|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.
(1) Persons who repair, restore, and remodel real property
may issue a resale certificate in lieu of tax to suppliers of tangible personal
property only if the tangible personal property will be incorporated into
the customer's realty. For example, a repairman or remodeler purchases paint
to repaint a repaired or remodeled area. The paint is transferred to the customer
as a part of the finished job. The repairman or remodeler may purchase the
paint tax free by issuing a resale certificate. Tax is due on the total amount
that is charged the customer, including amounts that are charged for the paint
and for the services. A resale certificate may not be issued for materials
and supplies used or consumed by the repairman or remodeler that are not incorporated
into the customer's realty.
(2) A resale certificate may be issued for a service if the
buyer intends to transfer the service as an integral part of taxable services.
A service will be considered as an integral part of a taxable service if the
service purchased is essential to the performance of the taxable service and
is of a type without which the taxable service could not be performed. Examples
of services for which a resale certificate may be issued in lieu of tax are
landscaping and surveying services if the landscaping or surveying is performed
upon the property that is remodeled.
(f) Local taxes. Local taxes (city, county, transit authority,
city transit department, and special purpose districts) apply to services
in the same way as they apply to tangible personal property.
(1) Generally, service providers must collect local sales taxes
if their place of business is within a local taxing jurisdiction, even if
the service is actually provided at a location outside that jurisdiction.
(2) Transit sales taxes do not apply to services that are provided
outside the boundaries of a transit area.
(3) If the service provider's place of business is outside
a local taxing jurisdiction but the service is provided to a customer who
is located within a local taxing jurisdiction, then local use taxes apply
and the service provider is required to collect the local taxes.
(4) For information on the collection and reporting responsibilities
of providers and purchasers of taxable services, see §3.374 of this title
(relating to Collection and Allocation of the City Sales Tax), §3.375
of this title (relating to City Use Tax), §3.424 of this title (relating
to Collection and Allocation of Transit Sales Tax), and §3.425 of this
title (relating to Transit Use Tax).
(g) Use tax. If a seller of a service is not engaged in business
in Texas or in a specific local taxing jurisdiction, and is not required to
collect Texas tax, then the Texas customer must report and pay the use tax
directly to the Texas comptroller.
(h) Enterprise project. An entity that qualifies as an enterprise
project may qualify to claim a refund of sales tax that is paid on the total
charge for nonresidential repair, restoration, or remodeling. See §3.329
of this title (relating to Enterprise Projects, Enterprise Zones, and Defense
(i) Prior contracts. Prior contracts that are signed before
the effective date of a statutory change that affects nonresidential real
property repair, remodeling, and restoration shall be governed by the provisions
of §3.319 of this title (relating to Prior Contracts).