How does a new swimming pool construction business handle Texas sales tax on installing new pools versus repairing existing ones, at residential versus commercial properties?

Plain-English summary

Someone who had just started a swimming pool construction business, currently operating as a d.b.a. sole proprietor but planning to incorporate or form an LLC soon, e-mailed the Comptroller for basic guidance on handling Texas sales tax.

The Comptroller's response covers both the business-registration mechanics and the substantive tax rules. On registration: if the person gets a sales tax permit now as a sole owner and later incorporates, the sole-owner permit must be closed and a new permit obtained as a corporation (with a separate note to contact the Secretary of State's office if incorporating). On the substantive tax question, the letter confirms installing a new in-ground swimming pool where none previously existed is new construction — for both residential and nonresidential property. For RESIDENTIAL property, Rule 3.291 governs repair, remodeling, and new construction alike: labor is never taxable, but materials are, and the mechanics of collecting that materials tax depend on the contract type. Under a lump-sum contract, the contractor owes tax on its own cost of the incorporated materials and doesn't collect anything extra from the customer. Under a separated contract, the contractor buys materials tax-free using a resale certificate, then collects tax from the customer on the materials portion of the bill only (labor stays untaxed either way). For NONRESIDENTIAL property repair or remodeling, Rule 3.357 applies instead, and it's simpler but harsher: the total charge — both materials AND labor — is taxable, regardless of whether the contract is lump-sum or separated. The contractor can still issue a resale certificate to its own material vendors, but the lump-sum/separated distinction that matters so much for residential work has no effect on how much of a nonresidential job gets taxed.

What this means for you

New swimming pool contractors (and construction contractors generally)

New pool installation is new construction, not a repair, at both residential and commercial properties. But whether you owe tax on labor depends entirely on whether the property is residential or nonresidential — residential labor is always untaxed, nonresidential labor is always taxed, no matter how you structure your contract.

Contractors deciding between lump-sum and separated residential contracts

For residential work, choosing lump-sum versus separated changes WHO pays tax on materials (you, embedded in your cost, versus your customer, itemized on the bill) but doesn't change the total tax collected. That choice becomes irrelevant for nonresidential jobs, where the whole charge is taxed either way.

New business owners transitioning from sole proprietor to a corporation or LLC

Don't just add a new entity to your existing sales tax permit — close the sole-owner permit and apply for a new one under the corporate or LLC name when you formally change business structure.

Common questions

Q: Is installing a new in-ground pool considered new construction or a repair?
A: New construction, whether the property is residential or nonresidential.

Q: Is labor taxable for residential pool work?
A: No — labor for residential repair, remodeling, or new construction is never taxable; only materials are, per Rule 3.291.

Q: Is labor taxable for commercial/nonresidential pool work?
A: Yes — the entire charge, materials and labor together, is taxable for nonresidential repair or remodeling under Rule 3.357.

Q: Does lump-sum vs. separated contract structure matter for nonresidential work?
A: No — unlike residential work, the lump-sum/separated distinction doesn't change how much of a nonresidential job gets taxed.

Q: What happens to a sales tax permit if a sole proprietorship incorporates?
A: The sole-owner permit must be closed, and a new sales tax permit obtained under the new corporate or LLC entity.

Q: Can other pool contractors rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.291 (Contractors; residential repair, remodeling, and new construction)
• 34 Tex. Admin. Code § 3.357 (Nonresidential Real Property Repair or Remodeling)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200008647L

Original ruling text

August 29, 2000

From: Bettie Peterson

To:

Subject: Taxes

Thank you for your recent email.

If you obtain a sales tax permit now as a sole owner business and later
incorporate, you should close the sole owner permit and reapply for a new sales
tax permit as a corporation. If you decide to incorporate, you should contact
the Secretary of State's office. After reviewing the information below, if you
find that you need a sales tax permit, you may complete the application online,
download, print, sign and mail the application to the address given on the
application. The form is available at and then click
on the following:

1. Tax Forms
2. Sales & Use Tax
3. AP-201 (Texas Application for Sales and Use Tax Permit)

Installing a new in-ground swimming pool at residential or nonresidential
realty where no pool previously existed is new construction.

Repair or remodeling of residential real property and new construction are
covered by Rule 3.291. The labor to repair or remodel residential realty and
new construction of residential and nonresidential realty is not taxable. The
materials are taxable. How the tax is paid or collected is determined by the
type of contract, i.e., lump-sum or separated.

Under a lump-sum contract, the contractor owes tax on his cost of all
incorporated materials. Tax will not be collected from the customer on any
portion of the lump-sum bill.

Under a separated contract, the contractor issues vendors a resale certificate
in lieu of tax on the incorporated materials and then collects tax from his
customer on the materials portion of the bill. Tax is not collected on the
labor portion of the bill.

Repairs and remodeling of nonresidential property are covered by Rule 3.357.
The total charge (materials and labor) are taxable for repair or remodeling of
nonresidential realty. The service provider may issue a resale certificate to
vendors in lieu of tax on materials that are incorporated into the realty.
Here, separated or lump-sum contracts do not affect how the tax is collected.

Referenced rules are available at
.

The State Tax Automated Research system, that provides viewing and downloading
of rules, edited letter rulings, hearings, AG Opinions, etc., may be accessed
on the Internet at http://www.window.state.tx.us/.

This opinion is based on the facts you submitted and current law. Other facts,
though similar, may result in different answers.

If you have questions or need more information, I will be glad to help you.
You may call me toll free from anywhere in the United States at 1-800-531-5441,
extension 5-0330.

On Tue, 22 Aug 2000 19:11:41 EDT wrote:

Hello ,

My name is **. I recently started a Swimming Pool construction
company. I was curious as to what I need to do as far as taxes are concerned.
Right now I am just a d.b.a.. But I will be either incorporating or forming a
LLC as soon as possible. I am very new at owning my own business and any help
would be appreciated. thank-you for your help! --**