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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER OSTATE AND LOCAL SALES AND USE TAXES
RULE §3.357Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance. (Tax Code, §§151.0047, 151.0101, 151.056, 151.058, 151.311, 151.350, 151.429)

of acceptable documentation are written contracts that detail the scope of work, bid sheets, tally sheets, schedules of values, and blueprints. If no written contract clearly shows agreement on the taxable and nontaxable work that is performed, then the customer and the service provider must prepare a written certification that verifies the allocation of charges for repair, restoration, or remodeling and new construction. The comptroller may recalculate the charges if the allocation appears unreasonable, and either party may be held responsible for the additional tax due.

  (8) Repainting is presumed to be a restoration or remodeling activity. Either party may overcome the presumption by showing that the scope of the work meets the definition of maintenance found in subsection (a)(7) of this section. Persons who perform repainting or other restoration activities should collect sales tax on the total charge to the customer unless the customer provides a properly completed exemption certificate as outlined in subsection (c)(2) or (4) of this section.

  (9) If a combination of taxable services (e.g., repair of nonresidential property), nontaxable services (e.g., new construction, residential repair, or maintenance), and nontaxable unrelated services are sold or purchased for a single charge and the portion that relates to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The service provider may overcome this presumption by submission of documentary evidence that establishes the percentages of the total charge that relate to taxable services and to nontaxable services. Examples of acceptable documentation include written contracts that detail the scope of work, bid sheets, tally sheets, schedules of values, and blueprints.

(c) Tax responsibilities of persons who perform maintenance on real property.

  (1) A person who performs maintenance on real property and incorporates tangible personal property into the realty acts as a contractor and is subject to §3.291 of this title (relating to Contractors).

  (2) A person who performs maintenance on real property and does not incorporate tangible personal property into the realty as part of that service provides nontaxable services and owes tax on all taxable items that are used to perform those services.

(d) Exemptions, exceptions, and exclusions.

  (1) A person who performs taxable services has the burden of obtaining an exemption certificate for any exemption that a customer claims. However, if the customer is a governmental entity, a purchase order from the governmental entity is sufficient documentation.

  (2) Maintenance on real property is a nontaxable service.

    (A) To qualify a purchase as nontaxable real property maintenance, a service provider's customer must prove by way of maintenance schedules or work orders or other similar forms of evidence that the services meet the definition of maintenance on real property that is stated in subsection (a)(7) of this section. If the service provider does not have a written contract, but is only hired on a per job basis, then the service provider must presume that the service is repair or restoration and must therefore collect tax. If the customer has documentation to prove that the service qualifies as maintenance, then the customer may issue to the service provider an exemption certificate in lieu of paying tax or provide the documentation required to overcome the presumption. The certificate must state that the labor is maintenance as defined in subsection (a)(7) of this section, rather than repair or restoration as defined in subsection (a)(13) and (15) of this section, and that the customer is liable for any additional tax that is due in the event that the comptroller determines that a taxable service was performed.

    (B) Repairs or restoration that are performed under a claimed maintenance contract will not change a nontaxable maintenance contract into a taxable repair or restoration contract so long as the charges that are attributable to the repairs or restoration are 5.0% or less of the overall charge. Note: The 5.0% test applies to each contract and subcontract. For example, if five different companies provide lump-sum contracts for services, then each contract stands alone for the purposes of determining whether the taxable services are 5.0% or less of that contract. In the absence of a written contract, the 5.0% test will apply to the total charge billed by each service provider.

    (C) A contract that includes maintenance and repair or restoration will be taxable in total if the charges for repairs and/or restoration services exceed 5.0% of the total charges and are not separately identified to the customer in the contract or billing. All separately stated charges for repair, restoration, remodeling, or other taxable services are taxable, even when the taxable services constitute 5.0% or less of the total contract price.

  (3) The modification of parts of existing structures solely to support the addition of new space will not change a new construction contract into a remodeling contract so long as the charges that are attributable to remodeling are 5.0% or less of the overall charge. Examples are conversion of a one-story building into a two-story building with the addition of a stairway to the existing structure to provide access to the new space, or the removal of an existing wall to allow the addition of structural support in the process of construction of a new room outside of the existing structure. Contracts with remodeling charges that exceed 5.0% are taxable in total unless the charges for remodeling are separately identified to the customer. However, see subsection (b)(9) of this section.

  (4) A service provider may accept a properly completed exemption certificate in place of tax for the separately stated charges for labor to remodel, restore, or repair buildings that are listed in the National Register of Historic Places. The service provider is a contractor under §3.291 of this title (relating to Contractors).

  (5) A service provider may accept a properly completed exemption certificate in lieu of tax for both materials and labor charges from an entity that is exempt under Tax Code, §151.309 or §151.310(a)(3), (4), or (5), or that is exempt under Texas Civil Statutes. A service provider may accept a properly completed exemption certificate for both materials and labor charges from an entity that is exempted by Tax Code, §151.310(a)(1) or (2), if the repair, restoration, or remodeling appears reasonably related to the exempt purpose of the organization. See §3.322 of this title (relating to Exempt Organizations).

  (6) A service provider who enters into a contract with a nonexempt entity to improve real property for the primary use and benefit of an entity that is exempted under Tax Code, §151.309 or §151.310, may accept a properly completed exemption certificate in lieu of tax. If the improvement is for the primary use and benefit of an entity that is exempted under Tax Code §151.310(a)(1) or (2), then the primary use and benefit must relate to the exempt purpose of that entity.

  (7) A service provider who enters into a contract with a nonexempt entity to add improvements to real property that will become government property may accept a properly completed exemption certificate if the nonexempt entity dedicates the real property and the improvement to a governmental entity before any work begins and the governmental entity accepts the real property and the improvement. If, at a later date, the governmental entity fails to accept the improvement, the non-exempt entity will owe tax on the service.

  (8) A service provider may accept a properly completed exemption certificate from a manufacturer for separately stated charges for equipment that qualifies for the manufacturing exemption. See §3.300 of this title (relating to Manufacturing; Custom Manufacturing; Fabricating; Processing).

  (9) The labor to repair real or tangible personal property that is damaged within a disaster area by the condition or occurrence that caused the area to be declared a disaster area is exempt from tax if the charge for labor is separately stated to the customer. The materials that are used to perform the repairs are taxable. A person who has property repaired under this paragraph should issue to the service provider an exemption certificate in lieu of tax. The service provider must presume that all work is taxable until the customer issues an exemption certificate that covers the separately stated labor portion of the bill. If the charge for the repair is lump-sum, the total charge is taxable.

  (10) No sales tax is due on the wages or salary paid by an employer to an employee who provides the labor to repair, remodel, or restore real property that belongs to and is used by the employer. A person is considered the employee of the employer if the employer pays the person's wages or salary, withholds applicable federal taxes from the employee's wages or salary, pays employment-related benefits such as health insurance, and exercises direct control over the work that the employee performs.

(e) Resale certificates.

Cont'd...

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