm:

    Hi susan, my company is an llc formed early 2017. We almost exclusively remodel residential properties. I was told by my CPA to get a resale permit, so I applied and got one. Now our contracts are lump sum contracts and we do not separate material and labor cost. We have been buying tax free from a local vendor but the part that I am confused about is the collection of this tax. Do I need to collect this tax on materials after the project is done? I have completed several projects now and I fear we might be getting ourselves in a sticky situation. I have tried to research this topic and every thing is just so unclear to me.

    • Posted by Author photo of Susan Goertzsusangoertz on March 27, 2018 7:04am:

      Hi Nick. Thank you for your question. This is one that confuses a lot of people.

      You said that you "almost" exclusively remodel residential properties. If you are only remodeling residential property and you contract / bill your customers lump sum, you do not need a sales tax permit. You should be paying tax on the materials that you purchase for the job.

      You can report and remit the tax due on the materials that you have purchased for the residential remodel jobs that you've done in the past. The statute of limitations in Texas is four years but I wouldn't go back any further than January 2015. If you want to do this, you would add up the amount of materials purchased on which you did not pay tax and report that amount as taxable purchases on your sales tax return. Beginning immediately, stop giving your resale certificate to material vendors and if there are any that have you already set up as non-taxable, notify them that they should start charging you tax.

      I wouldn't relinquish your sales tax permit at this point because that will for sure spur an audit from the Comptroller. I would keep the permit and just report zero for taxable sales going forward and remit any use tax on materials on which you didn't pay tax for that reporting month or quarter (whatever your cycle is).

      I hope that makes sense. If you need additional help, please let me know.

      Susan

      • Posted by Mary on April 16, 2018 2:13pm:

        Texas just released a Texas Tax Amnesty Program from May 1, 2018 through June 29, 2018.

        • Posted by Author photo of Susan Goertzsusangoertz on April 19, 2018 6:40am:

          Hi Mary. Yes, this is the second one this year! Keep in mind though that it doesn't apply to taxpayers currently under audit or if you have an outstanding assessment. This is only for those taxpayers who need to step up and admit that they owe tax. It also doesn't apply to tax collected, not remitted.

          If anyone needs additional information or assistance whether this might apply to you, please reach out to me.

          Susan

  • Posted by Iris on March 21, 2018 5:41pm:

    Hi Susan,
    First off, let me just say that your Q&A posts have helped answer so many of my questions, thank you for all of your answers, you are a world of help!
    However, I am still questioning if my business even needs to get a Sales and Tax use permit for a drywall business. If our services are non taxable, I feel like what is the point in even applying for and getting a permit. Currently, we own a small drywall company in Galveston County that only provides labor to a general contractor.

    • Posted by Author photo of Susan Goertzsusangoertz on March 22, 2018 5:47am:

      Good morning, Iris. Thank you very much for your kind words. I am very thankful that this platform allows me the opportunity to educate and assist businesses to be compliant with their state and local taxes.

      You are correct, if you have no tax responsibility, there is no reason for you to have a sales tax permit. So in your case, if you are only providing drywall labor, make sure that you are only performing residential work or commercial work for a GC and get resale certificates from the GC.

      Please reach out to me any time for assistance.

      Susan

      • Posted by Iris on March 22, 2018 6:13am:

        Thank You!

  • Posted by Steven on March 20, 2018 1:45pm:

    We are a general contractor and have done some work in Texas in the past, but generally it has been new construction. We now have the opportunity to perform some renovations to commercial buildings in Texas such as hotels, financial institutions, etc. over the next year or so. From what I can gather from reading above as well as the Texas Comptroller's website, it seems as if we would need to charge the owner sales tax on the total amount invoiced under the guaranteed max contract. Is this correct? If so, I'm assuming this should be a line item on the pay app? Also, what do we need to do related to the subs that we hire? Should we give them the resale certificate so we don't get charged tax by them for materials? What about the cost of labor for the sub? Is that subject to tax when invoiced to us? If so, wouldn't that be taxed twice if we have to tax the full contract amount to the end customer? Any thoughts and help would be appreciated. Thanks in advance.

    • Posted by Author photo of Susan Goertzsusangoertz on March 22, 2018 5:52am:

      Hi Steven. Sounds like you would be the GC for these commercial remodel jobs in Texas? If that's the case, you are correct. You would charge your customer tax on the full amount of the job. It should be indicated separately on your contract and also a line item on the AIA as you will collect and remit tax on each progress payment.

      You should give a resale certificate to your subs so they don't charge you tax on labor or material provided to you and you will give a resale certificate to any vendors from whom you purchase materials. You should and your subs should always pay tax on any equipment rentals made for the job. Equipment rental is always taxable to the person using the equipment.

      Hope that helps. Please let me know if I can assist you further.

      Susan

      • Posted by Ginger on August 14, 2018 1:44pm:

        What should you put on the resale certificate for the description of items to be purchased? Materials, Supplies, Labor?

        • Posted by Author photo of Susan Goertzsusangoertz on August 17, 2018 5:04am:

          Hi Ginger. If you are giving a resale certificate to a sub who is performing work on a commercial remodel job, you should indicate "commercial remodel" in the "description of items to be purchased". You can give one certificate for each job if your sub works on both new construction and remodel jobs for you or if they only work on remodel jobs, you can give them one blanket resale certificate. If giving this certificate to a vendor where you are purchasing materials, this section could just say "plumbing materials"; "roofing materials", etc.

          For the section of the certificate where it asks "description or type of business" just put "general contractor".

          Hope that helps. Please let me know if you need more. Thank you!

          Susan

      • Posted by Mindy on May 7, 2018 12:07pm:

        If we charge the customer tax on the entire invoiced amount AND pay tax on any equipment rental used on the project, isn't that double taxation? Also, can you use an out of state resale exemption certificate for material purchases?

        • Posted by Author photo of Susan Goertzsusangoertz on August 17, 2018 5:09am:

          Hi Mindy. The Texas Legislature taxes equipment based on who is "using" it. If you rent scaffolding to use in a remodel job, you are "using" the scaffolding so you are responsible for the tax. There are times in this situation where it does seem like double taxation but unfortunately, that's the way the law is written.

          I'm sorry, you cannot use an out-of-state resale certificate. If it is a job in Texas, you must use a Texas resale certificate.

          Sorry, I'm not the bearer of much good news for you this morning....hope this helps and let me know if I can help you further.

          Thank you!

