Is sales tax due on remodeling work done to bring a nonresidential building up to code after a citation for a code violation?

Plain-English summary

The Texas Department of Licensing & Regulation cited an office building for several code-compliance violations tracing back to its original 1984 construction — most specifically, sill gaps between an elevator cab and the hoistway that had existed since the building was built and needed to be closed. The building owner asked whether sales tax was owed on the remodeling work to fix these violations, reasoning that they weren't part of the original construction and didn't meet code, so fixing them felt more like a mandatory compliance fix than ordinary taxable remodeling.

The Comptroller's answer was straightforward: the total price — labor and materials both — to repair or remodel nonresidential real property is subject to sales tax, because nonresidential real property repair and remodeling is itself a taxable service under 34 TAC § 3.357. Bringing a building up to code is not exempt from sales tax. The letter draws no distinction for work that's regulatory-driven versus discretionary — the taxable-service classification turns on the nature of the work (repair/remodeling of nonresidential real property), not on why the owner is doing it.

What this means for you

Commercial building owners facing code-violation citations

Don't expect a sales tax break just because a repair is mandated by a building-code citation rather than chosen voluntarily. If the fix is repair or remodeling of nonresidential real property, the full labor-and-materials price is taxable under Rule 3.357.

Contractors performing code-compliance repair work

Bill and collect sales tax on the total price for nonresidential code-compliance repair jobs the same as you would for any other nonresidential repair or remodel — there's no special exemption category for "bringing up to code" work.

Accountants and tax professionals

This letter is a clean, narrow confirmation that regulatory necessity doesn't create a sales tax carve-out; the Rule 3.357 nonresidential repair/remodeling classification applies regardless of the reason for the work.

Common questions

Q: Is sales tax due on repairs required by a building code citation?
A: Yes — repair or remodeling of nonresidential real property is taxable under Rule 3.357 regardless of whether the work is required by a code citation.

Q: Does it matter that the violation predates the current owner or wasn't part of the original construction?
A: No — the letter draws no such distinction; the tax applies to the labor-and-materials price of the repair/remodeling work itself.

Q: Is there any exemption for "bringing a building up to code"?
A: No. The letter explicitly states that bringing a building up to code is not exempt from sales tax.

Q: Can other building owners rely on this exact letter?
A: No. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10); confirm your own facts with a tax professional.

Citations and references

Rules:

• 34 Tex. Admin. Code § 3.357 (Nonresidential Real Property Repair or Remodeling)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200009718L

Original ruling text

September 19, 2000

From: Emilio Lerma

To: **

Subject: State Sales Tax

Dear **:

I am responding to your e-mail regarding sales tax on nonresidential
remodeling.

You state that your office building was cited for non-compliance with building
codes and would like to know if you must pay sales on the remodeling job to
bring the building up to code. Specifically you need to close the sill gaps
between the elevator cab and the hoistway.

The total price (labor and materials) to repair or remodel nonresidential real
property is subject to sales tax because nonresidential real property repair
and remodeling is a taxable service. See Rule 3.357 concerning nonresidential
repair or remodeling. Bringing a building up to code is not exempt from sales
tax.

To view or down load Rule 3.357, please go to our web site address at
and scroll
to the specific rule.

This opinion is rendered based on the facts presented. Other facts though
similar, may yield different results.

If you have any questions or require additional information, you may submit
inquiries to our tax help Internet address at , call
1-800-531-5441, extension 6-5809 or write to Tax Policy Division, Post Office
Box 13825, Austin, Texas 78711-3825.

Sincerely

Emilio S. Lerma
Tax Policy Division

On Tue, 12 Sep 2000 15:47:23 -0500 ** wrote:

The Texas Department of Licensing & Regulation has cited my office building for
several non-compliance items relating back to the original construction in
1984. These violations must be corrected or we are subject to fines. In that
the items were not part of the original construction and do not meet code, is
it necessary to pay Texas State Sales Tax to correct these items? The most
specific item is to close sill gaps between the elevator cab and the hoistway.
This gap has been in existence since original construction.

Thanks for you help.