Our company provides a huge bundle of contracted facilities-management services to malls and shopping centers — janitorial, HVAC upkeep, roof/electrical/plumbing repair, painting, parking lot work, landscaping, equipment repair, snow removal, pest control, and more — all separately itemized on our invoices. Which of these services are taxable, and how do we handle sales tax on the supplies and parts we buy to perform them?

Plain-English summary

A facilities-management company under contract to shopping centers and malls asked the Comptroller for a comprehensive taxability review of essentially its entire service menu, plus how to handle sales tax on the supplies, parts, and equipment it uses along the way. This is a dense, wide-ranging letter — worth reading as a reference checklist rather than a single holding.

The core legal framework

Two different Comptroller rules govern this business, with very different consequences:

• Rule 3.356 "real property services" (things like janitorial/custodial work, landscaping, parking-lot-light maintenance, snow removal, pest control) are taxable no matter how often they're performed — being on a regular schedule doesn't make them exempt.
• Rule 3.357 "nonresidential real property repair and remodeling" (roof repair, electrical repair, plumbing repair, painting, parking lot repair/striping, sign repair, lock/hardware changes) is taxable unless the specific work qualifies as genuine "periodic and scheduled maintenance" under Rule 3.357(b)(8) — reactive, as-needed repairs (fixing something that broke or deteriorated) stay taxable even on an otherwise-maintenance contract.

To get the periodic-and-scheduled-maintenance exemption, the customer must be able to substantiate it with maintenance schedules, work orders, or similar evidence, and the contract must separately state the maintenance charge from other taxable charges. Absent a written contract covering the work, the Comptroller said to presume the service is taxable unless the customer provides an exemption certificate.

Service-by-service breakdown

Always-taxable real property services (Rule 3.356), regardless of schedule:
Building lighting maintenance, restroom upkeep, parking lot lights, landscaping (interior/exterior), snow removal, and pest control.

Conditionally-taxable real property repairs (Rule 3.357) — taxable unless genuinely periodic/scheduled and documented as such:

• HVAC rooftop unit work: routine janitorial-level adjustments (like changing filters) are taxable unless done as documented periodic maintenance (e.g., an annual lubrication/cleaning); a licensed HVAC technician actually opening the unit for repair is analyzed the same way.
• Roof repair, electrical repair, sign repair, and door hardware/lock changes: taxable nonresidential real property repair (lock changes for a new tenant are treated as taxable remodeling).
• Plumbing repair: clean-outs performed reactively (because a line is already clogged) are taxable; a truly scheduled clean-out on a fixed interval (e.g., every six months) can qualify as exempt maintenance.
• Interior and exterior painting, and parking lot striping: presumed taxable as repair/remodeling unless it meets the Rule 3.357(b)(8) maintenance definition; painting or striping done specifically to restore something that's deteriorated is taxable.
• Parking lot repair: taxable nonresidential real property repair.

Tangible personal property repair (Rule 3.292), not real property at all:
Equipment repair (generators, man lifts, saws, tools) and amenities repair (food-court furniture, benches, planters, fountains) are taxed as TPP repair/maintenance, not real property services — total charges taxable either way.

Maintenance vehicles — a special case (Rule 3.290):
If the "maintenance vehicle" is itself a motor vehicle, motor-vehicle-repair rules apply instead of ordinary TPP repair rules: labor is not taxable, and if the repair is separately stated, tax applies only to repair parts and shop supplies; if it's a lump-sum repair charge, no tax applies to the lump sum but the company pays tax on the parts/supplies itself. Non-motor-vehicle equipment follows ordinary taxable TPP repair rules.

Equipment rental — depends on who uses it:
If the company rents equipment (lifts, etc.) and uses that equipment itself to perform a service, the rental cost is just an expense of providing that service — whether the customer ultimately owes tax depends on whether the underlying service is taxable, not on the equipment rental itself. If the company simply rents equipment directly to the customer without using it to perform a service, that rental charge is separately taxable as a rental of tangible personal property. Barricades follow the same analysis.

Facts-dependent items: General supplies/repairs and departmental assistance don't have a fixed answer — taxability depends on the specific circumstances (see the supplies-purchasing discussion below for the general-supplies piece), and a charge tied to a taxable service can't simply be carved out of that service's taxable price.

