A contractor performs actual repairs (not maintenance) to nonresidential real property and buys parts/materials at a hardware store to incorporate into the job. Can the contractor use a resale certificate to buy those materials tax-free, and does it matter whether the bill to the customer separates labor from materials?

Plain-English summary

A taxpayer represented a restaurant owner who hires an independent contractor from time to time to perform actual repairs (not routine maintenance) to the restaurant properties, incorporating parts and materials the contractor buys at a hardware store. The taxpayer asked whether the contractor could use a resale certificate to buy those materials tax-free, and whether a resale certificate is even available under Tex. Tax Code § 151.056 and Rule 3.357.

The Comptroller confirmed yes, the contractor may use a resale certificate: nonresidential real property repair and remodeling is itself a taxable service (§ 151.0047, § 151.0101(a)(13)), and § 151.056(e) specifically carves taxable-service materials out of the general contractor "consumer" rule in § 151.056 (the rule that normally makes a contractor the taxable consumer of materials used in improvements to realty). Because the materials are being resold as a necessary part of a taxable service, the contractor can buy them tax-free with a resale certificate.

The catch: § 151.058(b) requires the contractor to collect sales tax on the entire amount charged to the customer for the taxable repair — labor, materials, overhead, and profit — regardless of whether the invoice separately states the labor and materials charges or bundles everything into one lump sum. Unlike the lump-sum-vs-separated distinction that matters for new-construction improvement contracts (where billing method can shift who bears the tax), it makes no difference here: the whole charge is taxed either way.

What this means for you

Contractors performing nonresidential real property repairs

You can buy materials tax-free with a resale certificate when the materials will be incorporated into a taxable repair job — but you must then collect sales tax on your full invoice to the customer (labor + materials + overhead + profit), whether or not you break out the material cost as a separate line item.

Property owners hiring repair contractors

Expect sales tax on your entire repair bill, not just a materials line item — billing format (lump sum vs. itemized) doesn't reduce or increase what's taxable for an actual repair job (as opposed to routine maintenance, which is treated differently).

Accountants and tax professionals

This is a useful contrast with new-construction (improvement-to-realty) contracts, where lump-sum vs. separated billing changes who bears the tax on materials. For a taxable REPAIR service under § 151.0101(a)(13), that distinction doesn't apply — § 151.058(b) taxes the whole charge regardless of billing format, and § 151.056(e) is what lets the contractor use a resale certificate on materials in the first place.

Common questions

Q: Can a contractor use a resale certificate to buy materials used in a real property repair job?
A: Yes — because real property repair is itself a taxable service, the contractor can buy materials tax-free with a resale certificate under § 151.056(e), since the materials are resold as part of that taxable service.

Q: Does it matter if the contractor bills labor and materials separately, or as one lump sum?
A: No. Under § 151.058(b), the contractor must collect sales tax on the total amount charged for the taxable repair service either way — separately stating the charges doesn't reduce the taxable base.

Q: Does this apply to routine maintenance instead of an actual repair?
A: This letter specifically addresses repairs, not maintenance services — the taxpayer stated the contractor performs repairs, "not real property maintenance services." Maintenance is treated differently under Rule 3.357 and isn't addressed here.

Q: Can I rely on this letter for my own contractor arrangement?
A: No. This opinion is based on the facts presented, and additional or different facts could change the result; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.0047 (definition of real property repair and remodeling services)
• Tex. Tax Code § 151.0101(a)(13) (real property repair/remodeling as a taxable service)
• Tex. Tax Code § 151.056(e) (contractor "consumer" rule doesn't apply to TPP used in a taxable service)
• Tex. Tax Code § 151.058(b) (tax due on the total charge for a taxable service, whether or not separately stated)
• 34 Tex. Admin. Code Rule 3.357 (real property repair and remodeling services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200001012L

Original ruling text

January 28, 2000

Subject: Sales Tax: Real Property Repairs

Dear **:

Thank you for your recent e-mail concerning the tax responsibilities of
contractors as set out in Texas Tax Code Section 151.056 and persons performing
nonresidential real property repair as defined and taxed under Texas Tax Code
Section 151 and Rule 3.357 concerning real property repair and remodeling
services.

You represent a client who owns and operates several restaurants. He engages an
independent contractor from time to time to perform repairs (not real property
maintenance services). The contractor incorporates parts and materials he buys
into the property.

You want to confirm that under Section 151.056 and Rule 3.357, the contractor
could (and should be) using a resale certificate and not paying tax when he
buys parts and materials at a HARDWARE STORE to be used in the project. You
also want an explanation whether a contractor can issue a resale certificate
under Section 151.056 and Rule 3.357.

Texas Tax Code Section 151.0047 defines real property repair and remodeling
services and Texas Tax Code Section 151.0101(a)(13) includes the term under the
definition of taxable services.

Rule 3.357 does not conflict with Texas Tax Code Section 151.056. Texas Tax
Code 151.056(e) states that Section 151.056 does not apply to the use or
consumption of tangible personal property as a necessary or incidental part of
a taxable service.

Texas Tax Code Section 151.058(b) requires the collection of sales tax on the
total amount charged for a service taxable under this chapter, including
charges for labor, materials, overhead, and profit, regardless of whether such
charges are separately identified to the purchaser of the service. A "taxable
item" includes taxable services and tangible personal property [Texas Tax Code
Section 151.010]. Texas Tax Code Section 151.007(a)(2) defines the sales tax of
a taxable item to include labor and services employed.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free 1-800-531-5441, extension 3-4683, if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3825. My
e-mail address is .

Sincerely,

Eddie C. Washington
Tax Policy Division