Texas Sales Tax for Contractors: What’s Taxable and When

Short answer: In Texas, whether you charge sales tax depends on what kind of property you worked on. Labor to repair, remodel, or restore residential real property is not taxable, and new construction is not taxable. But the total charge to repair, remodel, or restore nonresidential real property is taxable — labor and materials together. The Texas Comptroller of Public Accounts issues the sales tax permit, and there is no minimum revenue threshold: if you perform taxable services in Texas, you need one.

Texas breaks the rule of thumb most contractors carry around. “Services aren’t taxed” is broadly true elsewhere and flatly wrong for commercial repair and remodeling in Texas. That exception is the highest-risk compliance item a Texas contractor has, because it is invisible until an audit — you either charged it on every commercial job for four years or you did not. The authority is the Texas Comptroller of Public Accounts, with the IRS handling the federal side. For licensing, see Texas contractor license requirements.

Who administers sales tax for Texas contractors?

The Texas Comptroller of Public Accounts. There is no state personal income tax in Texas, so the Comptroller’s contact with a small contractor is mostly sales and use tax, plus the franchise tax return that even small entities may have to file informationally.

The controlling guidance sits in two rules and two publications, and Publication 94-116 cites the rules by name: 34 Tex. Admin. Code § 3.291, Contractors and § 3.357, Real Property Repair, Remodeling, Restoration; Maintenance, alongside Comptroller Publication 94-116, Real Property Repair and Remodeling and 94-157, Homebuilders and Real Property Services. Almost every argument a Texas contractor has with an auditor is settled by one of those four.

Is contractor labor taxable in Texas?

It depends entirely on the property type, and the split is clean:

Work	Taxable?
Repair, remodel, restore residential real property — labor	Not taxable
Repair, remodel, restore nonresidential real property	Taxable on the total charge
New construction — residential or nonresidential	Not taxable
Adding new usable square footage to nonresidential realty	Excluded from the taxable service
Scheduled and periodic maintenance of nonresidential realty	Excluded from the taxable service

The Comptroller’s phrasing for the taxable case is broad on purpose: all charges for labor and materials to rebuild, replace, alter, modify or upgrade existing nonresidential realty are taxable. What that catches is “existing” — the taxable service specifically excludes the addition of new usable square footage, and excludes scheduled and periodic maintenance. Adding floor area is not remodeling; changing what is already there is.

On a nonresidential repair or remodel you collect state sales tax plus the applicable local tax on your total charge for the job. That includes all costs passed on to the customer — labor, materials, equipment, overhead, markup, travel. One carve-out: separately stated building permit fees you pay on your customer’s behalf are excluded from the taxable amount. State them separately or you will end up taxing them.

The other thing to understand: the lump-sum versus separated distinction that governs everything else in Texas construction taxation does not rescue you here. Publication 94-116 puts it without conditions — when you repair or remodel nonresidential real property you collect tax on your total charge for the job. The tax lands on the total either way.

What counts as residential versus nonresidential in Texas?

This definition decides your tax position, so get it right rather than going on instinct.

Residential real property means family dwellings — including apartment complexes, nursing homes, condominiums, and retirement homes. It does not include hotels, or residential property rented for periods of less than 30 days. A short-term rental unit is not residential here, which surprises people renovating them.

Nonresidential real property includes hospitals, office buildings, refineries, warehouses, parking garages, retail shops, restaurants, manufacturing facilities, and other commercial establishments. Hospitals are nonresidential while nursing homes are residential — two things that sound adjacent and land on opposite sides.

For multiple-use property, used for both residential and commercial purposes, the Comptroller asks you to contact them for the applicable guidelines rather than picking a side yourself. Retail below, apartments above is exactly that case.

How does Texas treat new construction?

New construction is not taxable, residential and nonresidential alike. But “new” is narrower than contractors assume: the term new improvements does not include repairs, renovations, or interior remodeling. Adding usable square footage reads as new construction; gutting and rebuilding space that was already there reads as remodeling.

For the related exemption on real property services performed during construction, relief applies only to building a new residential structure — living quarters. Houses, apartments, condominiums, nursing homes, and retirement homes qualify. Hotels, motels, hospitals, rehabilitation centers, prisons, and recreational vehicle parks do not.

Are you the consumer or the retailer of your materials?

For work that is not taxable to the customer — residential repair and remodel, and new construction — Texas answers this through your contract type, and the answer decides who writes the check to the state.

Lump-sum contract (one price for the whole job): you are the consumer of everything incorporated into the real property. You pay sales tax to your suppliers when you buy materials, supplies, equipment, and taxable services. You do not charge your customer tax, and you cannot separately bill them for the tax you paid — it is a cost of doing business that has to sit inside your price.

Separated contract (materials and labor priced separately): you are the retailer of the incorporated materials. You issue resale certificates to suppliers instead of paying tax on materials, then collect state and local sales tax from your customer on the materials portion.

Two practical consequences. On a lump-sum job your material cost is really cost plus tax, so bidding off pre-tax supplier quotes gives away several points of margin. And resale certificates are a system, not a form — issuing one accepts the obligation to collect and remit later.