How to handle supplies, parts, and materials

The company must pay sales tax when it buys taxable items (equipment, tools, supplies) except for items that are effectively resold to the customer as part of a taxable service — items that end up in the customer's care, custody, and control. The letter's own example: floor cleaner is taxable to the company because it gets wiped away and consumed, but floor wax that remains on the floor can be bought tax-free for resale. Toilet tissue and light bulbs can likewise be bought tax-free for resale because they're physically transferred to the customer as part of the taxable janitorial/custodial service — and if there's a separate line-item charge for them on the invoice, that charge is simply taxed as part of the total taxable service price, not as an independent TPP sale.

If the company chooses not to give a resale certificate when it could have, it can instead take a credit for tax paid on those resale items when filing its own sales tax return, under Rule 3.338.

For materials the company incorporates into realty as part of periodic/scheduled maintenance, it's treated as a contractor improving realty, and the contract type controls: under a separated contract (materials billed separately from labor), tax is collected on the materials charge and the labor is exempt, with a resale certificate available for those materials; under a lump-sum contract, the company is the consumer of the materials, pays tax on them at purchase, and collects no tax on the lump-sum charge.

Outside of resale items, the company pays tax on all taxable items it buys or rents to perform any service — taxable or nontaxable — even if it separately bills the customer for those items; providing a nontaxable service doesn't change the company's own consumer-use tax liability on the supplies it used. And critically, the Comptroller flatly rejected the company's request to simply stop collecting sales tax on its taxable service charges — tax collection from the customer is a mandatory statutory requirement independent of how the company handles tax on its own resale purchases. If the company is being taxed twice (paying tax on purchase and then also owing tax on the taxable service), its remedy is to go back to the vendor for a refund (using a resale certificate) or take a credit on its own return under Rule 3.338 — not to stop collecting from its own customers.

What this means for you

Facilities-management, janitorial, and maintenance companies serving commercial property

Sort your service menu into the two buckets first: real property services under Rule 3.356 are always taxable no matter how routine, while real property repairs under Rule 3.357 can be exempt only if you can actually document genuine periodic/scheduled maintenance (schedules, work orders, separately-stated contract language) — reactive repair work stays taxable regardless of your contract's overall structure.

Property managers and shopping center owners negotiating service contracts

Push for contracts that clearly separate documented periodic/scheduled maintenance line items from repair/remodeling line items — that separation is what your vendor needs to avoid collecting tax on genuine maintenance work, and it protects you from being charged tax you don't actually owe.

Companies buying supplies/materials to perform mixed taxable/nontaxable services

Apply the "does this item end up in the customer's hands" test: consumed items (cleaners, solvents) are taxable to you at purchase; items that get left with/transferred to the customer (wax, toilet tissue, light bulbs) can be bought tax-free for resale. Materials incorporated into realty follow separate lump-sum-vs-separated-contract sourcing rules, distinct from ordinary consumable supplies.

Accountants and tax professionals advising facilities-services businesses

This letter is close to a complete reference map for a real-property-services-heavy business model: Rule 3.356 vs. 3.357 classification, the periodic-and-scheduled-maintenance carve-out and its documentation requirements, TPP repair under Rule 3.292, motor-vehicle-specific rules under Rule 3.290, and the resale/consumption line for supplies under Rule 3.338 all appear together in one fact pattern.

Common questions

Q: Is a mall's landscaping or snow removal contract taxable even if it's a scheduled, recurring service?
A: Yes — Rule 3.356 real property services are taxable regardless of whether they're performed on a periodic and scheduled basis.

Q: Is roof or plumbing repair always taxable?
A: Only if it's not genuine, documented periodic/scheduled maintenance. Reactive repairs (something broke, a line is already clogged) are taxable; truly scheduled maintenance work, separately stated and substantiated with schedules/work orders, can be exempt.

Q: How do I know whether to pay tax on supplies I buy to perform a service, or buy them tax-free for resale?
A: Ask whether the item ends up in the customer's care, custody, and control (resale-eligible, like wax, toilet tissue, light bulbs) or gets consumed/used up by you in performing the service (taxable to you, like floor cleaner that's wiped away).

Q: Can our company just stop collecting sales tax on our taxable services since we already pay tax on our supplies?
A: No — collecting sales tax from the customer on taxable services is a separate, mandatory legal requirement. If you're being taxed twice, the fix is a vendor refund (with a resale certificate) or a credit on your own return under Rule 3.338, not ceasing collection from customers.

Q: Does it matter whether our repair contract is lump-sum or itemized (separated) for materials incorporated into realty?
A: Yes — under a separated contract, tax applies to the materials charge (with a resale certificate available) and labor is exempt; under a lump-sum contract, the company pays tax on materials at purchase and collects no tax on the lump-sum charge.

