Texas Sales And Use Tax Rules For Construction-Related Services

The sales and use tax rules for contractors and construction-related work in Texas are complex and have a broad application.
A contractor is defined as someone who incorporates tangible personal property into real property improvements, including new construction, periodic maintenance, and residential repair and remodel.
The taxability of contractor work depends on whether the contract is lump-sum or separated.
Lump-sum contracts are not subject to tax, but the contractor must pay tax on all purchases of incorporated materials and taxable services.
Separated contracts are subject to tax on the charge for incorporated materials, but the labor charge is not taxable. Construction-related services for nonresidential or commercial property are subject to tax regardless of the contract type.
The complexity of these rules can lead to issues and potential litigation.