A retailer of new and used manufactured homes repairs/renovates used units before resale, moves and installs units for customers, and a real estate lessor repairs and adds on to rental property — how does Texas sales tax apply to the labor and materials in each of these situations?

Plain-English summary

This letter corrects an earlier May 22, 1992 letter (fixing paragraphs 3 and 4) and answers several distinct questions from a taxpayer's representative about how Texas sales tax applies to a manufactured-home retailer and to a real estate lessor. It covers five separate scenarios:

1. Repairing/renovating used manufactured homes before resale. The taxpayer's client is a retailer of new and used manufactured homes. The Manufactured Housing Sales Tax applies when a manufacturer sells, ships, or consigns a new manufactured home to a retailer or other person in Texas, and the manufacturer collects that tax from the retailer/purchaser. A later resale of that home is not taxable, and tax is also not due on the sale of a used unit. Most units the retailer acquires need repair/renovation before resale. If the retailer's own employee does the repair, the retailer pays tax to its supplier when buying the repair materials. If the retailer hires someone else to do the repair, tax is due only on the materials (the labor is not taxable because it's treated as repair to residential real property) — and who owes that materials tax depends on whether the contract is separated (retailer owes tax on the materials) or lump sum (the service provider owes tax to its own supplier).

2. Moving and installing units for a customer. Labor charges for moving and installing a manufactured home are not taxable, regardless of whether an employee or a non-employee does the work. Tax is due on the materials used in installation (e.g., blocks, ties, leveling devices). On a separated contract, the retailer can issue a resale certificate to its supplier and instead charge the customer tax on the materials; on a lump-sum contract, the retailer owes the tax to its supplier when buying the materials.

3. Moving a unit from one location and installing it at another, billed lump sum. Here the retailer owes tax to its supplier on the materials and does not charge the customer tax on the lump-sum charge — again regardless of whether the labor is performed by an employee or a non-employee.

4. A real estate lessor's repair and upkeep of rental property. For residential rental property, tax is due only on separately stated materials charges; if the lessor's own employees do the work, the lessor pays tax to its supplier on the materials, and if the lessor contracts out the work, tax is due on the materials under a separated contract (or the service provider owes tax on the materials under a lump-sum contract). For non-residential rental property, tax is due on both labor and materials: if the lessor's employees do the work, the lessor pays tax to the supplier on materials; if the lessor contracts out the work, tax is due on the entire charge, whether the contract is separated or lump sum.

5. Additions to residential and commercial real property. Adding new square footage to an existing structure is "new construction." New construction labor is never taxable, but the materials are. On a separated contract, the contractor may issue a resale certificate to its supplier and the client owes tax on the separated materials charge; on a lump-sum contract, the contractor is considered the consumer of the materials and owes tax to its supplier at purchase.

The letter closes by noting the opinion is based on the facts presented and could change with additional or different facts.

What this means for you

Manufactured home retailers/dealers

Whether tax applies to repair work you do to used or repossessed units before resale — and who owes it — turns on two things: (1) whether you use your own employees or an outside contractor, and (2) whether any outside contract is separated (labor and materials billed separately) or lump sum. Repair labor itself is never taxed (it's treated as repair to residential real property), but materials generally are, and the party responsible for remitting shifts depending on contract structure.

Movers/installers of manufactured homes

Installation labor (blocks, ties, leveling, etc.) is not taxable whether performed by employees or outside labor, but the installation materials are. Keep contracts separated if you want to pass the materials tax directly to the customer via a resale certificate; a lump-sum contract instead makes you responsible for paying tax to your own supplier.

Landlords/lessors of residential and non-residential property

Residential repair and upkeep is taxed only on separately stated materials — labor is not taxed. Non-residential repair and upkeep is taxed on both labor and materials, and if you contract out the work, tax applies to the entire charge regardless of how the contract is billed. This is a meaningfully different (and generally higher) tax burden for non-residential rental repairs.

Contractors doing new construction / additions

Adding square footage to an existing structure is new construction: labor is never taxable, but materials are, and whether you or your client owes the materials tax depends on whether the contract is separated or lump sum.

Common questions

Q: Is tax due when a manufactured-home retailer resells a used or repossessed home?
A: No. A subsequent sale of the home is not taxable, and tax is also not due on the sale of a used unit (though the Manufactured Housing Sales Tax applies to new homes when the manufacturer sells/ships/consigns them to a retailer).

Q: Is labor to repair a used manufactured home before resale taxable?
A: No — the labor is considered repair to residential real property and is not taxable. Materials used in the repair generally are taxable, with the responsible party depending on whether an employee or outside contractor did the work and whether any contract is separated or lump sum.