Q: Can I rely on this letter for my own facilities-management contract?
A: No. This opinion is based on the facts submitted, and other facts, though similar, may yield different results; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• 34 Tex. Admin. Code Rule 3.356 (real property services — always taxable regardless of schedule)
• 34 Tex. Admin. Code Rule 3.357, including (b)(8) and (c)(2) (real property repair and remodeling; periodic and scheduled maintenance exception and its documentation/exemption-certificate requirements)
• 34 Tex. Admin. Code Rule 3.290 (motor vehicle repair)
• 34 Tex. Admin. Code Rule 3.292 (repair, remodeling, and restoration of tangible personal property)
• 34 Tex. Admin. Code Rule 3.338 (credit for tax paid to suppliers)
• 34 Tex. Admin. Code Rule 3.285 (Resale Certificates; Sales for Resale) — cited via STAR's own ALERT for current care/custody/control guidance (amended 11/01/2017)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9902484L

Original ruling text

ALERT: For specific guidance relating to the care, custody and control of TPP when

providing a taxable service, please see Rule 3.285, Resale Certificates; Sales for

Resale (amended 11/01/2017.

February 25, 1999

Dear **:

Thank you for your July 20, 1998 letter requesting a ruling for your client regarding the taxability of certain services and items.

Facts: Your client ("the Company") is in the business of providing real property services and maintenance services to shopping centers and malls. All services are provided on a contractual basis. Additionally, all services are separately stated in the contract as well as on each monthly billing invoice. The Company operates in SIC Industry Group 7349.

The Company is a corporate taxpayer registered with the Comptroller of Public Accounts. It is currently remitting sales tax on all services provided, rather than on just the taxable services, and fees billed for materials and supplies. In addition, the Company purchases all tangible personal property needed to conduct its services and pays sales tax on the items at the time of purchase. The services include full janitorial services as well as various maintenance services, landscaping and general repair services. Contracts between the Company and its clients typically provide that the Company is responsible for the following services:

HVAC - Roof Top Unit - The Company will provide all labor for cleaning and maintaining each common area rooftop unit.

Roof Repair - Any necessary minor rooftop repairs (i.e., repairs costing $5,000 or less) will be repaired by the Company's on-site staff.

Building Lighting - The Company will provide corrective maintenance to light fixtures as well as lamp replacement for all building lighting.

Electrical Repair - The Company will provide for repair work and/or replace any interior and exterior electrical related items within the customer's property such as neon, wall outlets, ballasts, and switches.

Plumbing Repair - The Company will be responsible for the repairs to the plumbing systems owned by the customer. This includes the clean-out of all necessary sanitary sewer and kitchen waste lines. Also included is the repair of water fountains, graffiti removal and restroom hardware.

Restrooms - The Company will maintain the common area restrooms in a good working order, to include the repair of walls and all fixtures, partitions, plumbing, hand dryers, hardware, etc.

Interior Painting - The Company will provide in-house labor and materials to continuously maintain minor common area painting including all columns, walls, entrances, stairs, hallways, etc.

Exterior Painting - The Company will provide in-house labor and materials for minor exterior entrance painting.

Parking Lot Repair - The Company will provide all necessary minor parking lot repairs. Minor repairs are defined as those repairs not exceeding $5,000. All major repairs will be coordinated through an approved subcontractor and supervised by the Company.

Parking Lot Striping - The Company will provide the labor and materials to stripe approximately one-third of the shopping center's flat surface parking lot and/or the entire surface of a multi-level parking deck on an annual basis.

Parking Lot Lights - The Company will maintain the site lighting for the entire property pursuant to the recommendations set forth by the property owner. All ballasts and fuses for site poles are included.

Landscaping (Interior/Exterior) - The Company will contract with and supervise approved subcontractor to maintain the existing interior and exterior lawns, trees, shrubs, plantings, and beds.

Equipment Repair - The Company will maintain all Shopping Center owned equipment in proper working condition such as emergency generator, man lift, saws, and other mechanical tools with in-house personnel or licensed service contractors.

Sign Repair - The Company will repair/replace any marquee signage, exterior traffic signage such as stop signs, fire lane, etc. This includes interior mall signage (e.g., directories, hall doors, etc.).

Amenities Repair - The Company will make any necessary repairs to the Food Court Area tables/chairs, Common Area benches, exterior Shopping Center owned seating units, trash receptacles, planters, ornamental fountains, and general Shopping Center owned fixtures.

Door Hardware Locks/Keys - The Company will establish a lock and key system to minimize the number of keys in circulation. The Company will also repair or replace any broken lock or door closure that cannot be used due to any safety hazard to the public or security of the property.