          Susan

  • Posted by Wendy on March 12, 2018 12:58pm:

    We have a "new" construction project that requires a security guard. Is the security guard's labor taxable?

    Thank you!

    • Posted by Author photo of Susan Goertzsusangoertz on March 18, 2018 8:01am:

      Security services are taxable in Texas unless performed by an off-duty police officer. If it's a company, they should charge you tax, if it's an individual, you should accrue and remit use tax directly to the Comptroller via your sales and use tax return (taxable purchases).

      If you happen to hire an off-duty policy officer, make sure you get their name, badge number and precinct. Perhaps have them use a sign in sheet for each time they work. That will protect you in the event of an audit.

      Hope that helps you, please let me know if you have additional questions.

      Susan

      • Posted by Wendy on March 19, 2018 5:38am:

        Thank you!

  • Posted by Abel on March 12, 2018 1:35am:

    My Contactor is an LLC that distributes solar Panels in Texas, how would the taxes work in this situation?

    • Posted by Author photo of Susan Goertzsusangoertz on March 18, 2018 8:05am:

      Hi Abel. Can you give me more detail about the nature of the job? I need a little more information to ensure that I'm giving you appropriate advice. Thank you!

      Susan

  • Posted by Dee on March 10, 2018 1:40pm:

    We are a general contractor remodeling a local government building. Do we pay sales tax on the material purchased for this project?

    • Posted by Author photo of Susan Goertzsusangoertz on March 18, 2018 8:08am:

      Hi Dee. I assume that the local government is your customer and that they are a local Texas government (e.g. state, county, city, etc.)? If so, then you should give a resale certificate to the material vendors. You do not need a certificate from your customer as governments and their affiliates are naturally exempt in Texas.

      Hope that helps. Please let me know if you have any additional questions.

      Susan

  • Posted by Mandy on March 7, 2018 8:20am:

    We did work for a new home builder in Texas. We only provided labor on a stair case being installed. My understanding is that since it is new residential construction that there is no tax on labor. Is that correct? If so, is the invoice sufficient documentation to keep for backup?

    • Posted by Author photo of Susan Goertzsusangoertz on March 18, 2018 8:10am:

      Hi Mandy. Yes, you are correct, the labor would not be taxable. The invoice should be sufficient proof, just make sure that the residential address is noted on the invoice.

      Susan

  • Posted by Guy on March 6, 2018 3:39pm:

    Hi Susan,
    We will be doing work as a General Contractor in Houston TX on a Commercial Interior Leasehold improvement.
    First question: Please Confirm that I have to charge my Client 8.25% tax on the entire project value (as it is a Lump Sum Contract)?
    Second Question: As we have applied for a Direct Payment Sales Tax Permit, do i have to show this permit number to my SUB-Contractors, and Suppliers so they do not charge me the tax on their lump sum contracts to me? Or do i just pay all the taxes to sub-contractors & suppliers, keep all the records, and deduct that from our tax remittance payment? Please clarify the process.

    • Posted by Author photo of Susan Goertzsusangoertz on March 18, 2018 8:20am:

      Good morning, Guy.

      Leasehold improvements can be considered repair / remodel or new construction. If the tenant in the space is the first tenant, the build out of that space is considered new construction. If they are not the first tenant in that space, then it would be new construction. If it's remodel, then yes the entire amount would be subject to sales tax and the rate is determined by the location of the job. Most of Houston is 8.25% but there are some outlying areas that are not. You are safe to charge 8.25% though as that is the maximum in Texas.

      If it's new construction, then you would owe use tax on the materials for the job and not charge your customer sales tax.

      You mention that you have applied for a Direct Payment Sales Tax Permit. Have you been approved for the permit? It's not common for a contractor to be issued a direct pay permit. Please let me know if you have and we can discuss the taxability further.

      Thank you!
      Susan

  • Posted by Brad on March 5, 2018 5:02pm:

    I am having a lot cleared for my new home. I am paying for this work out side of the home builder. Do I have to pay tax on this? Just labor for tree/stump removal and grading the lot.

    • Posted by Author photo of Susan Goertzsusangoertz on March 18, 2018 8:21am:

      Hi Brad. Land clearing in preparation for new construction is not taxable. Hope that helps. Please let me know if you have any other questions.

      Susan

      • Posted by Brad on March 26, 2018 3:53pm:

        Thanks Susan. What remedies do I have if this has already been paid in full?

        Thx
        Brad

        • Posted by Author photo of Susan Goertzsusangoertz on March 27, 2018 7:10am:

          If the contractor who cleared the land charged you tax, you can ask them to refund you the tax. You can point them to this document which indicates that land clearing in preparation for construction is not taxable. Reference paragraphs three and five under "Conclusions of Law".

          https://star.cpa.texas.gov/view/9511735H

          Thank you, hope that helps.

          Susan

  • Posted by Kevin on February 26, 2018 1:55pm:

    Is initial plumbing installation and electrical installation taxable in Texas on an office trailer at a temporary job site?
    If so, does it matter if labor/materials are sep stated? Thanks for your help.

    • Posted by Author photo of Susan Goertzsusangoertz on February 28, 2018 4:02am:

      Hi Kevin. Interesting question. Office trailers are considered tangible personal property which means that anything done to that trailer is taxable (material and labor), however in this case it would depend on the extent of the plumbing and electrical as it relates to the real property on which the trailer stands. Can you give me more information?

      Susan

      • Posted by Kevin on February 28, 2018 6:14am:

        Right now the site is a vacant lot which we will construct officer trailers for a contract to build a bridge for Houston. This brings another thought.... would this be exempt anyway sine we are contracting with an exempt entity? Thanks so much for your help.

        • Posted by Author photo of Susan Goertzsusangoertz on March 1, 2018 11:15am:

          Services to run plumbing or electrical drops and connect power to temporary trailers for a new construction job are not taxable. You should pay tax on all materials used
          to perform the nontaxable services.

          Hope that helps. Thank you for your question.

          Susan

  • Posted by Michael on February 23, 2018 2:08pm:

    I am a vendor of HVAC materials and my customer (general contractor) has given us a Sales & Use tax exemption certificate with the reason of "End User is: Tax by Owner"
    I am assuming they are referring to the end user as a direct pay holder, but that doesn't pass through to a contractor purchasing materials correct?

