Is painting, patching, and seal coating work on a neglected strip shopping center's walls and parking lot considered nontaxable maintenance, or is it taxable repair/remodeling/restoration?

Plain-English summary

The taxpayer asked the Texas Comptroller's Tax Policy Division whether certain work on an existing strip retail shopping center qualified as nontaxable "maintenance of real property." The work included painting existing tilt and plaster walls, patching, seal coating and striping the parking lot, replacing a cap on a parapet wall, replacing existing canvas awnings and parking light poles, and patching concrete wall panels. The taxpayer explained that this work was needed because maintenance on these items had been neglected and deferred for many years, though the wall painting and parking lot seal coating would be scheduled and periodic going forward.

The Comptroller held that these services are taxable repair, remodeling, and restoration — not nontaxable maintenance — because they don't meet the definition of maintenance in Rule 3.357(a)(4), which defines maintenance as "scheduled, periodic work necessary to sustain or support safe, efficient, continuous operations, or to prevent the decline, failure, lapse, or deterioration of the improvement." The letter emphasizes that maintenance carries the understanding that the work is ongoing, continual, or at least recurs with some frequency. Here, there was no documentation (such as a contract or agreement with lessees or service providers) showing the work had been periodically scheduled, and the taxpayer's own letter described the work as "taking care of serious deferred maintenance items that have been neglected for many years." Because the work did not meet the maintenance definition, it fell into one of these taxable categories instead:

• Repair — mending or bringing real property that was broken, damaged, or defective as near as possible back to its original working order.
• Remodeling or modification — making over, rebuilding, replacing, or upgrading existing real property.
• Restoration — bringing real property that is still operating and functional, but has faded, declined, or deteriorated, as near as possible back to its original condition.

The letter also notes that once the strip center is brought back to good working order through this repair/restoration/remodeling work, future scheduled, periodic work — such as repainting the walls (without remodeling) or seal coating and striping the parking lot — can then qualify as nontaxable maintenance. In that case, the labor for the future maintenance work would not be taxable, though tax would still be due on the materials used to perform it.

What this means for you

Property owners and property managers

If you've let real property maintenance lapse for years and now need catch-up repair work, don't assume that work qualifies for nontaxable maintenance treatment just because the individual tasks (painting, seal coating, patching) sound routine. The Comptroller looks at whether the work was actually scheduled and periodic before it was performed — a one-time catch-up project addressing years of neglect is taxable repair, remodeling, or restoration, not maintenance.

Contractors performing repair and restoration work

Be prepared to charge and collect tax on repair, remodeling, and restoration services performed on real property, even when the tasks (like painting or seal coating) resemble maintenance tasks. What matters is whether there's documentation — a contract or service agreement — showing the work is part of an ongoing, periodic maintenance schedule, not a one-off correction of deferred deterioration.

Accountants and tax professionals

Advise clients that after a property has been brought back to good condition through taxable repair/restoration/remodeling work, subsequent scheduled, periodic work (like routine repainting or periodic seal coating and striping) can then be treated as nontaxable maintenance labor under Rule 3.357(a)(4) — but materials used in that future maintenance remain taxable regardless.

Common questions

Q: Does painting a building's walls automatically count as nontaxable maintenance?
A: No. Painting only qualifies as maintenance if it's scheduled, periodic work done to prevent deterioration — not a one-time job to fix walls that were neglected for years. Since there was no documentation that this painting had been periodically scheduled, it was taxable repair/restoration instead.

Q: What's the legal definition of "maintenance" that the Comptroller applied?
A: Rule 3.357(a)(4) defines maintenance as "scheduled, periodic work necessary to sustain or support safe, efficient, continuous operations, or to prevent the decline, failure, lapse, or deterioration of the improvement."

Q: If the work is deferred maintenance that's been neglected for years, can it still be nontaxable?
A: No. The letter states that maintenance implies the work is ongoing, continual, or at least recurs with some frequency. Deferred, neglected work that's finally being addressed as a one-time catch-up project does not meet that standard and is taxable as repair, remodeling, or restoration.

Q: Once the deferred work is done, does future upkeep get taxed the same way?
A: No. Once the property is repaired, restored, and remodeled to good working order, future scheduled and periodic work (like repainting the walls without remodeling, or seal coating and striping the parking lot) can qualify as maintenance. In that case, labor is not taxable, but tax is still due on the materials used.

Q: What kinds of work were at issue in this letter?
A: Painting existing tilt and plaster walls; patching, seal coating, and striping the parking lot; replacing a cap on the parapet wall; replacing canvas awnings and parking light poles; and patching concrete wall panels.

Citations and references

Regulations:

• 34 Tex. Admin. Code § 3.357(a)(4) (definition of maintenance)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9508L1366B05

Original ruling text

August 17, 1995

Dear **:

Thank you for your letter of July 11, 1995. You asked whether any
of the following services qualify as nontaxable maintenance of real
property.

As I understand it, the work you are performing is on an existing
strip retail shopping center. Your customer objects to tax on a
portion of the work relating to painting existing tilt and plaster
walls and patching, seal coating, and striping the existing parking
lot. Other work included in the contact consists of replacing a cap
on the parapet wall, replacing existing canvas awnings, parking light
poles and patching concrete wall panels. This work is necessary
because maintenance to these items was neglected and deferred for
many years. The wall painting and parking lot seal coating will be
scheduled, periodic and predictable in the future.

The services are repair, remodeling, and restoration because they do
not meet the definition of real property maintenance. Therefore, the
services are taxable.

Rule 3.357 (a)(4) defines maintenance as: "... scheduled, periodic
work necessary to sustain or support safe, efficient, continuous
operations, or to prevent the decline, failure, lapse, or
deterioration of the improvement." (emphasis added)

I understand from my telephone conversations with you and *
that there is no documentation (i.e., a contract or other
agreement with lessees or with service providers) that this work
has been periodically scheduled to prevent the decline or
deterioration of the strip center. Maintenance carries with it the
understanding that what is done is essentially on going or continual
or at least occurs with some frequency. According to **'s
letter "...we are simply taking care of serious deferred maintenance
items that have been neglected for many years."

Because the work does not meet the definition of maintenance as
scheduled, periodic work, the work is defined as either:

Repair - To mend or bring back as near as can be to its original
working order real property which was broken, damaged, or efective;

Remodeling or modification - To make over, rebuild, replace, or
upgrade existing real property; or,

Restoration - An activity performed to bring back as near as can be
to its original condition real property which is still operating and
functional but that has faded, declined, or deteriorated.

I should point out that once the strip center has been repaired,
restored and remodeled to good working order, scheduled periodic
work (e.g., repainting walls without remodeling involved and seal
coating and striping the parking lot can qualify as maintenance.
The labor to perform the future maintenance is not taxable.
Tax is due on the materials used to provide the maintenance.

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

You may call me toll free at 1-800-531-5441, ext 5-0037. The direct
line is 512/475-0037. You also may write to Tax Policy Division,
Comptroller of Public Accounts.

Sincerely,

Lindey Osborne
Tax Policy Division

NOTE: Previous Accession Number 9508415L