Equipment Rental - The Company will be responsible for the rental of all equipment necessary to maintain the common areas. This shall include lift rental for interior, exterior, and parking lot lighting, interior and exterior painting, high dusting and installation of holiday decor.

Snow Removal - The Company will provide, as needed light snow and ice removal in such areas as entrances and sidewalks.

Maintenance Vehicles - The Company will maintain existing Shopping Center maintenance vehicles providing all manufacturers' recommended rough preventative and routine maintenance work.

Barricades - The Company will provide barricades under the direction of the Shopping Center Management.

Pest Control - The Company will coordinate and be responsible for all expenses related to the monthly pest control for common areas to include Service Courts, Service Hallways, Food Court, and Common Area.

General Supplies and Repairs - The Company will provide all supplies and materials needed for a preventative maintenance program which includes performing all corrective maintenance tasks for the common area up-keep.

Departmental Assistance - The Company will provide assistance to other Shopping Center departments (e.g., Marketing, temporary leasing) as directed by Shopping Center management.

Issues:

1) For sales/use tax purposes, how will Texas treat the various activities performed by the Company pursuant to its contracts?

Response: See the attached list "Taxability of Client's Services" for the taxability of the services listed in your letter. The following rules are also enclosed (Rule 3.290, Rule 3.292, Rule 3.338, Rule 3.356, and Rule 3.357 for your information. Please note that real property services under Rule 3.356 are taxable services even if performed on a periodic and scheduled basis.

2) What level of documentation is required to substantiate those activities that are maintenance services and therefore, nontaxable?

Response: For periodic and scheduled maintenance of real property under Rule 3.357, your client's customer must be able to substantiate by way of maintenance schedules or work orders or other evidence that the services meet the definition of periodic and scheduled maintenance.

A contract that separately states the charge for periodic and scheduled maintenance services from the charges for taxable services will allow your client to not collect sales tax on the charge for services qualifying as periodic and scheduled maintenance. The contract should clearly identify the nature of the service and the maintenance service must be performed on a periodic and scheduled basis.

On charges for services under Rule 3.357 that are not covered by a written contract, your client should presume that the service is taxable and collect tax unless the customer provides an exemption certificate stating that the service is periodic and scheduled maintenance. See Rule 3.357(b)(8) and (c)(2).

Real property services covered by Rule 3.356 are taxable regardless of whether the services are performed on a periodic and scheduled basis or not.

3) Assuming that the Company maintains its current practice of charging a fixed, flat fee for materials and supplies, how will sales/use tax be assessed on (1) supplies that the Company uses in rendering its services, (2) items that the Company supplies to the shopping malls (i.e., toilet tissue, light bulbs, etc.), and (3) parts that the Company replaces/installs as part of its repair and maintenance activities? Additionally, must the Company collect sales tax if a "supplies" charge is separately stated on a client's bill?

Response: The Company must pay sales tax on the purchase or rental of all taxable items (e.g., equipment, tools, etc.) other than those items considered resold to the customer. For taxable services, a resale exemption applies to tangible personal property that is transferred to the care, custody, and control of the customer as part of the taxable service. For example, floor cleaners are taxable to the Company because the cleaner is wiped away. A wax that remains on the floor may be purchased for resale. The Company may purchase toilet tissue and light bulbs for resale because these items are transferred to the customer as part of the taxable janitorial and custodial service. If there is a separate charge for these items, the charge is simply taxed as part of the total price of the taxable service.

If your client chooses not to give a resale certificate when purchasing taxable items for resale, your client may take a credit for tax paid on resale items when filing his sales tax return. See enclosed Rule 3.338 regarding credit for tax paid to suppliers.

For situations in which your client is incorporating materials into realty as part of the periodic and scheduled maintenance of real property, your client is treated as a contractor improving realty. The type of contract (lump-sum or separated) determines how tax is paid on the materials. If your client separately states the charge for the materials from the charge for labor, sales tax is collected on the charge for materials. The labor is exempt. A resale certificate may be given for materials incorporated into the realty under a separated contract.

If the contract is lump-sum, your client is the consumer of the materials and pays tax on the materials when purchased. No tax is collected on the lump-sum charge.

Other than the purchases of items for resale, your client must pay sales tax on the purchase or rental of taxable items used in providing taxable and nontaxable services. A person providing a nontaxable service is the consumer of the taxable items used in providing the service even if a separate charge is made to the customer for taxable items used in providing the service.