    • Posted by Author photo of Susan Goertzsusangoertz on February 28, 2018 4:06am:

      Hi Michael. You are correct with regard to a direct pay holder. The end customer however may not be a direct pay holder. Many companies tell their vendors "I'll pay the tax directly to the State" which also is not acceptable. I would charge them tax unless they provide you with a resale certificate; which in this case if their end customer is a direct pay would be the correct way to handle it. They are "reselling" to their customer and their customer would give them a direct pay certificate and the GC would not charge them tax. This all gets very convoluted so to keep it very simple, if you don't have a resale certificate from the GC, charge them tax.

      Hope that helps. Thank you for your question.

      Susan

  • Posted by Sheila on February 22, 2018 4:44pm:

    Susan- We are a concrete company that did repairs for a commercial property. We had a sub do a large portion. My question is about the sub. Do they charge me sales taxe on the job? And, do I get a credit on paying them taxes against the sales taxes owed to the state? THANK YOU!!

    • Posted by Author photo of Susan Goertzsusangoertz on February 28, 2018 4:08am:

      Hi Shelia. Thank you for your question. You should give the sub a resale certificate and they would not charge you tax. You should tax your customer on the full amount of the concrete repairs.

      Please let me know if I can help you further.

      Susan

  • Posted by Bobby on February 21, 2018 12:48pm:

    We are a construction services company performing work in West Texas on frac sand plants. Our contract is lump sum for new construction with very little of the overall contract value being associated with equipment and/or materials. What are our requirements for taxes with regard to invoicing our client and making sure we meet all statutory requirements?

    • Posted by Author photo of Susan Goertzsusangoertz on February 28, 2018 4:17am:

      Hi Bobby. Lump sum, new construction is not taxable to your client. You should however pay tax on all materials purchased for the job. You also mention equipment. Purchased or rented equipment is also taxable to you.

      Hope that helps. Please let me know if I can help you further. Thank you!

      Susan

  • Posted by Greg on February 18, 2018 4:34am:

    Susan

    This question concerns a new residential home (ground up) and the differemce between lump sum and separated contracts. Specifically, how much documentation defines separated from Lump sum.

    In order for a contract to be considered separated does the contractor need only to break out material from labor or does it need to be more indepth/more specific?

    Material 1150 4x8 sheetrock and 2200 screws: $5500
    Labor to Install Sheetrock: $6500

    Sheetrock Material & Install: $12,000.00

    • Posted by Author photo of Susan Goertzsusangoertz on February 18, 2018 10:39am:

      Hi Greg. A separated contract can simply list:

      Materials $$$$
      Labor $$$

      You don't need to break out all the specific materials in order for the contract to be separated. You second example: Sheetrock Material & Install: $12,000.00 would be considered a lump sum contract.

      I hope that answers your question. Please let me know if you need additional assistance.

      Susan

      • Posted by Greg on February 22, 2018 8:19am:

        Thanks very helpful

  • Posted by Gary on February 17, 2018 3:09pm:

    Hi Judy,
    We are a Texas General Contractor with an office in Town "A". We are starting a remodel on a commercial building in a different city I will call Town "B". I understand that being a commercial remodel, we will need to pay sales tax on the entire contract (material, Labor and mark up). My question is that the City's sale tax rate is different for Town "A" and "B". Should we use the City tax rate where the work is performed or where our office is located? Thank you in advance for your help.

    • Posted by Author photo of Susan Goertzsusangoertz on February 18, 2018 10:43am:

      Hi Gary. Thank you for the question!

      To clarify; "you" don't need to pay sales tax on the job but you do need to charge your customer sales tax on the entire amount of the remodel job and then remit that to the State.

      You should charge the rate where the job is being performed.

      Hope that helps. Please let me know if you need additional help.

      Susan

  • Posted by Rebecca on February 15, 2018 9:27am:

    We are a TX 501.c.3 non-profit and are contracting with an out-of-state group to build a covered arena. They want a TX Sales and Use Tax Exemption Certificate which I have sent them but they said "Unfortunately we will not be able to accept the exemption reason as a 501 C - the state of has specific exemption laws on purchases, you will need to review the state exemption laws and advise under which exemption the building and installation would fall under." Can you help?

    • Posted by Author photo of Susan Goertzsusangoertz on February 15, 2018 9:37am:

      Hi Rebecca. Being a 501.c.3 does not automatically create a sales tax exemption in the State of Texas. Have you applied and received exemption from the State of Texas?

      Susan

      • Posted by Rebecca on February 15, 2018 10:05am:

        I don't see my response here so I'll try again. Yes, we filed with the state 20 years ago.

      • Posted by Rebecca on February 15, 2018 9:47am:

        Oh, yes, 20 years ago. They have our IRS determination letter and our Tax Exempt Certificate ...

        • Posted by Author photo of Susan Goertzsusangoertz on February 15, 2018 11:50am:

          501.c.3 is a valid reason for exemption. Look up your exempt status on this page:

          https://comptroller.texas.gov/taxes/exempt/search.php

          print and scan the page to them showing that you are an exempt entity per the Comptroller.

          If they still give you trouble, let me know.

          Susan

          • Posted by Rebecca on February 18, 2018 12:43pm:

            Thank you Susan!

  • Posted by Ben on February 11, 2018 2:32pm:

    Vendor installed security camera system and related cooling system and other supporting equipment in our HOA gate area. Involved cemented posts, attachments to brick wall, new wiring. Invoices showed separate charges for equipment/labor. Considered to be of somewhat permanent nature. HOA was charged sales tax on all amounts. As HOA- should all charges be exempt from tax, should only labor be exempt. Thank you.

    • Posted by Author photo of Susan Goertzsusangoertz on February 12, 2018 12:19pm:

      Hi Ben. Thank you for your question. Any common use areas that are owned by the HOA are considered residential. I'm hesitant to give you advice on the contract / invoice without seeing it as parts of it are real property improvement (cemented posts) in which case the labor isn't taxable and part of it are tangible personal property (cameras) and the labor to install those is taxable. The taxability really depends on how the contract / invoice was written.

      If you are interested, you can email me the contract / invoice - contract takes precedence over invoice and I can look at it and give you a definitive answer. My email address is susan.goertz@bgctax.com

      Thank you!
      Susan

  • Posted by John on February 10, 2018 9:21pm:

    If we are operating a business to develop web sites for generally businesses, should we collect sales tax.

    • Posted by Author photo of Susan Goertzsusangoertz on February 12, 2018 12:20pm:

      Hi John. Websites are 80% taxable under the data processing rule. Hope that helps, please let me know if you have any other questions. Thank you!

