For an interior designer/decorator in the Houston area, what local sales tax rate applies, and how is tax collected on wallpaper, drapery/blinds, carpet, delivery charges, and painting labor depending on whether the work is new construction, residential repair/remodeling, or nonresidential repair/remodeling, and whether the invoice is lump-sum or separately stated?
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This page answers the general question as of 1995. Ezel answers yours, under current Texas tax law, with citations.
Plain-English summary
An interior designer/decorator in the Houston area wrote to the Comptroller asking about local sales tax rates and how sales tax applies to various types of work performed for clients. The letter first confirms local tax boundary and rate information: the taxpayer's place of business is not inside the City of Katy, Harris County has no county sales tax, and the Houston Metropolitan Transit Authority (MTA) tax applies only when a taxable item is delivered into, or a taxable service is performed inside, the MTA boundary — meaning tax is generally based on the location of delivery or where the service is performed. At the time, the combined rate in Houston was 8.25% (6.25% state, 1% city, 1% Houston MTA), the rate in Katy was also 8.25% (6.25% state, 1% city, 1% Houston MTA), and the rate in Sugar Land (Fort Bend County, no county tax) was 7.75% (6.25% state, 1.5% city). The Comptroller's office does not maintain maps showing whether a particular address is inside a local boundary and directed the taxpayer to contact the relevant city, county, or MTA directly, providing phone numbers for the Houston MTA, Houston, Katy, and Sugar Land.
The letter also explains that tangible personal property delivered directly to a customer in another state (including via a common carrier) is exempt from Texas tax as an interstate shipment, documented by a bill of lading, but that a purchaser who takes possession of the property in Texas owes Texas tax even if the property is then immediately taken out of state.
The bulk of the letter then walks through general principles and eight specific numbered billing scenarios that the taxpayer submitted, covering wallpaper, drapery, carpet, delivery/transportation, and painting.
What this means for you
General framework: contractors vs. taxable service providers
For new construction of residential or nonresidential real property, and for repair/remodeling of residential real property, persons who improve real property are treated as contractors. Tax is due on materials, but labor to improve real property in these situations is not taxable. Whether the contractor or the customer ultimately bears the materials tax depends on the contract type: in a lump-sum contract (a single combined charge for materials and labor), the contractor is the consumer of the materials and does not collect tax from the customer — the contractor instead pays tax to its supplier (or remits it directly). In a separated contract (materials and labor separately stated), the contractor is treated as the seller of the materials and must collect tax from the customer on the materials charge only (not on labor), and may give a resale certificate to its own supplier.
By contrast, persons repairing or remodeling nonresidential real property are not treated as contractors — they are selling a taxable service, and the entire charge (materials and labor combined) is taxable to the customer regardless of whether the contract is lump-sum or separated. A remodeler/repairman in this situation may issue a resale certificate for materials incorporated into the property or to other remodelers/repairmen performing part of the taxable service. In all of these situations (contractors and nonresidential remodelers alike), the business is the consumer of equipment and materials that are not incorporated into the real property, and must pay tax on the purchase, lease, or rental of those items.
Wallpaper and carpet installation (treated as real property improvements)
Wallpaper and carpet installation follow the general contractor framework above: for new construction (residential or nonresidential) and residential repair/remodeling, a separately stated materials charge is taxable but the labor charge is not, while a lump-sum price is not taxable at all. For nonresidential repair/remodeling, the full charge — materials and labor together, even if separately stated — is taxable as a service.
Drapery, blinds, delivery, and painting (treated differently — as tangible personal property)
Drapery fabrication/construction is treated as the sale of tangible personal property rather than a real property improvement, so the full charge for materials and labor is taxable (even if separately stated), because labor to fabricate tangible personal property is taxable. Likewise, sale and installation of drapes and/or blinds is treated as a sale of tangible personal property: the full price is taxable whether billed as a lump sum or itemized, and installation labor is taxable when billed by the seller of the taxable item. Delivery and transportation charges billed by a seller of a taxable item are taxable as part of the total price, whether billed as a lump sum or separately stated. For painting, a sale of artwork (a painting) with a labor-only charge is taxable as fabrication labor. But painting of real property is treated under the real-property framework: painting labor is not taxable for new construction (residential or nonresidential) or for repair/remodeling of a residential building, while painting labor for repair/remodeling of an existing nonresidential building is taxable as a service.
Common questions
Q: What local sales tax rate applies to work done in Houston, Katy, or Sugar Land?
A: At the time of this letter, the combined rate was 8.25% in Houston (6.25% state, 1% city, 1% Houston MTA), 8.25% in Katy (6.25% state, 1% city, 1% Houston MTA), and 7.75% in Sugar Land (6.25% state, 1.5% city; Fort Bend County has no county tax). The Comptroller does not maintain boundary maps and directs taxpayers unsure of a boundary to contact the relevant city, county, or MTA.
