Does a plumber charge Texas sales tax on labor for new construction plumbing, residential repairs, or commercial plumbing work, and how does the contract type (lump-sum vs. separated) affect materials tax?

Plain-English summary

Responding to a plumbing business's inquiry about new construction jobs, the Comptroller laid out the standard three-way framework that applies to plumbing (and, per companion letters from the same period, to painting and other trades work on realty).

New construction, or repair/remodeling of residential property: the plumber is a "contractor," and there's no sales tax on the plumber's labor. How materials are taxed depends on the contract:

• Lump-sum contract (labor and materials not separately stated): the plumber is the consumer of incorporated materials, paying tax to suppliers at purchase, plus tax on consumable supplies and any equipment bought/leased/rented for the job. The lump-sum charge to the customer is not taxable.
• Separated contract (labor separately stated from materials): the plumber is the retailer of incorporated materials, collecting sales tax from the customer on the agreed materials price (which can't be less than what the plumber paid for them) and may use a resale certificate to buy those materials tax-free. Labor stays untaxed. Local sales tax on the materials follows the taxing jurisdiction of the job site (see Publication 94-105).

Repair or remodeling of existing nonresidential (commercial) property: this is a fully taxable service under 34 TAC § 3.357. The plumber collects tax on the total sales price — labor and materials combined — from the property owner, while still being able to use a resale certificate to buy the incorporated materials tax-free from suppliers.

What this means for you

Plumbers and plumbing contractors

Your tax treatment depends on two questions: is the job new construction or residential repair (no labor tax, contract-type-dependent materials tax) versus existing commercial repair (tax on the whole job)? Choosing lump-sum versus separated contracts for residential/new-construction work changes who collects tax on materials, but never makes labor taxable in that category.

Commercial property owners hiring plumbers for repairs

Expect your plumber to charge tax on the entire invoice — labor and materials together — for repair or remodeling work on your existing building, unlike residential repair work.

Accountants and tax professionals

This letter mirrors the same lump-sum/separated-contract framework the Comptroller applies broadly across trades (see also the companion painting/stenciling letter, 200010845L, from the same general period) — useful as a general template for any construction trade doing both residential and commercial work.

Common questions

Q: Is a plumber's labor taxable for new construction or residential repair?
A: No, regardless of whether the contract is lump-sum or separated.

Q: What's the difference between a lump-sum and separated contract for a plumber's materials tax?
A: Under lump-sum, the plumber pays tax on materials as the consumer and the customer's lump-sum charge is untaxed. Under separated, the plumber collects tax from the customer on the materials price and can buy materials tax-free with a resale certificate.

Q: Is plumbing work on an existing commercial building taxed the same way as residential work?
A: No — commercial (nonresidential) repair/remodeling is a fully taxable service, with tax collected on the total charge including labor, unlike residential work.

Q: Can any plumbing contractor rely on this exact framework?
A: Not directly. 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), though the general contractor/lump-sum/separated framework it describes applies broadly to Texas construction trades.

Citations and references

Rules and publications:

• 34 Tex. Admin. Code § 3.357 (nonresidential real property repair and remodeling)
• Comptroller Publication 94-116 (repair and remodeling of residential property)
• Comptroller Publication 94-105, "Guidelines for Collecting Local Sales and Use Tax"

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200010808L

Original ruling text

October 18, 2000

From: Emilio Lerma

To:

Subject: Sales and Use Taxes

Dear **:

I am responding to your e-mail inquiry regarding sales tax on labor performed
by a plumber.

A plumber who works on new construction or who repairs and remodels residential
property is considered a contractor. There is no sales tax on labor performed
by a plumber installing plumbing and fixtures to new structures (new
construction) or repairing or remodeling residential property. The type of
contract executed will determine how the tax on materials is treated.

A contract that does not separately state the charge for labor from the charge
for materials is a lump-sum contract. Under a lump-sum contract, a contractor
is considered the consumer of all materials incorporated into a customer's
property. As a consumer, a contractor must pay tax to suppliers at the time
the incorporated materials are purchased. The contractor will also pay sales
and use tax on consumable supplies and all equipment bought, leased, and rented
for use on the job. The lump sum charge to the customer is not taxable

A contract that separately states the charge for labor from the charge for
materials physically incorporated into the house is a separated contract.
Under a separated contract, a contractor is considered the retailer of all
materials physically incorporated into the realty. As a retailer, separated
contractors must collect sales tax from the customer based on the agreed upon
contract price of the incorporated materials. The separately stated charge for
labor is not taxable. A separated contractor may issue a resale certificate to
purchase the materials incorporated into the realty.

The agreed contract price for the materials cannot be less than the contractor
paid for the materials. See sales tax bulletin publication number 94-116
concerning the repair and remodeling of residential property. On a separated
contract, the contractor must pay sales tax on consumable supplies and all
equipment bought, leased, or rented for use on the job.

The local sales tax on the materials is allocated based on the local taxing
jurisdictions where the job site is located. Please refer to our bulletin
entitled "Guidelines for Collecting Local Sales and Use Tax" (publication
number 94-105).

To view or down load the referenced publications, please go to our web site
address at
and scroll to the specific publication.

The repair or remodeling of nonresidential real property (commercial property)
is a taxable service. See Rule 3.357 concerning new construction and the
repair and remodeling of real property.

When repairing or remodeling plumbing to existing nonresidential property, the
contractor should issue a resale certificate to the supplier of the materials
that will be incorporated into the real property. The contractor will collect
sales tax on the total sales price including labor and materials from the owner
of the real property.

To view or down load Rule 3.357, please go to our web site address at
and scroll
to the specific rule.

This opinion is rendered based on the facts presented. Other facts, though
similar, may yield different results.

If you have any questions or require additional information, you may submit
inquiries to our tax help Internet address at , call
1-800-531-5441, extension 6-5809 or write to Tax Policy Division, Post Office
Box 13528, Austin, Texas 78711-3528.

Sincerely

Emilio S. Lerma
Tax Policy Division

On Sat, 7 Oct 2000 15:57:02 EDT :

To Whom It May Concern:

Can you please send me information about sales and use taxes on new
construction plumbing jobs? My e-mail is . Thank you very
much.

Sincerely,