      Susan

  • Posted by Kevin on February 9, 2018 7:46pm:

    Hello, We are a concrete company here in Texas that just began a few months ago. I have been very confused about the sales tax law and am still trying to figure it out. If we do residential repairs/ remodels with lump sum contracts then we do not collect sales tax and customers and also do not have to send anything to the state? I have reported some sales to the state as I thought it was a taxable service and we needed to pay based on the lump sum total. Any help is appreciated.

    • Posted by Author photo of Susan Goertzsusangoertz on February 12, 2018 12:24pm:

      Hi Kevin. Yes, you are correct. If you are only doing residential repair / remodel and you are billing your customers lump sum, there is no tax due from your customer and you pay tax on the materials purchased.

      If you are doing anything other that residential repair / remodel, you may have different tax rules to pay attention to. In my blog, I included a contractor flow chart pdf that you can download. Many people find that using the flow chart really helps them to understand the rule.

      Please let me know if I can help you any further. Thank you!

      Susan

      • Posted by Kevin on February 12, 2018 1:07pm:

        I printed it a few days ago. Thank you very much, the chart and your response helped greatly.

  • Posted by Joseph on February 9, 2018 8:44am:

    Hi,
    I was wondering if I'm supposed to charge sales tax. I live and work in Texas. I'm a repair technician for about three different private cable operators. They sell the video equipment to the nursing home or hospital and hire me to install or repair it. If I need parts they ship them to me. I don't sell any equipment, I only provide the labor. I have no contract with the property or with the private cable operator. Am I considered third party labor? Do I charge sales tax on my labor? THANKS.

    • Posted by Author photo of Susan Goertzsusangoertz on February 9, 2018 9:11am:

      Hi Joseph. I assume that you are paid by the cable operators and not the nursing homes or hospitals?

      If that's the case, then no, you would not charge tax on your labor. You could cover yourself by getting resale certificates from the cable operators just in case you were ever audited but quite honestly the likelihood of that is very, very low.

      Hope that helps. Thank you for your question. Please let me know if I can assist you further.

      Susan

  • Posted by Jan on February 8, 2018 1:34pm:

    Our golf course was completely re-designed beginning in 2016. During the course of the re-design/construction work, one of our contractors that supplied mulch did not charge sales tax. When we inquired why, we were told that because the golf course was under construction and not open and in use, we were exempt from paying sales tax during that period of time. I can't find anything about that and would like to confirm.

    • Posted by Author photo of Susan Goertzsusangoertz on February 8, 2018 2:02pm:

      Hi Jan. Thank you for reaching out for expert advice. I see it very often that a company took taxability advice from another company and unfortunately, ended up paying the price for it in an audit.

      Mulch itself is tangible personal property in Texas and is always taxable. If the company who sold you the mulch also installed it, that's taxable real property services and tax is due on the mulch and the labor.

      Hope that helps. Please let me know if you need more assistance.

      Susan

      • Posted by Jan on February 9, 2018 10:05am:

        Yes, this was very helpful. Thank you for your quick response.

  • Posted by JR on February 6, 2018 3:22pm:

    Hi,

    Would the labor on maintenance of a boiler in a manufacturing plant be taxable?

    • Posted by Author photo of Susan Goertzsusangoertz on February 7, 2018 8:32am:

      Hi JR. Assuming the boiler is used 100% for the manufacturing process, the purchase and all maintenance of the boiler would be exempt. If any portion of the boiler is used in a non-exempt manner, then you could determine the divergent use of the boiler and the percentage that is attributed to the manufacturing process would be exempt but use tax would be due on the non-exempt percentage.

      Hope that helps. Please let me know if I can help you further. Thank you!

      Susan

  • Posted by Brannin on February 6, 2018 1:43pm:

    I own an office / warehouse building that was substantially destroyed by fire. It requires the complete removal of all interior finish out, roof and all but a small portion of two exterior walls. I have a detailed proposal from a general contractor for all of this work, plus his overhead and profit. He is charging Texas sales tax on the entire $ amount. Can any of this be exempt from sales tax and considered new construction since that is what he is doing? Can at least all of the labor - general contractor + subs - be exempt from sales tax? Last, can the GC's overhead and profit amount be exempt from sales tax. They are all large dollar amounts and insurance doesn't cover most of the sales tax being charged.

    Thanks, Brannin

    • Posted by Author photo of Susan Goertzsusangoertz on February 7, 2018 8:45am:

      Hi Brannin. Thank you for your question. The State of Texas has a "down-to-the-slab" policy regarding destroyed or demolished real property in determining whether the rebuild is new construction or remodel.

      Because you have a portion of two walls remaining, the State would regard the rebuild as remodel and therefore the GC would need to charge you tax on 100% of the cost of rebuilding.

      You may want to look into the cost benefit of demolishing the rest of the walls in order to qualify the rebuild as new construction.

      In your question, you said that the GC gave you a detailed quote. Does that mean he quoted you materials and labor separately? Sounds like it. If you do go the route of demolishing the rest of the walls, the material portion of his quote would be taxable. If he were to give you a lump sum contract (contract takes precedence over quote) and you demolished the walls, then there would be no tax due on the job.

      Hope that helps. Please let me know if you need to discuss more. Thank you!

      Susan

      • Posted by Susan on February 19, 2018 9:51am:

        Susan, this post and comments are very helpful. Thank you! Regarding this q&a and the others related to Hurricane Harvey also: As the owner, we are contracting to rebuild several structures in disaster area due to Hurricane Harvey (all commercial). In some cases, the buildings are not being taken down to the slab, in others they are. In some cases work in both scenarios is covered under one master contract. Am I correct in my assumptions? (1) if the building is taken down to the slab, the rebuild work qualifies as new construction and none is taxable (if lump sum contract), and (2) If the building is not taken down to the slab, and the contract splits out labor and materials for the building specifically, we can submit a tax exempt cert to the sub and exempt sales tax on the labor portion. Thanks in advance!

        • Posted by Author photo of Susan Goertzsusangoertz on March 19, 2018 10:58am:

          Hi Susan. I apologize for my delay in responding to your questions, I just now saw your post / comments. Yes, you are correct in your understanding of the tax treatment of new construction vs remodel (regarding demolition) and exemptions with regard to disasters.

          Thank you for your post. Please let me know if I can assist you further.

          Susan

  • Posted by Jennifer on February 6, 2018 5:09am:

    Hello, We are a landscape company in TX with an HOA that has provided us a Tax Exempt Cert. for removing and replacing trees on their property. Would this be considered real property and we would need to exclude tax from labor and only charge tax on the replacement trees?

