Is a subcontractor's concrete sawing, breaking, and lifting for a road repair job taxable in Texas, and can the general contractor take a tax credit for it?

Subject

Concrete Sawing, Breaking, And Lifting For Road Repair Is A Taxable Nonresidential Repair Service — No Credit To General Contractor For Tax Paid To Subcontractor

Plain-English summary

The Texas Comptroller addressed a subcontractor whose only job on a road repair project was to saw and cut the concrete road surface, break it up, and lift the broken concrete out of the patch area. The subcontractor did not pour any new concrete and did not haul the old concrete away — those tasks were done by others.

The Comptroller ruled that this sawing, breaking, and lifting work is an essential part of the overall road repair, so the charge the subcontractor makes to its customer is for nonresidential repair, which is a taxable service in Texas. The subcontractor must either collect sales/use tax on the charge or accept proper certification in place of collecting the tax.

Two certification paths were described:

• If the subcontractor contracts directly with a governmental entity, the contract itself is sufficient evidence the service was sold to an exempt entity. If that direct work is done under a verbal agreement instead of a written contract, the subcontractor must get an exemption certificate from the government entity.
• If the subcontractor instead works for a general contractor who is performing the job for the government (which the letter says happens about 95% of the time in this situation), the subcontractor may accept a properly completed, valid resale certificate from the general contractor. If the general contractor refuses to give a valid resale certificate, the subcontractor must collect the applicable state and local tax on the transaction.

The letter also flags a related point for the general contractor: the general contractor cannot take credit for tax paid to the subcontractor, because the subcontractor's cutting, sawing, and lifting work is not itself resold by the general contractor in a taxable transaction. The only way to avoid the sales/use tax in this chain is for the general contractor to issue a proper resale certificate to the subcontractor in the first place.

The Comptroller notes the opinion is based on the facts presented and could change if the facts are different.

What this means for you

Repair subcontractors (sawing, cutting, demolition-type work)

If your work is limited to sawing, breaking, or lifting out concrete (or similar demolition-type steps) as part of a larger repair job — without pouring back materials or hauling debris away — the Comptroller still treats that as taxable nonresidential repair. You need to either collect tax on your charge or get proper certification (a resale certificate from whoever you're contracting with, or an exemption certificate/contract for direct government work).

General contractors hiring subcontractors on government jobs

If you refuse to issue a resale certificate to a subcontractor, the subcontractor is required to charge you tax on its portion of the work. You also cannot later take a tax credit for that tax paid to your subcontractor, because the subcontractor's work is not something you resell as a taxable item — issuing the resale certificate up front is the only way to avoid the tax in this chain.

Accountants and tax professionals

This letter illustrates how Texas treats each link in a repair subcontracting chain separately for nonresidential repair services: a written direct contract with a government entity is itself proof of exempt status, but verbal direct arrangements need a separate exemption certificate, and general-contractor-to-subcontractor arrangements need a valid resale certificate rather than relying on the ultimate government exemption.

Common questions

Q: Is sawing and breaking concrete as part of a road repair taxable in Texas?
A: Yes. The Comptroller found this is an essential part of the road repair and the charge for it is nonresidential repair, a taxable service.

Q: Does it matter that the subcontractor didn't pour new concrete or haul away the old concrete?
A: No. Even though the subcontractor's work was limited to sawing/cutting, breaking, and lifting the concrete out, that work was still treated as an essential part of the taxable repair.

Q: How can a subcontractor avoid charging tax on this kind of work?
A: By accepting proper certification instead of collecting tax: a direct contract (or exemption certificate for verbal agreements) when working straight for a governmental entity, or a properly completed, valid resale certificate when working for a general contractor.

Q: What happens if the general contractor won't provide a resale certificate?
A: The subcontractor must then collect the applicable state and local tax on the transaction.

Q: Can the general contractor later claim credit for the tax the subcontractor collected?
A: No. The letter states the general contractor may not take credit for tax paid to the subcontractor, because the subcontractor's work is not resold by the general contractor in a taxable transaction. Issuing a resale certificate to the subcontractor is the only way to avoid the tax.

Citations and references

No statutes, rules, or other legal authorities are cited in the original ruling text.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9209044L

Original ruling text

September 24, 1992

Dear *:

I am writing in response to your letter questioning the taxability of sawing
and breaking portions of roadways being repaired by another contractor. I
apologize for the delay, but would like to explain that the letter was delayed
in reaching me.

Your client stated that the only work performed by his company is to saw/cut
concrete, break the concrete, and lift the concrete out of the road patches
being repaired. He further stated that he does not "pour back any concrete" nor
"haul any old concrete away." You further explained that the general contractor
has refused to give your client a resale certificate due to problems the
contractor has had in the past with other types of subcontractors.

Cutting and sawing the road surface, breaking the concrete, and then lifting
the concrete from the road patch is an essential part of the road repair. The
charge your client makes to his customer is for nonresidential repair, a
taxable service, and is taxed.

Your client must collect the tax or accept proper certification in lieu of the
tax. When your client is directly contracted with the governmental entity, the
contract is sufficient evidence that the taxable service was sold to an exempt
entity. If the service is performed directly for the governmental entity under
a verbal agreement, then your client must obtain an exemption certificate from
the governmental entity.

You stated that 95% of the time your client is contracted with another general
contractor who is performing the work for the governmental entity. On these
contracts, your client may accept a properly completed and valid resale
certificate from the general contractor. If the general contractor refuses to
issue a properly completed and valid resale certificate, then your client must
collect the -applicable tax (state and local) due on the transaction.

As a side note, the general contractor may not take credit for tax paid to the
subcontractor because the cutting, sawing, and lifting of the concrete is not
resold by the general contractor in a taxable transaction. The only way to
avoid sales/use tax in this situation is for the general contractor to issue
the proper resale certificate to your client.

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

Tax Administration Division