Q: Where is local tax collected based on — my business location or where the item is delivered/service performed?
A: The Houston MTA tax (and by extension the general rule described) is collected only if a taxable item is delivered into, or a taxable service is performed inside, the MTA boundary — so tax is generally based on the point of delivery or where the taxable service is performed.
Q: Is a sale exempt if I ship it to a customer out of state?
A: Yes. A sale where the seller delivers tangible personal property directly to a customer in another state, or has a common carrier do so, is exempt as an interstate shipment, documented by a bill of lading. But if the purchaser takes possession of the property in Texas, Texas tax is owed even if the purchaser immediately takes it out of state.
Q: Wallpaper is installed by a subcontractor and billed separately for materials on the client's invoice — is that taxable?
A: For new construction or residential repair/remodeling, tax applies to the separately stated materials charge but not the labor charge. For nonresidential repair/remodeling, the full price (materials and labor, even if separately stated) is taxable.
Q: What if the wallpaper job is billed as a single lump-sum materials price instead?
A: For new construction or residential repair/remodeling, no tax is collected on the lump-sum price. For nonresidential repair/remodeling, the full price to perform the service is still taxable.
Q: How is drapery or blind installation taxed?
A: Differently from wallpaper/carpet — drapery/blind sale and installation is treated as a sale of tangible personal property, not a real property improvement, so the full price (materials and installation labor) is taxable regardless of whether it's billed as a lump sum or itemized.
Q: Are delivery and transportation charges taxable?
A: Yes, when billed by a seller of a taxable item, delivery/transportation charges are part of the taxable total price, whether billed as a lump sum with materials or stated separately.
Q: Is painting labor taxable?
A: It depends on what's being painted. Painting a canvas or similar artwork is taxable as fabrication labor. Painting labor on real property is not taxable for new construction or residential repair/remodeling, but is taxable when it's repair/remodeling of an existing nonresidential building.
Citations and references
- 34 Tex. Admin. Code § 3.357(a)(4) (definition of new construction)
- 34 Tex. Admin. Code § 3.357(a)(9) (definition of residential property)
- 34 Tex. Admin. Code § 3.291(a)(5) and (6) (definitions of lump-sum and separated contracts)
Source
- STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
- Opinion: https://star.comptroller.texas.gov/view/9502L1335A05
Original ruling text
February 16, 1995
Dear **:
Thank you for your January 30, 1995, letter concerning sales tax.
Our records do show that your place of business is not inside the City of
Katy. Harris County does not have county sales tax. The Houston MTA tax is
collected only if a taxable item is delivered into or a taxable service is
performed inside the MTA boundary. This means you will generally collect tax
based on the tax rate at the point of delivery or the location where the
taxable service is performed.
The total sales tax rate in Houston is 8.25% (6.25% state tax, 1% city
tax, and 1% Houston MTA tax). The tax rate in Katy is also 8.25% (6.25% state
tax, 1% city tax, and 1% Houston MTA tax). Sugar Land is in Fort Bend County
(no county tax) and has a tax rate of 7.75% (6.25% state tax and 1.5% city
tax). The "Texas Sales and Use Tax Rates" booklet has been forwarded under
separate cover.
We do not have maps to send you showing whether a particular address is
inside a local boundary. If you are in doubt about the location of a
boundary, you can contact that city, county, or MTA for information. We show
that the phone number for the Houston MTA is 713/739- 4000. The phone numbers
for the cities you mentioned are:
Houston 713/247-1247
Katy 713/391-9181
Sugar Land 713/275-2730
If you sell tangible personal property and deliver it directly to a
customer in another state (or have a common carrier deliver it to another
state), the sale is exempt from Texas tax because it is an interstate
shipment. A bill of lading from a common carrier showing that item was shipped
directly to an out-of-state location by a seller is sufficient documentation.
Purchasers taking possession of property in Texas would owe Texas tax on the
purchase even if the tangible personal property is immediately taken by the
purchaser to another state.
The explanation of taxability is the same whether the contract is for new
construction of residential real property, the new construction of
nonresidential real property, or the repair and remodeling of residential real
property. The definition of new construction can be found in Rule 3.357
(a)(4). The definition of residential property is found in (a)(9). Persons
improving real property in these situations are considered contractors. Tax
is due on materials, but the labor to improve real property in these
situations is not taxable. The type of contract (lump-sum or separated)
determines who pays the tax on the materials incorporated into the realty. The
definition of lump-sum and separated contracts can be found in Rule
3.291(a)(5) and (6).