    • Posted by Author photo of Susan Goertzsusangoertz on February 7, 2018 8:48am:

      Hi Jennifer. Most HOAs are not exempted by the State of Texas so I would check out the validity of that exemption before exempting the work. You can look them up here:

      https://comptroller.texas.gov/taxes/exempt/search.php

      If they are not exempted by the State of Texas, the work you are doing for them is taxable real property services and you should charge them tax on the whole job.

      Hope that helps. Please let me know if you need additional help.

      Susan

      • Posted by Susan on February 19, 2018 9:58am:

        Susan, I originally landed on this blog post while searching for assistance with HOA-related tax exempt work paid for by a developer. Specific question today: The residential land developer is contracting for improvements for benefit of an HOA that will be ultimately conveyed to the HOA. If the HOA has tax exempt status with the state of Texas, can the developer submit tax exempt certificate to subcontractor on the specific lump sum contract? How does the answer change today if the HOA does not yet have formal tax exempt status, but will in the future? Thanks again.

        • Posted by Author photo of Susan Goertzsusangoertz on April 3, 2018 7:55am:

          Susan
          I apologize, I just now saw this follow up question to our previous conversation. For the first part of your question, the developer can give you either a resale or exemption certificate for the job, either would be appropriate. You would do the same for any materials that you purchased or subs that you hire for the job as well.

          For the second part of the question, I have seen too many instances in audits where the anticipated exemption resulted in no one charging tax and then when it came time for an audit, couldn't get the certificate. If they are not yet exempt, everyone should tax the job as if it were a taxable job (taking into consideration, new construction vs remodel, lump sum versus separated) and then when the HOA receives their exempt status, they would provide the certificate and everyone would refund any tax paid on the job. Better safe than sorry.

          Hope that helps and again, I am so sorry I didn't see this before. I often read through all the threads to make sure I didn't miss anything but this one got away from me. Please let me know if you need anything else.

          Susan

  • Posted by Austin on February 6, 2018 1:58am:

    On a lump sum contract where the material sold to a customer has a markup does tax need to be collected on the markup?

    Thank you.

    • Posted by Author photo of Susan Goertzsusangoertz on February 7, 2018 8:50am:

      Hi Austin. Lump sum jobs are not taxable to the customer at all so you don't need to collect any tax from them. Hope that helps. Please let me know if you need more.

      Susan

      • Posted by Author photo of Susan Goertzsusangoertz on February 7, 2018 8:53am:

        Austin. I'm sorry, I answered that too quickly and then realized it after I hit the "post comment" button. If the job is new construction (residential or commercial) and you are billing lump sum, there is no tax due from your customer. If it is a lump sum, remodel, commercial job, then you would tax the whole amount including any markup that you added to the cost of the materials.

        Thank you for your question. Please let me know if you need additional help.

        Susan

  • Posted by sherry on January 31, 2018 4:29pm:

    Hello, We do a lot of cost plus commercial construction (both new & remodel) in Texas. Our bids are itemized by lines for each subcontractors, specific labor needed (ie. install bathroom accessories) & and then the material needed (ie. bathroom accessories).

    I want to make sure I'm calculating the tax correctly on the material.
    For New Construction - tax on material only:
    Do I total up the material (no tax paid upon purchase), add my % markup to the total and calculate the tax off of the total + mark up?

    Now for material that we paid tax already on (the guys purchase a lot of stuff online & I don't always get a chance to submit a resale cert before hand). Do I line item the markup on a separate line & then calculate the tax of the mark-up only?

    For Repair/Remodel - I tax the entire invoice (labor & material) - correct?

    • Posted by Author photo of Susan Goertzsusangoertz on February 1, 2018 10:16am:

      Hi Sherry. This is a great question and one that we encounter very frequently in audits. Getting this right now will save you a lot of stress and money in the future should the State choose to audit you.

      Please see my answers for each below:

      In your question you indicate that you are performing both new construction and remodel jobs for commercial customers and that you separate your bids (e.g. bill separately for materials and labor).

      You are correct that for new construction, you would tax your customer for the total amount of the cost of materials on your bid – in your case that would be the cost plus the markup. No tax is paid to the vendor.

      If you paid tax on the materials and you shouldn’t have, you can subtract those amounts from your sales tax return and effectively get that tax “refunded” from the State. You can do this one of two ways;

      Reduce Reported Taxable Sales

      An example: Say you bought $100 in materials and paid tax and the purchase should have been exempt. When filling out your next sales tax return, supposed you have taxable sales of $15,000; you would reduce your taxable sales by $100 and only report $14,900 in taxable sales.

      Reduce Taxable Purchases

      Many people are unaware of the “taxable purchases” field on the Texas Sales and Use Tax return; some say they’ve never noticed it and some say that they saw it but didn’t know what it was for. The “taxable purchases” field is to report purchases that you should have paid tax that you didn’t. You can take the credit or refund for the $100 purchase in the example above by reducing your reported taxable purchases or by entering a negative $100 in that field. Unless you have taxable purchases to report, I would recommend that you not enter a negative number in the taxable purchases field as it can be an audit flag at the Comptroller’s office.

      To give you an example; you purchased a printer online for $500 but the vendor didn’t charge you tax because they are in another state. Because you are using that printer in Texas; use tax is due to the State of Texas. When you complete your next sales tax return, you would enter $500 in the taxable purchases field of the return and effectively remit 8.25% tax (or whatever your tax rate is for your location) to the State on that purchase. If you also had the $100 purchase that you should not have paid tax on the materials as mentioned above, you could reduce the $500 to $400. In that manner, you are remitting tax to the State on the printer that you didn’t pay tax on and getting a refund on the $100 in materials that you shouldn’t have paid tax on.

      Please make sure to always keep a copy of the invoices / receipts with your copy of the sales tax return. This applies to both use tax you are reporting and credits you are taking for tax paid in error. If you cannot substantiate why your reported numbers are adjusted with the invoice or receipt from the vendor, the auditor will not accept the adjustments and you will be assessed tax. If in doubt, document, document, document.

      In your question, you asked if the tax from your customer should be net of the amount paid for the materials and the answer is “no”. Always bill your customer tax for the total amount that you are billing them for materials. If you paid tax in error to your vendor, just get the tax refunded through your return.

      For commercial repair / remodel, yes, you tax the entire invoice.

      Hope this helps, sorry for the long answer but it’s an important topic that many people struggle with. Let me know if you need more.