Q: Is the labor to move and install a manufactured home taxable?
A: No, whether performed by an employee or a non-employee. Materials used in installation (blocks, ties, leveling devices) are taxable.

Q: Does it matter if the retailer bills the customer a separated price or a lump-sum price for moving/installing a home?
A: Yes. On a separated contract, the retailer can use a resale certificate with its supplier and instead charge the customer tax on the materials. On a lump-sum contract, the retailer itself owes tax to its supplier when it buys the materials.

Q: How does repair and upkeep of rental property get taxed differently for residential versus non-residential property?
A: Residential rental repair/upkeep is taxed only on separately stated materials charges (labor is untaxed). Non-residential rental repair/upkeep is taxed on both labor and materials, and if the work is contracted out, tax applies to the entire charge regardless of contract billing method.

Q: Is labor to add new square footage to an existing building taxable?
A: No — that is treated as new construction, and new construction labor is never taxable. The materials used, however, are taxable.

Q: Can this taxpayer's representative or anyone else rely on this letter for their own facts?
A: No. The letter states the opinion is based on the facts presented, and the opinion could change if there are additional or different facts. Under STAR's rules, only the taxpayer to whom a letter was directly issued can rely on it for detrimental-reliance purposes.

Citations and references

No specific statutes or rule numbers were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9206L1176G07

Original ruling text

June 21, 1992

Dear **:

This is to correct my letter of May 22, 1992. Corrections have been made to
paragraphs 3 and 4. The corrected letter is repeated below.

In your first example, your client is a retailer of new and used manufactured
homes. The Manufactured Housing Sales Tax is imposed on every new manufactured
home that is sold, shipped, or consigned by a manufacturer to a retailer or
other person in Texas. The manufacturer is responsible for collecting the tax
from the retailer or other purchaser. A subsequent sale of the home is not
taxable. Tax is also not due on the sale of a used unit.

You state that most of the units your client obtains will require
repair/renovation to place the units in condition for resale. If the repair is
made by the retailer's employee, the retailer must pay tax to the supplier when
purchasing repair materials. If the retailer contracts with someone else to
perform the repair, then tax would be due on the materials only. The labor
would not be taxable because it is considered repair to residential real
property. If the contract to the retailer is separated, then the retailer would
owe the tax on the materials; if the contract is lump sum, then the service
provider owes tax to his/her supplier.

You next asked about the taxability of the retailer moving and installing the
units. There is no tax due on the labor charge for moving and installing the
units, whether performed by an employee or non-employee. There is tax due on
the materials used in the installation (e.g., blocks, ties, leveling devices).
If the retailer bills the customer using a separated contract, the retailer may
issue a resale certificate to the supplier and charge tax to the customer for
the materials. If the retailer bills lump sum, the retailer owes tax to the
supplier when purchasing the materials.

In your fourth situation, the retailer moves a unit from one location and
installs it at another location, making a lump-sum charge for both labor and
materials. The retailer owes tax to the supplier for the materials and does not
charge tax on the lump-sum charge to the customer. It makes no difference if
the labor is performed by an employee or non-employee.

Lastly, you stated you have a client who is the lessor of real estate. You
asked about repair and upkeep of the rental property, both residential and
non-residential. For repair and upkeep of residential property, tax is due only
on separately stated charges for materials. If the work is done by your
client's employees, your client must pay tax to the supplier when purchasing
the materials. If your client contracts with someone else to perform the work,
then tax would be due from your client on the charge for materials in a
separated contract; if the contract is lump sum, then the service provider owes
tax on the materials to the supplier. For repair and upkeep of non-residential
property, tax is due on both labor and materials. If the work is done by your
client's employees, your client must pay tax to the supplier when purchasing
the materials. If your client contracts with someone else to perform the work,
then tax is due on the entire charge to your client, whether the contract is
lump sum or separated.

You also asked about the tax consequences when additions are made to
residential and commercial real property. If you are referring to "the addition
of new footage to an existing structure", then this is "new construction".
There is no tax due on new construction labor; but the materials are taxable.
If your client is billed on a separated contract, the contractor may issue a
resale certificate to the supplier and your client will owe tax based on the
separated charge for the materials. If your client is billed lump sum, the
contractor is considered the consumer of the materials and owes tax to the
supplier at the time of purchase.

This opinion is based on the facts presented. If there are additional or
different facts, the opinion could change.

If you have any questions, please don't hesitate to write the Tax
Administration Division or call one of our tax specialists toll free at
1-800-252-5555.

Sincerely,

Joan Hale
Tax Administration Division