A nursing home operator hires Texas and out-of-state contractors to do electrical repair work at its nursing homes, sometimes billed as a lump sum and sometimes with materials and labor separately stated. Should the contractor charge Texas sales tax, and if the tax is owed but not collected, does the state pursue the nursing home or the contractor?

Plain-English summary

Note: the STAR system's own subject-matter heading for this letter references "Mold Remediation," but nothing in the letter's actual text discusses mold — the letter is about electrical repair work performed by contractors at nursing homes. This page's subject_title has been corrected to reflect what the letter actually addresses.

A company that operates nursing homes in Texas periodically hires contractors to do repair and remodeling work at its facilities. It asked the Comptroller how sales tax applies to a Texas contractor's electrical repair work under four different billing/registration scenarios, restated and answered as follows:

I. Texas contractor, lump-sum bill (materials and labor not separated), no sales tax mentioned: The contractor should not charge the nursing home sales tax.

II. Texas contractor, bill separates materials and labor, no sales tax mentioned: The contractor should collect sales tax from the nursing home only on the charge for materials incorporated into the real property being repaired or remodeled — the labor is not taxable. If the nursing home was audited and couldn't produce tax-paid receipts, it would be assessed the tax due on the materials. The Comptroller may pursue either the contractor or the contractor's customer (the nursing home) for tax that is due but unpaid.

III. Out-of-state contractor (not registered to do business in Texas), lump-sum bill: Same answer as scenario I — the contractor should not charge sales tax. This answer would be the same even if the out-of-state contractor were registered to conduct business in Texas.

IV. Out-of-state contractor, bill separates materials and labor: Same answer as scenario II — sales tax is due only on the materials, not the labor. Again, if the nursing home was audited and couldn't produce tax-paid receipts, it would be assessed the tax on materials, and the Comptroller may pursue either the contractor or the nursing home. The letter also notes that when a contractor is physically present in Texas doing construction work, that contractor is "engaged in business" in Texas for sales and use tax purposes — regardless of whether the contractor is registered.

What this means for you

Nursing homes and other real property owners hiring repair contractors

Ask your contractor how the bill is structured. A single lump-sum price for a real property repair job means no sales tax should be charged on that bill at all. If the contractor instead separately states materials and labor, expect sales tax only on the materials line — not on labor. Keep tax-paid receipts: if you're audited and can't produce them, you (not just the contractor) can be assessed the tax due on the materials.

Contractors performing real property repair work in Texas

Whether you're based in Texas or out of state, the tax treatment turns on how you bill the job — lump-sum versus separated materials and labor — not on your location or registration status. Being physically present in Texas to perform construction work makes you "engaged in business" in Texas for sales and use tax purposes.

Accountants and tax professionals advising real-property-repair clients

This letter is a clean four-way matrix (Texas vs. out-of-state contractor, crossed with lump-sum vs. separated billing) confirming that the lump-sum/separated-billing distinction — not the contractor's location or Texas registration status — controls whether sales tax applies, and that it applies only to materials, never labor, on a real property repair or remodeling job.

Common questions

Q: If a Texas contractor bills a nursing home a single lump-sum price for electrical repair work, should sales tax be charged?
A: No. The contractor should not charge sales tax on a lump-sum bill.

Q: If the same Texas contractor instead separately lists materials and labor on the bill, what's taxable?
A: Only the materials incorporated into the real property being repaired or remodeled. The labor charge is not taxable.

Q: Does it matter if the contractor is from out of state instead of Texas?
A: No. The letter states the answers are the same for an out-of-state contractor as for a Texas contractor — lump-sum bills are not taxed, and separated bills are taxed only on materials.

Q: Does it matter whether the out-of-state contractor is registered to do business in Texas?
A: No. The letter specifically says the answer would be the same regardless of whether the out-of-state contractor was registered to conduct business in Texas.