      Susan

      • Posted by sherry on February 1, 2018 10:24am:

        Thank you! That helped immensely

        • Posted by Sherry on March 8, 2018 12:37pm:

          On our Cost Plus Commercial Construction Contracts, we have a line item for travel expenses plus markup (which includes the cost of meals).
          Would you treat meal receipts the same way you would material that we paid tax on? By that I mean request a refund from the state for the tax we paid. Add the markup to the pre-tax amount & collect the tax on the total for both, the cost plus markup? Do I include the tip amount to the pre-tax amount before I calculate the markup?

          • Posted by Author photo of Susan Goertzsusangoertz on April 3, 2018 7:58am:

            Hi Sherry. Expenses carry the same taxability as the transaction so if the job is taxable, the expenses are also taxable and unfortunately, you also get to pay taxes on those expenses. You are the "user" of the meals and the hotels, etc so you are responsible for the tax but if you also then pass along the cost of those expenses, if the job, service or product that the expense is attached to is taxable so is the expense.

            If the job is not taxable, the expenses would not be taxable either. Hope that helps. This is one that people quite frequently get assessed in an audit so glad that you asked the question.

            Susan

  • Posted by Roger on January 31, 2018 8:20am:

    Our company is considering clearing the trees from a property being developed for commercial construction of warehouses in Houston, Texas. We will bring down the trees, grind them on site and haul away the material for a lump sum. All labor.
    Is any of the work taxable to the developer/land owner?

    • Posted by Author photo of Susan Goertzsusangoertz on January 31, 2018 8:30am:

      Hi Roger. Yes, that is taxable real property services. Please let me know if you have any additional questions.

      Susan

      • Posted by Author photo of Susan Goertzsusangoertz on February 1, 2018 10:20am:

        I had a call with Roger yesterday to discuss more in-depth what his company is doing and determined that the land clearing they are doing is a non-taxable service.

        Thank you for the clarification, Roger.

        Susan

  • Posted by kimmarie on January 31, 2018 12:29am:

    Being a new construction company launched this year I need to understand these tax laws from the start. We are finding that most work being done is a result of hurricane Harvey. Most all work preformed has thus far been on residential property. Am I understanding that no taxes are charged on the labor of residential property? Although I am confused because I read that the nexus is in effect due to the fact that its a natural disaster...please if you could clear this up I would appreciate it. TIA for your time

    • Posted by Author photo of Susan Goertzsusangoertz on January 31, 2018 6:49am:

      Residential repair / remodel billed lump sum is not taxable to your customer at any time. If you separate (separately state the amounts for materials and labor on the invoice / contract / quote) the billing for residential work; the materials are taxable to your customer regardless of a natural disaster.

      If any of your jobs are commercial repair / remodel and are due to the hurricane, you should bill your customer separated (separately state the amounts for materials and labor on the invoice / contract / quote) and then only tax the materials. They should give you an exemption certificate and the reason for claiming the exemption is "repair of damaged XXX due to a declared natural disaster in XXX County."

      Hope that helps. The contractor rule in Texas is one of the most difficult rules to understand and get right. There are a lot of moving parts and can easily be mis-understood. If you need more help, please don't hesitate to ask.

      Susan

      • Posted by Kimmarie on January 31, 2018 9:06pm:

        Thank you, Susan :)You will definitely be hearing from me again. Do you suggest that i retain a tax certificate now or wait until I need to have one? Also if I get an EIN will that exempt me from paying taxes on material? Since it will not be taxed to the client and I will be paying taxes at the store that I purchase materials How will I be reimbursed? Maybe it is not an EIN ... do you understand what I mean .. sorry if it is vague..I am a quick study and all of this is new. TIA

        • Posted by Author photo of Susan Goertzsusangoertz on February 1, 2018 10:28am:

          Hi Kimmarie. I think you are asking about a sales tax permit with the State of Texas. That all depends on the type of work that you are doing. If you are only doing residential work and are billing your customers lump sum (do not separate materials and labor) then there is no reason for you to get a sales tax permit. You are not collecting tax that needs to be remitted to the State and you are not buying anything tax free for which you would need a resale certificate.

          If, however, you start doing any commercial remodel work or if you are billing your residential customers separated (bill materials and labor separately), then, yes, you will need a sales tax permit. At that point, you will bill your customers tax for the remodel job and you will give a resale certificate to your material vendors for the materials purchased that go into the commercial remodel job.

          If you are interested in some consulting to review your exact situation, please let me know. I sense that it might be very helpful in this situation to make sure you get it right from the start. For sure, download my contractor flow chart in the construction blog above and let me know if you have any questions. That flow chart seems to be very helpful for a lot of people.

          Thank you!

          Susan

  • Posted by Jennifer on January 30, 2018 2:52pm:

    Hello,
    We buy, sell and install audio/video equipment (tv, remotes, receivers, etc.). Sometimes it is residential and sometimes commercial. We run wires for the equipment at times, but not always. Can you tell me if I should be charging tax on the installation of product we are selling?

    Alos., there are times our customers already have the product and we are simply installing those products for them. Do we charge tax on the installation of a TV or receiver?

    • Posted by Author photo of Susan Goertzsusangoertz on January 31, 2018 6:52am:

      Hi Jennifer. Installation of AV is always considered taxable whether commercial or residential; new construction or remodel. The State of Texas considers AV equipment as TPP (tangible personal property) and therefore the sale and installation is taxable.

      If you are only performing the AV, it's still considered installation of TPP and is taxable.

      Hope that helps. Please reach out if you need more assistance. Thank you!

      Susan

      • Posted by Jennifer on January 31, 2018 7:01am:

        Thank you, that helps tremendously.

        • Posted by Author photo of Susan Goertzsusangoertz on January 31, 2018 10:24am:

          You're welcome. I would like to give you some more information on this as it can be a sticky issue if you were to be audited by the State of Texas. To insure that you are protected in the event of an audit, I would urge you to always contract / bill your customers "separated" which means to separately state the amount for the equipment and the labor and charge tax on both. When you purchase the equipment, give the vendor a resale certificate so you are not taxed on the purchase.

          Susan

  • Posted by marie on January 30, 2018 10:01am:

    We are a Texas engineering company acting as a contractor for a Texas refinery client. We subcontracted work, which would be considered new construction for non-residential real property in Texas, to a Missouri company, who purchased materials (grout) in Oklahoma. Their bid has 2 line items:
    1. Mobilization and Labor Price
    2. Equipment and Material Price
    My understanding is that the labor is not taxable for Texas sales tax, but how about the materials? And who is responsible for the sales tax?