Your request that your client be allowed to cease collecting sales tax on taxable charges is not possible. The collection of the tax from the customer is a requirement of the sales tax law and is not affected by whether your client pays tax on items purchased for resale. Your client may either go back to the vendor, give a resale certificate, and request a refund from the vendor or your client may take a credit for the tax when filing the sales tax return per Rule 3.338.

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, extension 3-4675. The direct line is 512/463-4675. You may also write to Tax Policy, Comptroller of Public Accounts.

Sincerely,

Tom Soto

Tax Policy Division

Taxability of Client's Services

HVAC - Roof Top Unit - Real property services (janitorial and custodial services) include minor adjustments, maintenance, or repairs as part of the janitorial and custodial service (e.g., changing out air conditioner filters). This is a taxable real property service unless a person certified to work on HVAC systems is opening up the unit to provide repair and maintenance services to the unit. The total charges for real property services are taxable. The total charges for nonresidential repairs are taxable. However, labor for periodic and scheduled maintenance of real property is not taxable. An example of periodic and scheduled maintenance is an annual lubrication and cleaning of the parts inside the HVAC unit. See Rule 3.356 and Rule 3.357.

Roof Repair - Taxable nonresidential real property repair service. Total charges taxable. See Rule 3.357.

Building Lighting - Taxable real property service. Total charges taxable. See Rule 3.356.

Electrical Repair - Taxable nonresidential real property repair service. Total charges taxable. It is unlikely neon lights, wall outlets, ballasts, and switches will be replaced unless they are either malfunctioning (repair) or being replaced with a different model (remodel).

Plumbing Repair - Taxable nonresidential real property repair service. Total charges taxable. The clean outs of the sewer and kitchen waste lines are taxable repairs if performed when the lines are already clogged up rather than on a periodic and scheduled basis (e.g., every six months).

Restrooms - Taxable real property service. Total charges taxable.

Interior Painting - Repainting is presumed taxable as nonresidential repair or remodeling unless it meets the definition of periodic and scheduled maintenance in Rule 3.357(b)(8). If repainting is done as needed to restore paint that has deteriorated, then the total charges are taxable.

Exterior Painting - Repainting is presumed taxable as nonresidential repair or remodeling unless it meets the definition of periodic and scheduled maintenance in Rule 3.357(b)(8). If repainting is done as needed to restore paint that has deteriorated, then the total charges are taxable.

Parking Lot Repair - Taxable nonresidential real property repair service. Total charges taxable.

Parking Lot Striping - Restriping is presumed taxable as nonresidential repair or remodeling unless it meets the definition of periodic and scheduled maintenance in Rule 3.357(b)(8). If restriping is done as needed to restore stripping that has deteriorated, then the total charges are taxable.

Taxability of Client's Services

Parking Lot Lights - Taxable real property service. Total charges taxable. Repair of parking lot lights by an electrician is a taxable nonresidential repair service. Total charges taxable.

Landscaping (Interior/Exterior) - Taxable real property service. Total charges taxable.

Equipment Repair - Taxable repair and maintenance to tangible personal property. Total charges taxable. See Rule 3.292.

Sign Repair - Taxable nonresidential real property repair service. Total charges taxable.

Amenities Repair - Taxable repair and maintenance to tangible personal property. Total charges taxable. See Rule 3.292.

Door Hardware Locks/Keys - Changing the locks out when there is a new lessee for the mall space is taxable as remodeling. Taxable nonresidential real property repair or remodeling service. Total charges taxable.

Equipment Rental - Taxable to client if used by client in performing services including taxable services. Charge for equipment rental is an expense connected to the performance of the service. The taxability of the service will determine whether client must collect tax on the equipment rental charge. If the client simply rents equipment to the customer without using it to perform services, the charge is taxable as a rental of tangible personal property.

Snow Removal - Taxable real property service. Total charges taxable.

Maintenance Vehicles - Taxable repair and maintenance to tangible personal property unless maintenance vehicle is a motor vehicle. Total charges taxable if not a motor vehicle. The labor to repair a motor vehicle is not taxable. If the motor vehicle repair is a separated repair, tax must be collected on charges for repair parts and consumable shop supplies (e.g., nuts, bolts, WD-40, etc.). If the motor vehicle repair is lump-sum, no sales tax is collected on the lump-sum charge and your client must pay tax on the parts and shop supplies. See Rule 3.290.

Barricades - See explanation regarding "equipment rental" above.

Pest Control - Taxable real property service. Total charges taxable.

General Supplies and Repairs - Taxability depends on the circumstances of the service. See the response to question three of your letter.

Departmental Assistance - Taxability depends on the circumstances of the service. If related to the performance of a taxable service, the charge may not be excluded from the total price of the taxable service.