Q: If the contractor should have collected sales tax on materials but didn't, and the nursing home is later audited, who does the Comptroller pursue?
A: The Comptroller may proceed against either the contractor or the contractor's customer (the nursing home) for tax due but not paid. If the nursing home can't produce tax-paid receipts, it would be assessed the tax due on the materials.

Q: What makes an out-of-state contractor "engaged in business" in Texas for sales and use tax purposes?
A: Being physically present in Texas to perform construction work makes the contractor "engaged in business" in Texas, according to the letter.

Q: Can this nursing home operator's competitors or other businesses rely on this letter for their own contractor billing situations?
A: No. This opinion is based on the specific facts presented to the Comptroller, and it can be relied on only by the taxpayer to whom it was issued; if the facts differ, the opinion may change.

Citations and references

No specific statutes or rule numbers were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9207L1190G10

Original ruling text

July 21, 1992

Dear **:

Thank you for your recent letter asking for written advice.

You stated that your company operates nursing homes in Texas. You periodically
have contractors come into your nursing homes to perform repair and remodeling
services.

Your facts and questions with our responses are restated below:

I. We hire a Texas contractor to perform electrical repair work at our nursing
home. The contractor submits a bill to us in one lump-sum amount and does not
mention anything about Texas sales tax.

1. Should the contractor have charged us sales tax and if so, what amount?

2. If the contractor should have charged us the sales tax, who will your state
   pursue for the collection of the tax if we were audited - us or the contractor?

Response: The contractor should not charge your company sales tax.

II. Same situation as I., except the Texas contractor submits a bill to us
segregating materials and labor. The bill does not mention anything about
sales tax.

1. Should the contractor have charged us sales tax and if so, on what amount?

2. If the contractor should have charged us the sales tax, who will your
   statepursue for the collection of the tax if we were audited - us or the
   contractor?

Response: The contractor should collect sales tax from your company on the
charge for the materials incorporated into the realty being repaired or
remodeled. The labor is not taxable.

If your company was audited and could not produce tax paid receipts, your
company would be assessed the tax due on materials.

The Comptroller may proceed against either the contractor or the contractor's
customer for tax due but not paid.

III. We hire an out of state contractor to perform electrical repair work at
our nursing home. The out-of-state contractor is not registered to conduct
business in Texas. The contractor submits a bill to us in one lump-sum amount
and does not mention anything about Texas sales tax.

1. Should the contractor have charged us sales tax and if so, on what amount?

2. If the contractor should have charged us the sales tax, who will your state
   pursue for the collection of the tax if we were audited - us or the
   contractor?

3. Would the answer to 1. or 2. differ if the out of state contractor was
   registered to conduct business in your state?

Response: The contractor should not charge your company sales tax. The answer
would be the same regardless of whether the contractor was registered to
conduct business in Texas.

IV. Same situation as III., except the out-of-state contractor submits a bill
to us segregating materials and labor. The bill does not mention anything
about Texas sales tax.

1. Should the contractor have charged us sales tax and if so, on what amount?

2. If the contractor should have charged us the sales tax, who will your
   stateS pursue for the collection of the tax if we were audited - us or the
   contractor?

3. Would the answer to 1. or 2. differ if the out of state contractor was
   registered to conduct business in your state?

Response: The contractor should collect sales tax from your company on the
charge for the materials incorporated into the realty being repaired or
remodeled. The labor is not taxable.

If you were audited and could not produce tax paid receipts, your company would
be assessed the tax due on materials.

The Comptroller may proceed against either the contractor or the contractor's
customer for tax due but not paid.

When a contractor is physically in Texas for construction work, the contractor
is "engaged in business" in Texas for sales and use tax purposes.

This opinion 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, you may call me toll free
at 1-800-252-5555, extension 3-4633. The regular number is 512/463-4633. You
may also write to the Tax Administration Division.

Sincerely,

Wanda Hutcheson
Tax Administration Division