Installing Tangible Personal Property (TPP)
Item is installed and can be removed without damaging the real property, item, or both.
To determine if an item is incorporated into the real property, you must consider the following questions:
1. Is the item annexed (or connected) to the real property?
2. Is the item fitted or adapted to the real property?
3. Was the item intended to become a permanent part of the real property?
Generally, if you would damage the real property, the item or both when removing the item after installation, the item has been incorporated into the real property.
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If you are not incorporating TPP into the real property, then you are delivering or installing TPP and must collect sales and use tax on the total price (including installation labor, materials and all related charges) for the TPP.
Residential Repairs
Labor = not taxable
Incorporated Materials = taxable
Labor to repair, remodel, restore or maintain residential real property is not taxable. Materials incorporated into the real property are taxable. The individual or entity responsible for paying the tax depends on the type of contract used. The taxing responsibilities for residential repair, remodeling and restoration are identical to those for new construction. See the “New Construction” section in this article.
New Construction
Residential & Commercial
The labor for new construction is not taxable and the incorporated materials are taxable.
The person or entity responsible for paying the tax depends on the type of contract used.
As a contractor, you can bill your customers using either a lump-sum or a separated contract. Your tax responsibilities are different for each one. If your customer provides the materials, then you are providing labor only. You’re not responsible for tax on the materials.
LUMPSUM CONTRACTS
Under a lump-sum contract, you do not collect sales tax on materials or labor from your customer. You are the consumer of all items purchased to perform the work. You are not a seller.
Under a lump-sum contract, you must:
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pay sales or use tax on consumable supplies, tools and equipment used to do the work;
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pay sales or use tax to your suppliers on the incorporated materials at the time of purchase; and
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accrue and pay tax on materials bought tax free, either removed from your inventory or bought outside of Texas.
For items bought tax free, you must accrue state and local use tax based on:
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the jobsite location if the items are delivered directly to the jobsite from outside Texas; or
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the location where the items are first stored.
SEPARATED CONTRACT
You are the seller of the incorporated materials. You must collect tax on the incorporated materials billed to your customer, but there is no tax due on labor.
You must:​
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pay tax on consumable supplies, tools and equipment used to do the work;
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give Form 01-339, Texas Sales and Use Tax Resale Certificate(PDF), to sellers instead of tax when buying:
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incorporated materials and
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subcontracted taxable services resold to the customer to complete the job; and
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collect from your customer:
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tax on the incorporated materials;
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Form 01-339 (back), Texas Sales and Use Tax Exemption Certificate(PDF), instead of sales tax on the incorporated materials, if an exemption applies; or
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Form 01-339, Texas Sales and Use Tax Resale Certificate(PDF), on the incorporated materials, if you are performing a subcontract for a general contractor who is working under a separated contract.
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You will collect local sales taxes based on the tax rate at the jobsite location. Use our Sales Tax Rate Locator to search for sales tax rates by address.
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Tax-Free Inventories
If you perform both lump-sum and separated contracts, and do not know at the time of purchase which type of contract you will use the incorporated materials under, you may purchase the materials tax-free for resale by issuing Form 01-339, Texas Sales and Use Tax Resale Certificate(PDF) and placing them in a tax-free inventory. You then must:
1. charge sales tax on them, or accept a resale certificate if you subcontract to a general contractor working under a separated contract, if you are working under a separated contract; or
2. accrue use tax on them when you remove them from inventory to perform a lump-sum contract.
Local taxes are due based on the jobsite if you remove the items to perform the work under a separated contract. Local taxes are due based on the location where your inventory is stored if you remove the materials to perform work under a lump-sum contract.
Nonresidential Repair, Remodeling and Restoration
Taxable
When you repair, remodel or restore nonresidential real property, you are a taxable service provider. Any restoration, repair or remodeling work done after the initial finish-out of an existing nonresidential (commercial) building is taxable.
The total charge for both labor and materials used to repair, remodel or restore nonresidential real property is taxable. It makes no difference whether you use a lump-sum or separated contract to bill your customer.
If your customer provides the incorporated materials, then you are providing labor only, which is taxable. You are not responsible for the tax on incorporated materials, your customer is.
Tax is due on the entire charge to your customer, and you must:
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pay tax on consumable supplies, tools and equipment used to do the work;
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give Form 01-339, Texas Sales and Use Tax Resale Certificate(PDF), to vendors when buying incorporated materials and subcontracted taxable services resold to the customer; and
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collect from your customer:
a. tax on the total charge;
b. Form 01-339, Texas Sales and Use Tax Resale Certificate(PDF), if you are performing a subcontract for another service provider; or
c. Form 01-339 (back), Texas Sales and Use Tax Exemption Certificate(PDF), instead of sales tax if an exemption applies
The tax you collect is based on the tax rate at the jobsite location. Use our Sales Tax Rate Locator to search for sales tax rates by address. In addition, for exempt contracts, tax may not be due on incorporated materials, consumables, and certain services.