Did a contractor charge Texas sales tax on lump-sum waterproofing, caulking, tuck-pointing, and sealing of existing commercial buildings?

Plain-English summary

The contractor performed large-scale waterproofing, caulking, tuck-pointing, and exterior-wall sealing on completed multi-story commercial buildings. It billed lump-sum amounts and had been paying tax on its materials.

The Comptroller classified that work as repair or remodeling of real property under Rule 3.357. Beginning January 1, 1988, the contractor had to obtain a Texas sales-and-use-tax permit and charge tax on the total amount for materials and labor. It could buy incorporated materials tax-free by giving its supplier a resale certificate.

Those requirements did not apply to new-construction contracts or repair and remodeling of residential property. For those jobs, the business could continue operating as a lump-sum contractor under Rule 3.291.

What this means for you

The historical result distinguished existing commercial-building work from new construction and residential work. The same exterior-wall activity could receive different treatment depending on the property and project type.

Common questions

Was labor on an existing commercial building taxable? Yes, beginning January 1, 1988.

Was only the labor taxed? No. The contractor charged tax on the total materials-and-labor amount.

Could incorporated materials be bought for resale? Yes, with a resale certificate.

Did the same rule apply to new construction or residential work? No.

Citations and references

• 34 Tex. Admin. Code Rule 3.357 — historical real-property repair and remodeling rule.
• 34 Tex. Admin. Code Rule 3.291 — historical lump-sum contractor rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8802L0859C10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

February 11, 1988

Dear ***:

Thank you for your letter regarding the taxability of waterproofing of
existing buildings.

As stated in your letter, your business activities consist of large scale
waterproofing, caulking, tuck pointing and sealing the exterior walls of
multi-story commercial buildings. You purchase and pay sales tax on all
materials used on each job and invoice in large multi-thousand dollar
amounts
in lump-sum amounts without itemization of labor and material. You noted
that the majority of your renovations are on completed office and
industrial
buildings.

In response to your question concerning the taxability of materials and
labor
involved in the activities mentioned above, these activities are
considered
(per Rule 3.357 enclosed) repair or remodeling of real property.
Effective
January 1, 1988, the labor to repair or remodel real property became
taxable
(as you noted, materials were already taxable). Your responsibilities
now
are to obtain a Texas Sales and use tax permit and to charge your
customers
tax on the total charge (materials and labor) for performing these
services.
You may purchase materials incorporated into the real property tax free
by
issuing a resale certificate to your supplier.

These requirements do not apply when completing new construction
contracts
nor do they apply when repairing or remodeling residential property. In
these situations you may continue to operate as a lump-sum contractor as
outlined in Rule 3.291.

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

If you have any questions or need more information, please call our
toll-free
number 1-800-531-5441. This regular number is 512/463-4600. You may
write me
at the Tax Policy Division.

Sincerely,
July Pesl
Tax Policy Division