Texas sales tax: home repair labor untaxed, office repair taxed

Two questions decide sales tax on a Texas construction job, and neither of them is "what is the rate".

The first is what kind of building it is. The second is how you wrote the contract. Get those two right and the rate is a lookup; get either wrong and the rate does not matter. New York asks the same two questions in a different shape, and the two states next to each other are in sales tax on construction: one job, three states, three answers.

Question one: residential or nonresidential

The Comptroller draws the line by the property, not by the work.

Residential real property. "Labor to repair, remodel, or restore residential real property is not taxable." The Comptroller includes family dwellings, apartments, nursing homes, condominiums and retirement homes — and excludes hotels and short-term rentals under thirty days.

Nonresidential real property. Work on hospitals, offices, refineries, warehouses and commercial establishments is subject to tax on the full amount charged.

That is not a small difference. The identical bathroom, the identical crew, the identical material: in an apartment the labor is not taxed; in a hotel the entire charge is.

The hotel exclusion is the one that catches residential remodelers who take a short-term-rental job. A property that is rented for under thirty days is not residential for this purpose.

Question two: new construction or remodeling — and the five percent trap

Construction labor on a new structure is not taxable.

The difficulty arises on jobs that are both. The Comptroller applies a threshold: where a contract combines new construction with nonresidential remodeling and the remodeling exceeds 5 percent of the total charge, the entire charge is presumed taxable — unless the contractor is "separately stat[ing] to the customer a reasonable charge for the taxable services" at the time of the transaction.

Read that as a document rule, because that is exactly what it is.

• The escape from full taxability is a separately stated line.
• It has to be stated at the time, to the customer.
• A reconstruction produced during an audit two years later is not a charge separately stated at the time of the transaction.

An addition to an office building with a small amount of work in the existing space is the classic case. The new work is not taxable; the remodeling is; and if the remodeling is more than five percent of the price and your invoice shows one number, all of it is presumed taxable.

Question three: lump-sum or separated

The third variable is the contract form, and it is set out in the Tax Code rather than in guidance.

Lump-sum — Tax Code § 151.056(a). Where the agreement carries "a lump-sum price covering both the performance of the service and the furnishing of the necessary incidental material", the contractor is treated as the consumer of the materials. In practice: the contractor pays tax on all materials and supplies when purchasing them, and does not charge the customer tax on the contract.

Separated — § 151.056(b). Where the contract "contains separate amounts for the performance of the service and for the furnishing of the necessary incidental material", the contractor becomes the seller and must collect sales tax from the customer. The Comptroller describes the mechanics: the contractor gives suppliers resale certificates for material incorporated into the property, then collects tax from the customer on the charge for materials and on certain services — the Comptroller names surveying, landscaping, final cleanup and security systems.

Two provisions in § 151.056 matter more than they look.

The taxable base has a floor. Under subsection (b), the tax applies to "the price of the materials as agreed in the contract or the price of the materials to the contractor, whichever is the greater." Quoting materials at less than what you paid for them does not shrink the tax.

Tax already paid is creditable. Subsection (c) allows a contractor who paid sales tax to a supplier to "credit the amount of the tax paid to the supplier against the tax imposed" on the subsequent sale under subsection (b). Buying material before you knew the contract would be separated is not a double-tax event.

The three variables in one table

What this means for your invoice template

Everything above lands on the document. Three habits are enough:

Separate labor from material as a matter of course. A separated contract requires it. A lump-sum contract does not — but a job that turns out to be a mix of new construction and remodeling needs the separately stated taxable services at the time, and you cannot produce that from a single total.

Put the taxable services on their own lines. Surveying, landscaping, final cleanup, security systems. Named by the Comptroller, and easy to bury inside a general line.

Record which contract form you used, per job. Lump-sum and separated are different tax positions with different purchasing behavior, and they land in different cost buckets when the job is closed out: job costing for contractors, five buckets and the burden. Deciding it implicitly by how the estimate happened to be formatted is how a contractor ends up having paid tax at purchase and collected it from the customer — a decision worth making at the estimate stage, not the invoice stage: contractor estimate, from takeoff to a price that holds.

And the part this article deliberately does not cover

The rate. Texas has a state rate plus local rates imposed by cities, counties, transit authorities and special purpose districts, stacking additively on the same transaction, with a cap on the combined local portion. The combinations run into the thousands, they follow addresses rather than city names, and they change.

That is a lookup problem, and the honest answer to it is either the Comptroller's own address-based rate tool or a rate service — not a table in an article that will be wrong within a year.

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Current as of August 29, 2026. This article describes Texas sales tax treatment of real property construction work and is not tax advice. It does not cover state and local rate determination, use tax, the taxability of equipment rentals and fabrication, exempt organizations and exemption certificates, the divergent treatment of maintenance as distinct from repair, or contracts with exempt entities. The Comptroller's Rules 3.291 (Contractors) and 3.357 (Real Property Repair, Remodeling, and Restoration) govern in detail and are not reproduced here. The material above is taken from the Comptroller publication and the Tax Code section linked in the sources, with the date they were checked. Confirm your position with the Comptroller or a Texas tax adviser.

What Zirko does: it puts individual positions with descriptions, quantities and prices on a document, so labor, materials and separately taxable services can be stated as their own lines at the time of the transaction rather than reconstructed later. In the United States the business enters its own tax rates — Zirko maintains no US rate table and suggests nothing, because a suggested rate would be tax advice we are not qualified to give — and a rate can carry its components (state, county, city, district) so the invoice shows how the total was reached. An invoice can be issued with no tax line at all, as a distinct state rather than a zero-percent rate. Issued documents are immutable; a correction is a separate document.