When do you have to register for a Texas sales tax permit?

The Comptroller’s test is a conduct test, not a size test: you need a permit if you are engaged in business in Texas and you sell or lease tangible personal property in Texas, or sell taxable services in Texas. There is no minimum revenue threshold and no small-seller shelter. One commercial remodel is enough.

Apply through the Comptroller’s online eSystems registration, which is the primary route. Form AP-201, Texas Application for Sales and Use Tax Permit is the paper alternative, and is the required route for applicants without a Social Security number. Allow two to three weeks to receive the permit — worth knowing if you have already signed a commercial job. Check the Comptroller’s permit page for current application requirements before you apply, including whether any security is required in your circumstances.

The obligation that catches people afterward is on the back end: filing is tied to your assigned reporting period, not to whether you had taxable sales. The Comptroller provides a TeleFile phone route specifically for filers with no taxable sales to report, which tells you what it expects — a quiet quarter is a zero return, not a skipped return.

Rates for 2026: the state rate is 6.25%, and local jurisdictions may add up to 2%, for a maximum combined 8.25%. The applicable local rate depends on job location, so a contractor working across a metro area is not applying a single number.

How should this show up on the invoice?

On a taxable nonresidential job the invoice needs the taxable charge, the tax collected, and the rate applied — plus any building permit fee stated separately so it stays outside the tax base. On a lump-sum residential job there is no tax line at all, and adding one is its own error. Your invoice is the primary evidence of the position you took, so it must be unambiguous about which category the job fell into; the general mechanics are in what to include on an invoice.

One note on licensing, because it changes the paperwork: Texas issues no statewide general contractor license. Trade licenses do exist and sit with different agencies — the Texas Department of Licensing and Regulation licenses electricians and air conditioning and refrigeration contractors, while the Texas State Board of Plumbing Examiners licenses plumbers, from apprentice registration through journeyman and master to responsible master plumber. Cities and counties then add their own registration on top. None of that changes your sales tax position, but it means a Texas contractor’s compliance file is assembled from several agencies rather than one.

What records back up the position you took?

Texas sales tax exposure is retrospective. An auditor is not asking what you believe about § 3.357; they want four years of invoices, to test whether the residential/nonresidential call was right and consistent. The documents that decide it are the contract, the invoice, supplier invoices showing tax paid or a resale certificate issued, and any permit fee receipts you passed through.

That is a records problem before it is a tax problem. Keel is an iOS app that runs entirely on the device — no account, no bank connection, no cloud, App Store privacy label “Data Not Collected.” It produces invoice PDFs with your own numbering, logo, and payment-link QR code; captures receipts read on-device with Apple Intelligence; logs mileage; and writes everything into an append-only, hash-chained ledger. Export a full year as one file, or hand over an Accountant Pack. Free is $0 with unlimited invoices, receipts, and mileage; Keel Pro is a one-time $249.99 Lifetime purchase.

Keel is a record keeper, not a compliance tool. It does not register you for a permit, calculate or file Texas returns, or decide whether your job was residential. It keeps the evidence organized so whoever makes those calls works from complete records. Pair it with how long to keep tax records and self-employed tax deductions for the federal side the Comptroller does not touch.

Frequently asked questions

Do I charge sales tax on labor in Texas?

Only on nonresidential work. Labor to repair, remodel, or restore residential real property is not taxable, and neither is new construction. For nonresidential repair, remodeling, or restoration, the total charge is taxable — labor and materials together — and you collect state plus local tax on the whole amount.

Does a lump-sum contract save me tax on a commercial remodel?

No. For nonresidential repair and remodeling the entire charge is taxable whether the contract is lump-sum or separated. Contract structure matters for residential work and new construction, where it decides whether you are the consumer paying tax at purchase or the retailer collecting it from the customer.

Is a short-term rental property residential for Texas sales tax?

No. Residential real property means family dwellings, including apartment complexes, condominiums, nursing homes, and retirement homes, but excludes hotels and residential property rented for periods of less than 30 days. A property in short-term rental use is treated as nonresidential, so repairs there are taxable.

Do I need a Texas sales tax permit if I only do a little commercial work?

Yes. Texas has no minimum revenue threshold for the permit. If you are engaged in business in Texas and you sell taxable services here, you need one — a single commercial remodel is enough. You must then file returns for every assigned reporting period, including periods with nothing taxable to report. Allow two to three weeks for the permit to arrive.

Can I bill my customer for the sales tax I paid on materials?

Not as tax, on a lump-sum contract. There you are the consumer of the incorporated materials and absorb the tax as a business cost — it must be built into your price, not added as a separate tax line. Under a separated contract you use resale certificates and collect tax on materials instead.

Are building permit fees taxable on a commercial job?

Not if you state them separately. The taxable amount on nonresidential repair and remodeling includes all costs passed on to the customer, with an exception for separately stated building permit fees you pay on your customer’s behalf. Roll the fee into a lump total and you lose the exclusion.

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This article is general information, not legal or tax advice. Rules change — confirm with the authority named above.