Are you still asking "Can I expense this...?" Use our free tool!
Ask three Texas contractors whether labor is taxable, and you’ll get four answers, one of them from a brother-in-law who “did the books for a while.”
The confusion is fair. Texas sales tax on labor doesn’t follow one rule. It follows the building you’re working on, the kind of work you’re doing, and how you wrote the invoice. The same two hours of work on the same water heater can be taxable on Tuesday and tax-free on Wednesday, depending on whose address is on the work order.
So let’s walk through when labor is taxable in Texas for HVAC, plumbing, and electrical contractors, and where DFW trades businesses tend to get it wrong.
Labor is not taxable in Texas when you repair or remodel a home, and it is taxable when you repair or remodel a commercial building. That one split answers most of the question.
It comes straight from the Texas Tax Code. The statute makes “real property repair and remodeling” a taxable service, then defines it as work on an improvement to real property “other than” a structure “used as a residence.” Homes are carved out. Everything else is in.
When tax does apply, it isn’t small. Texas charges a 6.25% state rate, and cities, counties, and transit authorities can add up to 2% more, for a maximum combined rate of 8.25%, per the Texas Comptroller. On a commercial rooftop unit swap, that’s real money, and the rules put you on the hook for collecting it.
The rest of the rules sort your jobs into four buckets, starting with the easy one. Get the bucket right and the tax usually takes care of itself.
The Comptroller’s contractor guidance puts it plainly: “Labor to repair, remodel, or restore residential real property is not taxable.” That covers houses, apartment complexes, condos, nursing homes, and retirement homes, per Publication 94-116. It doesn’t have to be the owner’s own home, so a rental duplex counts.
Two exceptions trip people up. Hotels and “residential properties rented for periods of less than 30 days” are not residential for this rule. That short-term rental in the Near Southside is nonresidential property with a nice throw pillow.
On residential work, you’re treated as a contractor, and what you pay tax on depends on how you bill. The next section covers how that works, because it’s the same setup for new construction.
Building something new is not taxable labor either. The Comptroller lists “building new structures,” “completing unfinished structures,” and initial finish out as jobs where “your construction labor is not taxable.” For an electrician wiring a new build in Walsh Ranch, the labor is out.
Materials are a different story, and your contract decides who pays. Under a lump-sum contract (one price for the whole job), you’re the consumer of the materials. You “pay tax on all your supplies, materials, equipment, and taxable services when you buy them,” and you don’t charge your customer tax.
Under a separate contract, with materials and labor listed apart, you’re the seller of the materials. You buy them with a resale certificate, then collect sales tax from your customer on the materials, and “the construction labor charge is not taxable.” One catch: your materials charge “must be at least as much as you paid for them.” No selling copper at a loss to dodge tax.
Neither option is wrong. They just need to match what your invoices actually say. Collecting tax on a lump-sum residential job, for example, is tax the Comptroller’s contractor rule says you can’t keep.
On nonresidential property, the Comptroller says “the total amount charged for remodeling, repairing, or restoring nonresidential real property is taxable.” Offices, warehouses, retail shops, restaurants, and anything else commercial fall here.
“Total amount” is the phrase that hurts. It’s not just the parts. It’s labor, trip charges, and “all costs passed on to your customer,” with one exception for separately stated building permit fees. The lump-sum versus separated distinction you just learned “is no longer valid” on commercial repair work, according to 34 TAC 3.357. It’s all taxable.
That same rule says anyone who repairs or remodels commercial property “must obtain Texas sales and use tax permits.” If your HVAC company does service calls on strip centers and doesn’t have a permit, that’s a conversation worth having before the state starts it.
Let’s look at an example. A Fort Worth HVAC shop replaces a compressor at a dentist’s office and bills $3,800 for parts and labor. Because the building is commercial, the whole $3,800 is taxable at the combined state and local rate. The same compressor swap at the dentist’s house, billed on a separated contract, carries tax on the parts only. Same tech, same truck, same compressor, different tax bill.
Mixed jobs have a rule too. When one charge covers new construction plus remodeling, and the remodeling is more than 5% of the total, the Comptroller presumes the whole charge is taxable. Break those pieces out on the invoice and you only tax the part that’s actually taxable, which brings us to the one kind of commercial work that isn’t taxable at all.
Scheduled maintenance on commercial property is not taxable labor. The Comptroller defines it as “scheduled, periodic work on real property that is not broken,” and says “charges for maintenance of real property are not taxable.” Parts you install along the way are still taxable.
The hard part is proving it. You need “a contract or other documentation to prove that the services are scheduled and periodic.” The state rule goes further: if you don’t have a written contract and you’re “only hired on a per job basis,” you “must presume that the service is repair or restoration and must therefore collect tax.”
For HVAC companies, that’s the whole argument for a written maintenance agreement. A quarterly filter-and-coil plan on a restaurant’s units, written down with a schedule, can qualify as maintenance. A “come look at it, it’s making a noise” call is repair, and it’s taxable.
A few more presumptions work the same way. Repainting is “presumed to be a restoration or remodeling activity.” Work on a building that’s part home and part business is “taxable in total unless the labor on the residence is separately identified.” In every case, the invoice has to say what the job really was. The next section covers work that never touches the building at all.
Everything above is about work on real property, meaning the building and what’s built into it. Repairing tangible personal property, meaning something that isn’t attached, is a separate taxable service under the Tax Code.
For those jobs, 34 TAC 3.292 says tax is due “on the entire charge,” including “any separately stated charge for materials, parts, labor.” Residential or commercial doesn’t matter here. If a plumber repairs a customer’s portable pump on the bench, the labor is taxable even if it came out of a house in Keller.
Where the line sits between “attached to the building” and “not attached” can get technical, especially with equipment that’s bolted down but could come out. That’s a good question for your CPA before you set up your invoice templates, not after a Comptroller auditor asks.
There’s also one break worth knowing about. After a declared disaster, “the labor to repair nonresidential property damaged in an area declared a natural disaster by the President of the United States or the Governor of Texas is not taxable,” as long as labor is separately stated. The materials are still taxable. North Texas hail season makes that one more relevant than anyone would like. Whether you can claim any of these breaks comes down to what’s on paper.
Good sales tax compliance for trades contractors mostly lives in your invoices and your books, not your memory. The rules above all come down to what you wrote down and when.
A few habits cover most of it. Tag every job as residential, commercial, new construction, or maintenance when it’s booked, not when it’s billed. Break out materials and labor on invoices so you can prove which part is which. Keep signed maintenance agreements on file. And track which city each job is in, since local rates vary across DFW.
This is where good Fort Worth bookkeeping earns its keep. When your job types and sales tax codes are set up correctly in QuickBooks, your sales tax return nearly writes itself. When they aren’t, small errors repeat across hundreds of invoices, and the state notices before you do. We covered that risk briefly in our look at new tax rules in Texas for 2026, and it’s the most common sales tax problem we see.
Our HVAC accountants and accountants for plumbers work with DFW trade businesses year-round, so sales tax gets set up right once instead of fixed every quarter.
If you’re not sure whether your invoices are collecting the right tax on the right jobs, reach out to our team and we’ll look at how your billing is set up, depending on your situation, before the Comptroller does.
Adam Traywick, CPA is the President and founding CPA of Adam Traywick, LLC, a Adam Traywick CPA small-business accounting firm. He has over 20 years of experience helping small business owners across home-services trades, hair salons, real estate, and insurance agencies optimize taxes, run cleaner books, and avoid the surprises that come from once-a-year accountants.
