Is a commercial roofing contractor's reroofing, resaturation, regraveling, and panel-replacement work nontaxable 'scheduled and periodic maintenance,' or is it taxable repair/restoration under Rule 3.357?

Plain-English summary

A commercial roofing maintenance contractor wrote to the Comptroller arguing that its work — reroofing, resaturation, regraveling, and replacement of panels — should be treated as nontaxable "scheduled and periodic maintenance" under Rule 3.357, rather than taxable repair or restoration.

The Comptroller disagreed. Rule 3.357 only excuses from tax the kind of maintenance that keeps an improvement "in good working order by preventing the decline, failure, lapse, or deterioration of the improvement" — work done on a prearranged, scheduled timetable. The contractor's own letter described work triggered by a property owner noticing a problem, or by the contractor inspecting the property and finding a need — in other words, degrees of repair performed to keep deterioration that was already happening from getting worse, not work that heads off deterioration before it starts. Because the work wasn't preventive and wasn't performed on a set schedule, it did not qualify as nontaxable maintenance.

As a result, the work is taxable under Rule 3.357: the total charge (materials and labor) is taxable when performed on nonresidential real property, while on residential real property only the materials are taxable and labor is not.

What this means for you

Roofing and other real-property maintenance contractors

Calling your work "maintenance" doesn't make it nontaxable. To qualify as nontaxable "scheduled and periodic maintenance" under Rule 3.357, the work must (1) actually prevent decline, failure, lapse, or deterioration before it happens, and (2) be performed under a contract or agreement on a prearranged, set timetable — not simply whenever a customer notices a problem or you find an issue on inspection. Work that responds to existing deterioration (reroofing, resaturating, regraveling, replacing panels after damage is found) is taxable repair/restoration, not maintenance.

Contractors billing on nonresidential vs. residential jobs

If the job is on nonresidential real property, your total charge — materials and labor — is taxable. If the job is on residential real property, only your materials charge is taxable; your labor charge is not.

Common questions

Q: Is reroofing or regraveling a commercial roof considered nontaxable maintenance?
A: Not under the facts in this letter. Because the work responded to deterioration that had already started, and wasn't performed on a prearranged schedule, the Comptroller treated it as taxable repair/restoration under Rule 3.357.

Q: What makes maintenance "scheduled and periodic" and therefore nontaxable?
A: The property owner and contractor need a contract or agreement to perform the work on a prearranged, set timetable — not work triggered by a customer's complaint or the contractor's own inspection findings.

Q: How is a taxable roofing repair job taxed differently on residential vs. nonresidential property?
A: On nonresidential realty, the whole charge (materials and labor) is taxable. On residential realty, materials are taxable but labor charges are not.

Q: Can I rely on this letter for my own roofing or maintenance business?
A: No. This opinion is based on the facts presented, and the Comptroller notes that different facts, though similar, may result in different answers.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.357 (real property repair and remodeling; nontaxable scheduled and periodic maintenance)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9602L1407E09

Original ruling text

February 23, 1996

Dear ****:

Thank you for your letter dated February 7, 1996, concerning the taxability
of your work as a commercial roofing maintenance contractor.

Although you presented a good argument to support your claim that the work you
perform is nontaxable as scheduled and periodic maintenance under Rule 3.357,
we disagree.

The work as described in your letter is taxable under Rule 3.357. The total
charge is taxable when the repair is performed on nonresidential realty.
Materials are taxable; however, labor charges are not taxable when the repair
is performed on residential realty.

The rule speaks in terms of work performed to keep an improvement "in good
working order by preventing the decline, failure, lapse, or deterioration of
the improvement." Work described in your letter does not aid in preventing
decline and deterioration from happening. In your letter you describe various
degrees of repair that you performed to keep the already occurring deterioration
from getting worse.

The rule requires that nontaxable maintenance be "scheduled" and periodic."
Your letter indicates that a property owner contacts you to perform the work
when they see the necessity or after you have inspected the property and found
the need exists.

Persons providing nontaxable "scheduled and periodic" maintenance would
necessarily have to have a contract or some type of an agreement with a
property owner to perform the work on prearranged, set time table.

This opinion is based on the facts presented and current law. Different
facts though similar, may result in different answers.

You may call or write me for additional information or if you have any
questions. The toll free number is 1-800-531-5441, and my extension is
50330. The direct line is 512/475-0330. You may also write to Tax Policy
Division, Comptroller of Public Accounts.

Sincerely,

Bettie Peterson
Tax Policy Division

NOTE: Previous Accession Number 9602184L