If a cabinet maker's invoice lists separate prices for different cabinets plus one installation charge, is that a taxable separated contract or an untaxed lump-sum contract?

Plain-English summary

A custom cabinet maker charged customers a single fabrication-labor-and-materials price for building each cabinet, and had been paying sales tax itself on all the materials that went into the cabinets rather than charging its customers tax on the cabinet price — treating itself as a lump-sum contractor. But its invoices actually broke the total into several line items:

Base cabinets w/drawers --------------- $1200.00
Upper cabinets -------------------------- $ 950.00
Laundry and Bathroom vanities--------$ 900.00
Installation --------------------------------$ 175.00
Total----------------------------------------$3225.00

The client's tax advisor worried that itemizing the cabinets separately from the installation charge would make this look like a separated contract — which would mean the customer owed tax on the cabinet-price line items, exposing the customer to an assessment in a later audit.

The Comptroller disagreed, citing Administrative Hearing No. 15,636: under the state's uniform policy interpreting Tax Code § 151.056, all contracts are treated as lump-sum unless there is a complete separation of all labor and material charges. Because each cabinet-price line item on this invoice still bundled the fabrication labor together with the materials cost (rather than breaking each one down into its own labor component and materials component), the invoice as a whole remained a lump-sum contract — even though it had multiple line items and a separately stated installation charge. No tax should be assessed on the fabrication-labor portion the auditor might otherwise try to carve out.

The Comptroller still flagged the underlying practical risk the taxpayer's advisor identified: if an auditor examined the customer's records, the itemized appearance of this invoice could create confusion and expose the customer to a tax assessment. The Comptroller's suggestion: simplify to a single combined charge for the cabinets and installation to avoid that ambiguity going forward, even though the current invoice format is technically still lump-sum.

What this means for you

Custom cabinet makers and fabricators

Itemizing your invoice by product type (base cabinets, upper cabinets, vanities) doesn't automatically turn your contract into a taxable separated contract — what matters is whether you've broken out labor from materials within each line. If each line still bundles fabrication labor and materials together, the whole invoice remains lump-sum, and you (not your customer) are the one who owes tax, on your own materials cost.

Contractors billing multiple components under one project

Consider simplifying multi-line invoices into a single combined charge where possible. Even where the letter confirms your current format is technically lump-sum, an itemized-looking invoice can create audit confusion for your customer, who may not realize the itemization doesn't actually create separated-contract tax exposure.

Accountants and tax professionals

The controlling authority here is Administrative Hearing No. 15,636's uniform policy under § 151.056: a contract is lump-sum unless there is a complete separation of all labor and material charges — itemizing by product/component alone, without breaking out labor vs. materials within each item, does not create a separated contract.

Common questions

Q: Does listing separate prices for different cabinet types make this a separated contract?
A: No — the invoice remains lump-sum because none of the line items broke out the fabrication labor cost from the materials cost within that item; itemizing by product type isn't the same as separating labor from materials.

Q: Who owes the sales tax under a lump-sum contract like this one?
A: The fabricator/contractor owes tax on the materials it incorporates into the cabinets; the customer is not charged tax on the cabinet price.

Q: Is a separately stated installation charge enough to make a contract "separated"?
A: Not by itself. The test under Administrative Hearing No. 15,636 requires a complete separation of all labor and material charges across the whole invoice, not just carving out one installation line.

Q: Can any cabinet maker rely on this exact invoice format?
A: Not automatically. 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). The Comptroller itself suggested simplifying the invoice to avoid customer-side audit confusion — confirm your own invoice format with a tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.056 (Vernon 1982) (lump-sum vs. separated contracts)
• Administrative Hearing No. 15,636 (uniform policy: contracts are lump-sum absent complete labor/material separation)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200103090L

Original ruling text

March 6, 2001

Dear **:

Thank you for your letter. I apologize for the delay in responding to your
request for a determination of whether a client's invoice to a customer is lump
sum or separated.

As I understand it, your client makes and installs custom residential cabinets.
The client charges a lump-sum amount for the fabrication labor and materials
used to fabricate the cabinets. The client provides an invoice to the customer
that includes this lump sum charge for the cabinets plus a charge for the
installation of the cabinets. You are concerned that this is considered a
separated contract. Your client believed it was acting as a lump-sum contractor
by making a single charge for the fabrication labor and materials used to build
the cabinet. The client has paid tax on all materials incorporated into the
cabinets and not charged it's customers tax on the separate charge billed for
the cabinets.

The example of the invoice you included was separated as follows:

Base cabinets w/drawers --------------- $1200.00
Upper cabinets -------------------------- $ 950.00
Laundry and Bathroom vanities--------$ 900.00
Installation --------------------------------$ 175.00
Total----------------------------------------$3225.00

Based on Administrative Hearing 15,636, the invoice is a lump-sum invoice. This
hearing states:

". . . . . Accordingly, the Division contended that the separately stated
charges for component parts were subject to tax either as a separate material
charge or as a charge that covered both material and fabrication labor.
However, subsequent to each hearing the Administrative Law Judge was informed
by the Tax Advisor for the Legal Services Division, Ms. Harriet Burke, that the
Tax Division has adopted a uniform policy of considering all contracts as lump
sum contracts under TEX. TAX. CODE ANN. Sec. 151.056 (Vernon 1982) unless there
is a complete separation of all labor and material charges. Since the disputed
contracts in this case contain single charges for building component parts that
cover both material and fabrication and installation labor, it is concluded
that they should be treated as lump sum contracts and that no amount of tax
should be assessed on amounts attributable by the auditor to fabrication labor.

You believe that if an auditor were auditing the purchaser, (i.e., your client's
customer) this invoice would be set up for tax due. I share your concern and
believe it would be beneficial to your client and it's customers to make a
single charge for the cabinets and installation labor.

This opinion is based on the facts presented. Other facts, though similar, may
result in different answers.

I'll be glad to help you if you have additional questions. You may email your
questions to . My direct line is 512-475-0037. The
toll-free number is 1-800-531-5441, ext. 5-0037.

Sincerely,

Lindey Osborne
Tax Policy Division