    • Posted by Author photo of Susan Goertzsusangoertz on January 30, 2018 10:32am:

      Hi Marie. Where is the job performed, Texas or Missouri?

      Susan

      • Posted by marie on January 30, 2018 1:05pm:

        The job is performed in Texas.

      • Posted by marie on January 30, 2018 10:32am:

        Texas

        • Posted by Author photo of Susan Goertzsusangoertz on January 31, 2018 8:40am:

          I assume the Missouri company is not permitted in Texas? In other words, are they permitted to collect Texas Sales and Use Tax?

          The ultimate answer depends on how you are billing your customer. If you are billing your customer lump sum, then you would owe tax on the equipment and material line item of your sub's contract. If they are permitted in Texas, they would need to charge you tax on the equipment and material. If they are not permitted in Texas, you would need to remit use tax to the Comptroller on your sales and use tax return for the period in which you paid the sub for the amount of the equipment and material.

          If you are billing your customer separated, you would tax your customer on the material and give a resale certificate to your Missouri sub if they are permitted in Texas. If they are not permitted in Texas, then there is nothing you need to do on the use tax side.

          Hope that's clear. As I've always said, the contractor rule is very difficult to get right especially when you get layers of subs involved and everybody is billing differently. If you need to discuss further or would like further information, please reach out and I'll be happy to help you.

          Susan

  • Posted by Judy on January 24, 2018 2:05pm:

    Hello,I have a tax question for you. We are in the cabinet making industry. We have always included installation in our pricing packages for all jobs. We only do residential jobs, no commercial jobs. Recently, we've wanted to expand our market to include smaller jobs where the client may want to do their own installations. For example a customer is asking us how much will it cost for the install vs the tax so they can make their decision. However if we break out the install it makes this a separated bid instead of a lump sum bid, causing the job to become taxable. how do we handle this? how would we split this up on our bids the correct way? How do we show them the difference between the install price and the tax they would owe if we didn't install. We need a professionals opinion.
    Thanks,
    Judy

    • Posted by Author photo of Susan Goertzsusangoertz on January 30, 2018 9:51am:

      Hi Judy. Thank you for your question. You are correct, if you separate the materials and the labor, the materials will be subject to Texas sales and use tax. You could give them two separate bids, one that includes installation which would carry no tax and one that is for materials only which would be taxable. Either way, if you aren't installing or if you are quoting them separate for installation, tax will be due on the materials.

      Hope that helps. Please let me know if you have additional questions.

      Susan

      • Posted by Judy on March 19, 2018 7:58am:

        Thanks so much for your answers you've been amazing! I just have another quick question. You said if we aren't installing tax would be due on the materials. So if the homeowner wants us to build his cabinets for his home and he wants to use his own installer, the homeowner would need to pay taxes on the materials, correct? What about this scenario...what if we subcontract someone else to install our cabinets? Our company itself wont be doing the installation but we would be paying someone to do the installation for us...would the job still be nontaxable or taxable?

        • Posted by Author photo of Susan Goertzsusangoertz on March 19, 2018 12:13pm:

          Hi Judy. If you sell the homeowner the cabinets, you should charge them tax on the sale of the cabinets. In the second scenario, it depends on how you bill your customer regardless of who does the install. If you are billing your customer lump-sum; there is no tax due on the sale. If you are billing them separated, tax is due on the materials.

          Hope that helps, I know this rule can be confusing. Please let me know if you need additional help. Thank you!

          Susan

  • Posted by Kimberly on January 23, 2018 5:47pm:

    Hi there! Thank you for this very helpful article! I am still a little confused - we are launching a home maintenance business - from what I am reading, we don't charge sales tax to home owners, but we do charge to commercial clients?

    • Posted by Author photo of Susan Goertzsusangoertz on January 24, 2018 5:16am:

      Hi Kimberly. Thank you for your comment and question. Yes, following the tax law can be confusing especially for contractors. Can you tell me what type of "maintenance" you will be performing? Once I understand what you'll be doing, I can give you a more detailed answer.

  • Posted by Ozzie on January 18, 2018 1:07pm:

    Thank you in advance

    • Posted by Author photo of Susan Goertzsusangoertz on January 19, 2018 4:03am:

      Hi Ozzie. Thank you for your comment and I applaud you for being proactive and learning about compliance before you get started. Many companies only learn about compliance once they are audited and find out they've been doing things wrong for many years.

      I'd like to suggest that we schedule a meeting so that I can understand what you've done so far and then we can discuss what needs to be done and the steps to take along with how to bill your customers and how to pay your vendors for materials or any subs that you contract. I assume you are local to the DFW area? If not, we have offices in San Antonio, Houston and Austin and we can accommodate a meeting with you in those cities as well. Please call me at 469-742-1159. Thank you!

  • Posted by Ozzie on January 18, 2018 1:06pm:

    Hi hope you can help me please?! I just recently passed and recieved my Texas tacl air conditioning license b for residential
    And Im totally trying to do everything the right way but i am confused. What forms or steps am i suppose to take or fill out? And my understanding is if i pay taxes on ac equipment or parts i do NOT charge residential homeowner taxes is that correct? If so do i need to apply for lump sum contract if so where or how?

  • Posted by Jeff on January 7, 2018 8:12am:

    We sell and install custom of patio covers here in Texas. We do lump sum billing, just completed first year as an LLC. with no tax exempt status. Will we receive any notices from the state regarding our sales tax status or a request for any information regarding sale taxes? Thank You!

    • Posted by Author photo of Susan Goertzsusangoertz on January 7, 2018 8:55am:

      Hi Jeff. I looked at your website and it appears that you only do residential work? If that's the case, you don't need a sales tax permit. You don't have taxable sales and you don't need a resale certificate to buy materials tax free. More than likely, the State will leave you alone.

      If you do any remodel commercial work (add a patio to a commercial building), then you would need to get a sales tax permit.

      Hope that helps. Please let me know if you have additional questions or if you need further clarification.

      Susan Brown-Goertz

      • Posted by Debbie on April 2, 2018 6:40pm:

        Susan,
        We also install outdoor patios. We have our first commercial project that we are putting together a bid for a customer. They are adding an outdoor patio to their existing building to entertain their customers. It is an open grassy field in the back of their building that they would like to add on a patio. Would this patio be considered a remodel or a new construction?

        If it is a remodel, I would charge sales tax on the whole invoice amount. Correct?

