Are Repair Services Taxable in Texas? Understanding Real Property Tax Rules

What Determines Taxability of Repair Services in Texas?

The taxability of repair services in Texas depends on several key factors:

Type of property being repaired (residential vs. nonresidential)
Nature of the service (repair, maintenance, or new construction)
Contract structure (lump-sum vs. separated)

Let’s explore each of these factors to understand when repair services are subject to sales tax in Texas.

Residential vs. Nonresidential Property

The most crucial distinction is whether the repair service is performed on residential or nonresidential property:

Residential property: Labor for repair, remodeling, or restoration is not taxable
Nonresidential property: Labor for repair, remodeling, or restoration is generally taxable

Residential property includes family dwellings, apartments, condominiums, and retirement homes. Nonresidential property encompasses commercial establishments like offices, hospitals, and retail shops.

Types of Services and Their Tax Status

Different types of services have varying tax implications:

Maintenance: Scheduled, periodic work on property that is not broken is typically not taxable
Repair and remodeling: Taxable for nonresidential property, non-taxable for residential property
New construction: Labor is generally not taxable, regardless of property type

Contract Structure and Tax Obligations

The type of contract used can affect tax responsibilities:

Lump-sum contracts: Contractors pay tax on materials and don’t charge customers tax
Separated contracts: Contractors can purchase materials tax-free with a resale certificate and collect tax from customers on materials and certain services

Special Considerations for Real Property Services

Real property services, such as landscaping or surveying, have unique tax rules:

Generally taxable, but exempt when part of new residential construction
Providers should presume services are taxable unless given written certification by a homebuilder

Natural Disaster Exemption

An important exception exists for repairs related to natural disasters:

Labor to repair nonresidential property damaged in a declared disaster area is not taxable
Materials used in such repairs remain taxable

How Can Contractors Ensure Compliance?

To navigate Texas’s complex tax landscape, contractors should:

Accurately classify the property type and service provided
Maintain detailed records of contracts and services performed
Properly use resale and exemption certificates when applicable
Stay informed about local tax rates and special purpose district taxes