Did federally mandated accessibility work on a nonresidential Texas business qualify for a sales-tax exemption?

Plain-English summary

The total charge to repair, remodel, or restore nonresidential real property was taxable. The Comptroller said no exemption applied merely because federal law mandated the work instead of the owner choosing it.

Residential remodeling was treated like new construction: labor was not taxed, while materials were taxed to the end consumer. Under a lump-sum contract the contractor was the end consumer; under a separated contract the property owner or customer was.

The letter also explained that apartment buildings and similar multifamily dwellings were commercial realty but counted as residential realty for sales-and-use-tax purposes.

What this means for you

The reason for a nonresidential renovation did not change the tax treatment. Legally required accessibility work was still taxable repair or remodeling on the facts presented.

Common questions

Was mandated nonresidential remodeling exempt? No.

Was residential remodeling labor taxable? No; the materials were taxed to the end consumer.

Were apartment buildings residential for this tax rule? Yes, even though they were commercial realty.

Citations and references

The letter cited no specific statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9203L1167B07

Original ruling text

March 12, 1992

Dear **:

I am responding to your letter requesting whether sales or use tax is due
on commercial construction required by federal mandate in order to bring a
place of business into compliance with the American Disabilities Act.

The total charge to repair, remodel, or restore nonresidential
improvements to realty is taxed. No exemption is available for these
improvements even though they are by mandate and not by choice.

However, I should point out that tax is due on the total charge for
nonresidential remodeling, repair, etc. The charge for residential remodeling,
repair, etc. is taxed in the same manner as new construction; the labor is not
taxed, but the materials are taxed to the end consumer. A lump-sum contractor
is the end consumer, while the property owner/customer is the end consumer
under a separated contract.

Please note that commercial properties may fall into the nonresidential
category or residential category. Apartment buildings and other similar
multi-family dwellings are commercial realty, but for sales and use tax
purposes, they are considered residential realty.

This opinion is based on the facts that you presented. If there are
additional or different facts, this opinion may change.

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division