        And if it is new construction and we do lump sum billing and pay tax to our vendors , then no tax is charged. Correct?

        Thanks!

  • Posted by Michelle on January 5, 2018 9:54am:

    We are installing terminals/point of sales systems in a new construction store in TX. They claim we are not supposed to charge tax on labor installing the systems. Is this correct and what can I use to back it up?

    • Posted by Author photo of Susan Goertzsusangoertz on January 5, 2018 10:24am:

      Hi Michelle. So that I can fully understand the scope of the install, can you tell me what specifically is being installed? Is it just POS terminals or is there cabling as well? Do you bill your customers separated (labor is billed on a separate line or invoice from the cost of the POS system) or do you bill them lump sum for the install (POS and labor together). Is there a contract or quote that preceeds the invoice?

      Susan

      • Posted by Michelle on January 5, 2018 10:53am:

        It is broke out on the invoice seperately. We will not be installing the network system. Just installing and setting up the terminals/computers (cash registers).

        • Posted by Author photo of Susan Goertzsusangoertz on January 5, 2018 2:15pm:

          Cash registers / terminals are tangible personal property (TPP) in Texas. If you are selling them the TPP, the cost of installation whether separately stated or not is also taxable. If you did not sell them the TPP and are simply installing it, that is considered third party installation and is not taxable. Hope that helps. Please let me know if you need more.

          Susan

  • Posted by Michelle on January 5, 2018 9:40am:

    We have a client in Tx building a new store we are installing point of sales systems/cash registers into the new building. The client says we shouldnt be charging tax on the installation labor. Is this correct?

  • Posted by Garnet on January 2, 2018 3:19pm:

    We're hurricane Harvey victims. Our losses are extensive, bordering on $500,000.00. Insurance will pay about 70% of the vlosses. Paying a sales tax on the reconstruction is an added burden. Is there any relief?

    • Posted by Author photo of Susan Goertzsusangoertz on January 2, 2018 3:24pm:

      Hi Garnet. Are you damages to personal property or real property? If real property, is it commercial property or residential?

      Susan

      • Posted by Garnet on January 5, 2018 12:24pm:

        All commercial properties. One large office building and 2 vacation rental houses. All real property claims.

        • Posted by Author photo of Susan Goertzsusangoertz on January 5, 2018 2:25pm:

          The labor to repair the property is exempt. The contractor(s) should separately state the labor and materials on your contract / invoice. You should give them an exemption certificate and specify the reason the the exemption as "Repair of XXX due to Hurricane Harvey, a declared natural disaster".

          You can download an exemption form here:

          https://comptroller.texas.gov/taxes/sales/forms/

          Susan

  • Posted by Ana on December 28, 2017 7:31am:

    Hello,
    If a contractor does a fence replacement for an HOA, would it be considered residential or commercial work?

    • Posted by Author photo of Susan Goertzsusangoertz on December 28, 2017 9:45am:

      Hi Ana,
      HOAs are considered residential in Texas.

      Please let me know if I can assist you further. Thank you!

      Susan

  • Posted by Marshall on December 21, 2017 11:09am:

    We are starting a company that will purchase construction equipment to rent to other companies. We will charge sales tax on the rentals. Do we pay sales tax for the machines when we purchase them?

    • Posted by Author photo of Susan Goertzsusangoertz on December 28, 2017 9:31am:

      Hi Marshall.

      I assume your question is for Texas only?

      If you are renting the equipment without an operator, you would charge your customer tax and provide a resale certificate to the company where you purchase the equipment (e.g. purchase the equipment tax free).

      If you are providing an operator with the rented equipment, you are providing a non-taxable service and would not charge your customer tax. You would then need to pay tax on the equipment at the time of purchase.

      Also, note that repairs to the equipment is taxable or non-taxable as well using the above criteria.

      If you will sometimes rent with an operator and sometimes without, then you need to determine divergent use on the purchases. If this is the case, please reach out to me so we can help you determine the best way to insure that you are compliant without paying too much use tax.

      Hope that helps. Please let me know if I can assist you further.

      Susan

      • Posted by Author photo of Susan Goertzsusangoertz on December 28, 2017 9:44am:

        Marshall,
        One more caveat. If you are renting the equipment with an operator and billing lump-sum for the service (not breaking out labor and equipment), then it is non-taxable. If your invoice lists one price for the equipment and one for the operator, then the equipment is considered rented to the customer and is taxable.

        • Posted by frances on September 19, 2018 2:21pm:

          In Texas- Doing work for Tank Farm, (Petrochemical). Is there a difference in sales tax on invoice for Scheduled Maintenance and routine Maintenance? Is Scheduled Maint tax exempt, and Routine Maint taxable, If Scheduled Maint is exempt, should I pay sales tax to vendor on items purchased/rented to perform the services

          • Posted by Author photo of Susan Goertzsusangoertz on September 20, 2018 4:10am:

            Hi Frances. Periodic and scheduled maintenance of real property is not taxable however if you perform any repairs because of the maintenance, then you must charge your customer tax on the labor and material for the repair.

            Example - you perform periodic and scheduled maintenance of HVAC systems. You check the system and all the parts of the system and you charge your customer $150 quarterly to do this check. You may tighten some bolts, you may inject grease or other lubricants into the mechanism of the system. That $150 is not taxable. However, if as part of the maintenance you must repair something - say a hose is leaking, a belt is worn and needs replaced, etc. You should bill y our customer tax on the labor and material to perform that repair.

            You can give a resale certificate to your vendor for the parts that go into this repair.

            Hope that helps.

            Susan

  • Posted by Judy on December 12, 2017 2:39pm:

    If we work in Texas, New Construction, do we pay tax on the contract or just materials?

    • Posted by Author photo of Susan Goertzsusangoertz on December 12, 2017 6:23pm:

      Hi Judy. I would like to ask you a few more questions so that I can give you a complete answer. Please call my office at 469-742-1159 at your convenience and we'll make sure you get the correct answer based on your situation.

      • Posted by Frances on September 19, 2018 7:05am:

        hey, so if we call you, you told me one time, I get 30minutes free. so how does this work, I would like to talk for couple minutes on new construction, lump sum billing, paying vendors tax and then taxing the customer and then having all this in monthly sales tax payment

        • Posted by Author photo of Susan Goertzsusangoertz on September 20, 2018 4:12am:

          Hi Frances. Yes, please call my office at 469.352.9620 after September 26, 2018. I am currently out of the office but will be back on September 27th. Thank you!

          Susan

  • 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.

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