Does a subcontractor owe Texas sales tax on labor charges for cutting, sawing, coring, or drilling concrete?

Subject

Concrete Surfaces (Roads,Bridges,Tunnels,Slabs) Sawing/Cutting/Coring/Drilling Charges — Part Of New Construction Vs. Nonresidential Remodeling/Repair Contract

Plain-English summary

The Comptroller answered a subcontractor's question about sales tax on labor-only charges for cutting, sawing, coring, or drilling concrete — work done on roadways, bridges, buildings, tunnels, and other concrete structures, using whatever cutting method fits the concrete type, available space, and structural limits of the job.

The answer turns on what kind of job the work is part of. Cutting, sawing, coring, or drilling tangible personal property not yet installed (things like concrete culverts or turbine tubes) or existing nonresidential improvements to real property is a taxable service — the subcontractor's labor-only charge must be taxed, unless the customer gives a properly completed resale or exemption certificate instead.

But when the same cutting/coring/drilling work is performed as part of a new construction contract (whether the building being constructed is residential or nonresidential) or as part of a residential repair or remodeling contract, the labor charge does not meet the definition of a taxable service and is not taxed. The letter adds an important status note: even though the labor isn't taxed in that situation, the subcontractor is still a nontaxable service provider, not a "contractor" for tax purposes, because it never incorporates any tangible personal property into real property — it only cuts, sizes, or drills what's already there or what someone else installs.

What this means for you

Concrete-cutting and coring subcontractors

Whether you charge tax depends entirely on the contract your work sits inside, not on the cutting technique itself:

• Taxable: cutting/coring/drilling concrete items that aren't yet installed, or cutting/coring/drilling existing nonresidential structures (an existing bridge, an existing commercial building, an existing tunnel).
• Not taxable: the identical labor when it's part of a new construction contract (residential or nonresidential) or a residential repair/remodeling contract.

Track which bucket each job falls into, and get a resale or exemption certificate on file whenever a customer claims your labor charge should be tax-free on a taxable job — otherwise you're expected to collect and remit the tax yourself.

General contractors and property owners hiring these subcontractors

If you're hiring a second- or third-tier subcontractor for concrete cutting/coring on an existing nonresidential structure (a repair or remodel of an existing commercial building, bridge, or similar structure), expect tax to apply to that labor unless you provide a valid certificate. If the same work is being done as part of building something new, or repairing/remodeling an existing residence, the labor is not taxable.

Accountants and tax professionals

The letter frames this as a classification question under Rules 3.292 (real property repair and remodeling) and 3.357 (nonresidential real property services): the same physical service (cutting, sawing, coring, drilling concrete) is taxed differently depending on (1) whether the concrete/property being worked on is tangible personal property not yet installed vs. an existing nonresidential improvement, versus (2) whether the work is part of new construction or residential repair/remodeling. Note also the Comptroller's status clarification that a labor-only subcontractor in this line of work is a nontaxable service provider, not a "contractor," because it never incorporates materials into realty.

Common questions

Q: Is concrete cutting/coring/drilling labor always taxable in Texas?
A: No. It's taxable when done on tangible personal property not yet installed or on an existing nonresidential improvement to real property. It is NOT taxable when done as part of a new construction contract (residential or nonresidential) or a residential repair/remodeling contract.

Q: My company only provides labor, no materials — does that change the tax treatment?
A: Labor-only charges for these services are still taxable in the "existing nonresidential improvement" or "TPP not yet installed" scenarios described above; there's no blanket exemption just because you supply no materials. You can, however, accept a resale or exemption certificate from your customer in lieu of charging tax.

Q: If I work as a second- or third-tier subcontractor, does that change anything?
A: No — the letter confirms the same taxability rules apply regardless of whether you're the prime contractor or several tiers down (subcontracting to a general contractor or to another trade subcontractor).

Q: Does doing this work make my company a "contractor" for tax purposes?
A: No. The letter specifically says that even on a non-taxed job (new construction or residential remodel), the subcontractor remains a nontaxable service provider, not a contractor, because it is not incorporating tangible personal property into realty — it's only cutting, sawing, coring, or drilling.

Q: Can I rely on this letter for my own business?
A: Only if you're the taxpayer this letter was issued to. It's a redacted STAR letter based on the facts that specific company presented; if your facts differ, the analysis could come out differently. Ask a licensed Texas tax professional about your specific situation.

Citations and references

Rules cited:

• 34 Tex. Admin. Code Rule 3.292 (real property repair and remodeling)
• 34 Tex. Admin. Code Rule 3.357 (nonresidential real property services)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9304781L

Original ruling text

April 28, 1993

Dear***:

Thank you for your patience while waiting for the response to your letter
questioning the application of sales or use tax to the concrete coring or
cutting services your company provides.

You stated that your company usually operates as a second or third tier
subcontractor to a general contractor or to an electrical, plumbing, concrete,
etc. subcontractor; your company provides only labor, no materials. The
brochure, that you provided, described your specific services as cutting,
sawing, coring, or drilling concrete surfaces of roadways, bridges, buildings,
tunnels, and many other structures composed of concrete. The type of method
utilized is determined by the type of concrete, space available, structural
limitations, and other conditions of the specific job.

Cutting, sawing, coring, or drilling tangible personal property (concrete
culverts, turbine tubes, etc., not yet installed) and existing nonresidential
improvements to realty are taxable services. Your charges to your customer(s)
for labor only must be taxed; or, you may accept a properly completed and valid
resale certificate or exemption certificate in lieu of tax. See Rules 3.292
and 3.357, copies enclosed.

When your company is called upon to provide these services to a contractor as
part of a new construction contract (residential or nonresidential) or a
residential repair or remodeling contract, the labor charge does not meet the
definition of a taxable service and is not taxed. Although the labor is not
taxed, your company is a nontaxable service provider not a contractor because
it is not incorporating tangible personal property into realty.

This opinion is based upon the facts presented; if there are additional or
different facts, the opinion may change. Or, you may write to Tax
Administration Division.

Sincerely,

Tax Administration Division