| (2) All persons who repair, restore, or remodel nonresidential
real property must collect tax on the total sales price to the customer less
separately stated charges for unrelated services. The total sales price does
not include Texas sales or use tax that the service provider must collect
from customers. See §3.286 of this title (relating to Seller's and Purchaser's
Responsibilities). The service provider may, in good faith, accept valid resale,
exemption, or direct payment exemption certificates in lieu of tax. Previously,
lump-sum and separated contracts were treated differently for tax purposes.
This distinction is no longer valid when the contract is for the repair, remodeling,
or restoration of nonresidential real property.
(3) A contract that involves both nonresidential repair, restoration,
or remodeling and new construction is taxable in total unless the charge for
new construction labor is separately stated to the customer as outlined in
paragraph (7) of this subsection. An example is remodeling a restaurant's
kitchen at the same time that a new dining area outside the existing structure
is added. Work on the kitchen is taxable as remodeling, while the construction
of the new dining area is nontaxable new construction. Minor repair, restoration,
or remodeling that is performed in connection with new construction is not
taxable if the portion of the charge that is attributed to repair, restoration,
or remodeling is 5.0% or less of the overall lump-sum charge. All separately
stated charges for repair, restoration, remodeling, or other taxable services
are taxable, even if they constitute 5.0% or less of the total contract price.
(4) All persons who repair, restore, or remodel nonresidential
real property owe tax at the time of purchase on all machinery, equipment,
materials, and supplies that are used but not incorporated into the realty.
The service provider is not entitled to a credit for tax paid on taxable items
that are used but not incorporated into the realty.
(5) Items used in performing repairs, remodeling, or restoration
for exempt entities.
(A) Persons who repair, remodel, or restore real property or
make improvements to real property for entities exempted by Tax Code, §151.309
or §151.310, may claim an exemption for tangible personal property used
in those activities if the tangible personal property is incorporated into
real property in the performance of the contract.
(B) Person who repair, remodel, or restore real property or
make improvements to real property for entities that are exempted under Tax
Code, §151.309 or §151.310, may claim an exemption for the purchase
of taxable services that are used in those activities if the service is performed
at the job site and if the contract requires the specific service to be provided
or purchased by the person who makes the improvement to realty, or the service
is integral to the performance of the contract.
(C) Persons who use consumable items in the improvement of
realty that is repaired, remodeled, or restored for entities that are exempt
under Tax Code, §151.309 or §151.310, may claim an exemption for
the purchase of a consumable item if use of the item is necessary for the
performance of the contract and the item is completely consumed at the job
site.
(D) Persons who repair, restore, or remodel real property may
issue a properly completed exemption certificate in lieu of tax for the purchase
of items that are identified in subparagraphs (A) through (C) of this paragraph.
The exemption certificate must show the service provider as the purchaser
and must identify the exempt entity for whom the improvements are made and
the project for which the items are purchased.
(6) Repair, restoration, or remodeling that is performed upon
a structure that is used both for residential and commercial purposes is taxable
in total unless the labor on the residence is separately identified. The labor
to repair, restore, or remodel the residence will not be taxable if separately
stated. The charge for repair, restoration, or remodeling to common areas
of mixed residential and nonresidential property is taxed based upon the ratio
of residential to nonresidential use of the property.
(7) If a combination of repair, restoration, or remodeling
and new construction is performed under the same contract, and the repair,
restoration, or remodeling portion exceeds 5.0% of the overall charge, then
the parties to the contract must separately identify taxable and nontaxable
labor along with the charges that apply to each or else the entire contract
is presumed to be for repair, restoration, and remodeling and is taxable.
Both parties must retain documentation that clearly defines the work that
is performed to show that, had the new construction and remodeling been done
independently, the charge for each would reasonably approximate the amount
allocated. Examples 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 Cont'd... |
