Did workers' compensation premiums included in a roofer's lump-sum contract enter the taxable sales price?

Plain-English summary

The roofer performed residential and nonresidential repair and remodeling under lump-sum contracts and included employee workers' compensation premiums in each job's cost.

For residential roofing, the letter said the contractor did not charge the customer tax on the lump-sum contract. The contractor instead paid tax on purchased materials, labor was nontaxable, and the embedded insurance premiums were not separately taxed.

For nonresidential or commercial roofing, both materials and labor were taxable. The customer owed tax on the entire lump-sum contract, which meant the premiums included in that total were also within the taxed amount.

Common questions

Were residential lump-sum roofing contracts taxed to the customer? No, under the letter's facts.

Who paid tax on residential-job materials? The contractor.

What happened on commercial roofing contracts? The entire lump-sum amount was taxable, including the embedded premiums.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8907L0973A05

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

July 27, 1989

Dear ****:

I am responding to your letter of July 20, 1989, and our subse-
quent telephone conversation of July 26, 1989, wherein you
requested a ruling on the taxability of workman's compensation
insurance premiums.

Initially, I would like to review the facts as I understand them.
You own a roofing company that performs repair and remodeling jobs
as opposed to new construction. Your company does both
residential and non-residential roofing, all of which are billed
on a lump-sum basis. You include as part of the cost of a job,
the workman's compensation insurance premiums on your employees.

On residential roofing contracts, you would not charge your
customer tax on a lump-sum contract. You would pay tax on the
materials that you purchased for the job. The labor is non-
taxable. Because the contract is lump-sum and non-taxable, you
would not charge sales tax on the workman's comp premiums included
in the cost of the job.

On non-residential or commercial roofing contracts, both materials
and labor are taxable. Therefore, on a lump-sum contract you
should charge your customer tax on the entire amount of the
contract. Because the workman's comp premiums are included in the
contract, you are charging tax on these premiums when you charge
tax on the lump-sum contract.

I have enclosed for your reference, Sales Tax Rules 3.291 and
3.357 on contractors, and real property repair and remodeling,
respectively. I have also enclosed a Texas Tax Bulletin covering
these same topics.

The above response is based on the facts provided. Any changes to
these facts may cause this response to change. If you have any
questions, please contact Tax Correspondence. You may call toll
free 1-800-252-5555. My extension is 34608.

Sincerely,
Brad Gabbart
Tax Correspondence