Is a lump-sum contract to repaint condominium/apartment buildings taxable, and does the contractor need a sales tax exemption certificate from the condo association?

Plain-English summary

A taxpayer asked the Comptroller whether it needed a sales tax exemption certificate for a lump-sum contract to repaint condominium units and buildings.

The Comptroller explained that a person who builds new improvements to real property, or who repairs, restores, or remodels residential real property while incorporating tangible personal property into it, is a "contractor" for sales and use tax purposes (a term that includes subcontractors but not material men and suppliers).

A condo or apartment complex counts as a residential structure, and repainting it is a repair of that structure. A lump-sum contract for repairs to residential property is not taxable. Under such a contract, the contractor — not the condo association — is responsible for paying tax on the materials (in this case, the paint) used in the job; the contractor does not collect sales tax from the condo association, and no exemption certificate needs to be issued for the lump-sum contract.

Two carve-outs matter, though: (1) if the contract separately states the charge for materials, that separately stated materials charge is taxable; and (2) a condo complex's sales or leasing office that is separate and apart from the residential area is treated as commercial/nonresidential property, so labor to repair, paint, or remodel that office is taxable.

What this means for you

Condo associations and apartment complex owners

If you hire a contractor to repaint your buildings under a lump-sum (all-inclusive) contract, you should not need to give the contractor a sales tax exemption certificate, and you should not be charged sales tax on that lump-sum repainting job — the contractor absorbs the tax on the paint itself. If the contract instead separately states a charge for materials, expect that materials charge to be taxed.

Painting and repair contractors

You are treated as a contractor for sales tax purposes when you incorporate materials (like paint) into a residential repair job. On a lump-sum residential repair contract, you owe tax on the paint you buy and use, but you do not collect sales tax from your customer on the lump-sum charge. Keep in mind that if you have a separate sales/leasing office to repaint as part of the same complex, the labor on that portion is taxable because the office is nonresidential.

Accountants and tax professionals

This letter draws the standard residential-repair contractor line: lump-sum contracts for repairs to residential real property are nontaxable to the customer (contractor pays tax on materials), while separately stated materials charges are taxable, and nonresidential portions of a mixed-use property (like a leasing office) are taxable regardless of contract structure.

Common questions

Q: Does a condo association need to give a painting contractor a sales tax exemption certificate for a lump-sum repainting contract?
A: No. The letter states the condo association "would not need to issue an exemption certificate on this lump-sum contract."

Q: Who pays sales tax on the paint used to repaint the condo buildings?
A: The contractor. Under a lump-sum contract, the contractor is responsible for tax on the materials (paint) incorporated into the structure and does not collect tax from the condo association.

Q: Is the repainting labor itself taxable if billed as one lump-sum price?
A: No. A lump-sum contract for repairs to a residential structure is not taxable.

Q: What if the contract separately states a charge for the paint/materials?
A: That separately stated materials charge is taxable.

Q: Does this exemption cover the complex's sales or leasing office too?
A: No. A sales or leasing office that is separate and apart from the residential area is considered commercial/nonresidential property, and labor to repair, paint, or remodel that office is taxable.

Q: Can this letter be relied on for a different fact pattern?
A: No. The opinion is based on the facts presented, and other facts, though similar, may produce a different result.

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/9606L1418A14

Original ruling text

June 19, 1996

Dear ***:

This is in response to your request for a sales tax exemption certificate on
the lump-sum contract for the repainting work to be performed on condo
units/buildings.

Persons who build new improvements to real property or repair, restore, or
remodel residential real property, and who, in making the improvement,
incorporates tangible personal property into the property being improved are
considered contractors for sales and use tax purposes. The term includes
subcontractors but does not include material men and suppliers.

A condo or apartment complex is considered a residential structure. Repainting
of a structure is considered a repair of that structure. A lump-sum contract
for repairs on a residential structure is not taxable. The charge for
materials under a separately stated contract are taxable. A contractor
repairing residential property under a lump-sum contract is responsible for
tax on the materials incorporated into the structure. In this case, the
contractor would pay tax on the paint used to repaint the condo buildings and
would not collect tax from the condo association. You would not need to
issue an exemption certificate on this lump-sum contract.

An condo complex sales or leasing office that is separate and apart from the
residential area is considered commercial or nonresidential property and the
labor to repair, paint or remodel the office would be taxable.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

You may call me toll-free at 1-800-531-5441, extension 3-4502. The direct
line is 512/463-4502. You may also write to Tax Policy Division, Comptroller
of Public Accounts. My Internet address is: [email protected].

Sincerely,

Gilbert Zamora
Tax Policy Division

NOTE: Previous Accession Number 9606359L