Lump-sum contracts have a single charge that includes both materials and
labor. Separated contracts have a separately-stated charge for materials and
a separately-stated charge for labor. If the contract is lump-sum, the
contractor is the consumer of all materials and does not collect tax. The
lump-sum contractor is responsible for paying tax on the materials to the
supplier or remitting the tax to the state if not collected by the supplier.
If the contract is separated, the contractor is the seller of the materials
and collects tax on the charge for materials, but not for labor. The
separated contractor may give a resale certificate to the supplier.
Persons repairing or remodeling nonresidential real property are not
contractors. They are selling a taxable service regardless of whether the
contract is lump-sum or separated. The total charge (materials and labor) for
the repair or remodeling service is taxable to the customer. The
remodeler/repairman may give a resale certificate for materials incorporated
into the real property or to other remodelers/repairmen who do portions of the
taxable service.
In all the situations above, both contractors and nonresidential
remodelers/repairmen are the consumers of all equipment and all materials that
are not incorporated into the real property. They must pay sales tax on the
purchase, lease or rental of these items. With the information above in mind,
let us examine the taxability in each of the situations you presented:
1) Wallpaper installation contracted from third party and billed
separately on client's invoice.
1 A. Residential and Nonresidential New Construction and Residential
Repair/Remodeling
Collect tax from the client on the separately stated charge for materials
incorporated into the real property. The charge for labor is not taxable.
1 B. Nonresidential Repair/Remodeling
Collect tax from the client on the total price for materials and labor
(even if separately stated) to perform the taxable service.
2) Wallpaper installation contracted from third party and billed as total
material price on client's invoice.
2 A. Residential and Nonresidential New Construction and Residential
Repair/Remodeling
Do not collect tax from the customer on the lump-sum price.
2 B. Nonresidential Repair/Remodeling
Collect tax from the client on the total price to perform the taxable
service.
3) Drapery construction/fabrication contracted through third party billed
separately on client's invoice.
The fabrication and sale of drapes is a sale of tangible personal
property rather than an improvement to real property. Collect tax from the
client on the total price for materials and labor (even if separately stated).
Labor to fabricate tangible personal property is taxable.
4) Drapery and/or blind installation contracted from a third party and
billed as total material price on client's invoice.
The sale and installation of drapes and/or blinds is a sale of tangible
personal property rather than an improvement to real property. Collect tax
from the client on the total price. Labor to install tangible personal
property is taxable if billed by a seller of a taxable item.
5) Drapery and/or blind installation contracted from a third party and
billed separately on client's invoice.
The sale and installation of drapes and/or blinds is a sale of tangible
personal property rather than an improvement to real property. Collect tax
from the client on the total price for materials and labor (even if separately
stated). Labor to install tangible personal property is taxable if billed by a
seller of a taxable item.
6) Carpet installation contracted through third party and billed as the
total material price on client's invoice.
6 A. Residential and Nonresidential New Construction and Residential
Repair/Remodeling
Do not collect tax from the customer on the lump-sum price.
6 B. Nonresidential Repair/Remodeling
Collect tax from the client on the total price to perform the taxable
service.
7) Carpet installation contracted through third party and billed
separately on client's invoice.
7 A. Residential and Nonresidential New Construction and Residential
Repair/Remodeling
Collect tax from the client on the separately stated charge for materials
incorporated into the real property. The charge for labor is not taxable.
7 B. Nonresidential Repair/Remodeling
Collect tax from the client on the total price for materials and labor
(even if separately stated) to perform the taxable service.
- Delivery and transportation of material contracted from a third party
and billed as total material price on clients invoice.
Collect tax on the total price for the sale of tangible personal property
including transportation and delivery.
- Delivery and transportation of material contracted from a third party
and billed separately on client's invoice.
Collect tax on the total price for the sale of tangible personal property
including transportation and delivery (even if separately stated).
Transportation and delivery charges are taxable if billed by a seller of a
taxable item.
- Contracting of third party to do special painting and billed as labor
charge only on client's invoice.
A sale of a painting (artwork) is the sale of tangible personal property
and a charge for labor only is taxable as fabrication labor.
If the painter is instead painting real property, this is an improvement
to real property. If a new residential or nonresidential building is being
painted (i.e., new construction) or if a residential building is repaired or
remodeled by being painted, the painting labor is not taxable. If an existing
nonresidential building is repaired or remodeled by being painted, the labor is
taxable because it is a taxable service.
This opinion is based on the facts you submitted. Other facts, though
similar, may yield different results.
You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct
line is 512/475-0030. You may also write to Tax Administration, Comptroller
of Public Accounts.
Sincerely,
David Somerville
Tax Administration Division
NOTE: Previous Accession Number 9502912L
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