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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. There is even a book being sold for $80.00 by a Texas CPA firm that you can buy if you wish. What is missing though is a simple flow chart which allows the contractor, estimators, controller or bookkeeper who works for the contractor to apply the appropriate taxability to a job depending on the many factors that must be considered. We’ve developed that flowchart that we share with all our contracting clients and would like to now share it with you—for free. Click the following link to access the Texas Construction Tax FLOWCHART.

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

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

  1. Contract
  2. Bid
  3. Invoice

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

A Sample "Gotcha" ? Consider Fence Construction:

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

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

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

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

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

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

Comments

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

  • 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 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 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 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 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 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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