- 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.
Source Freeman Law
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