Split the price in two and the sales tax stops coming out of your pocket

You bid a job at one number. Then you stood at the supply house counter and paid 8.25 percent on top of the material invoice, and that money went straight into a price you quoted three weeks earlier. If you built the bid off the pre-tax figure, you just funded the state of Texas out of your own margin.

Texas gave you a choice about that. It is not a filing choice and it is not a permit choice. It is one line in the contract, settled before anyone breaks ground: one price for the whole job, or a price for the materials and a price for the labor. Tex. Tax Code s.151.056 reads that line and decides whether you are the consumer of the materials or the seller of them, and everything else follows from that one word.

Get it right and the tax comes off your cost sheet, the money leaves your account on the day the customer hands it to you instead of five weeks ahead of the draw, and on one particular kind of job a single separately stated line is worth more than the job's whole profit.

Here is the grid, the numbers, and how to write the next contract.

One price or two, and that is the whole election

A lump-sum contract carries one price covering both the work and the materials. Under s.151.056(a) you are the consumer of the material you incorporate into the customer's property. You pay tax at the counter, you charge your customer nothing, and the tax sits inside the number you quoted.

A separated contract states an amount for the labor and an amount for the materials. Under s.151.056(b) you are the seller of those materials. You buy them tax-free with a resale certificate and collect tax from your customer, applied to "the price of the materials as agreed in the contract or the price of the materials to the contractor, whichever is the greater."

The contract decides which one you are, not the invoice. Separately stated prices in the agreement, or in a document the agreement incorporates such as an itemized estimate or a schedule of values, make it separated. Itemizing an invoice to be helpful does not convert a lump-sum contract, unless the contract requires separated invoices. So the breakdown you attached to a signed one-price agreement can move your tax position, while the tidy invoice you sent afterwards cannot.

The grid before you decide anything

Before contract type matters, two facts about the job decide whether the labor is taxable at all. What kind of work is it, and what kind of property is it on.

Residential means family dwellings: houses, apartment complexes, condominiums, nursing homes and retirement homes. The Comptroller's own line is that it does not include hotels or properties rented for periods of less than 30 days, and the property does not have to be the owner's residence. Nonresidential is the rest: hospitals, office buildings, refineries, warehouses, parking garages, retail shops, restaurants and manufacturing facilities.

Repair and remodel includes reroofing and repainting. Maintenance is different, and the difference is money: maintenance is scheduled, periodic work on property that is not broken, done to prevent deterioration, and that labor is not taxable even on a warehouse. You need the contract or a schedule that proves the work is scheduled and periodic. The parts and materials you incorporate are still taxable.

The decision table

Now put the two axes together. This is the table worth keeping.

Read the third row twice. On nonresidential repair and remodel the contract type does not change who carries the tax, because the whole job is a taxable service and the customer pays tax on the total either way. That total includes every cost you pass through, with one exception the Comptroller names: separately stated building permit fees you paid on the customer's behalf.

Which election actually keeps your money

For new construction and for residential work, separated is the one that favors you, for three reasons that show up in the bank account rather than on a return.

You stop floating the tax. Sixty thousand dollars of material at the 8.25 percent ceiling is $4,950 you hand over at the counter, and the private prompt-payment clock in Tex. Prop. Code s.28.002 gives the owner until day 35 to send the draw that returns it. Under a separated contract that $4,950 leaves your account on the day the customer pays it, not five weeks ahead.

The tax leaves your cost sheet. Under lump-sum, sales tax is a cost of the job and you have to have priced it. Bid off a supplier quote that excludes tax and the 8.25 percent comes out of your margin, quietly, on every material line.

The floor is your cost, and there is no ceiling. The statute measures the tax on the greater of the contract price of the materials or what you paid for them. Nothing requires you to mark the materials up. Margin carried in the labor line is not taxable on new construction or on residential work, so a contractor who prices materials near cost and carries profit in labor hands the customer a smaller tax bill without earning a dollar less.

Lump-sum has one real argument in its favor, and it is a business argument rather than a tax one: it does not show the customer what you paid for the materials. A builder competing on one headline number keeps that to himself, and pays for it in cash timing. Decide that trade deliberately, in the contract, rather than by default at the supply house.

If you already paid tax to a supplier and then sell those materials under a separated contract, s.151.056(c) lets you credit the tax you paid to the supplier against the tax you owe on the sale. The credit is there when you reach for it. Writing the contract so you do not have to reach is better.

Stop paying the same tax twice on nonresidential work

Nonresidential repair and remodel is where money goes missing, and rarely because of the contract type. It goes missing because contractors pay tax at the counter on a job where they are also collecting tax on the total.

On nonresidential repair, remodel and restoration you may give your suppliers a resale certificate instead of paying tax on materials that will be incorporated into the customer's property. You may use it for job-site waste removal, janitorial, landscaping, surveying, and security systems incorporated into the realty, when those services are essential to completing your contract. Pay tax on all of that at the counter and then collect tax from your customer on the full job, and the same dollars carried tax twice.

Put a number on it. A $180,000 retail buildout carrying $70,000 of material is $5,775 of counter tax, on a job where the customer is already paying tax on the whole $180,000. Hand the supplier Form 01-339 instead and that $5,775 stays in the account.

The same certificate works up the chain. If you subcontract to remodel or repair a nonresidential structure, the remodeler above you may hand you a resale certificate instead of paying tax on your work, and they collect from their customer. One tax on the job, at the end, rather than one at every tier.

The five percent line worth $61,050

This one belongs on the wall.

You have a contract with a nonresidential owner to add new square footage and to remodel existing footage, for a single charge. If the remodeling portion is more than five percent of the total charge, the entire charge is presumed to be taxable. All of it. The new construction too.

Take an $800,000 tenant expansion where $60,000 of it is remodeling existing space. That is 7.5 percent, so the presumption bites.

Sixty-one thousand dollars, decided by whether one line appeared on the paperwork. And it is your exposure rather than the owner's: a seller who did not collect the tax is the one assessed for it.

You beat the presumption by separately stating a reasonable charge for the taxable services at the time of the transaction. If it was not separated then, the percentage relating to new construction can still be established later with documentary evidence, and the Comptroller names the documents it accepts: written contracts detailing the scope of work, bid sheets, tally sheets, schedules of values and blueprints. Which is an argument for keeping a schedule of values on every job that mixes new footage with existing.

After a declared disaster, the labor comes off the taxable base

Texas weather writes this rule. Under Tex. Tax Code s.151.350, labor to repair nonresidential property damaged in an area declared a disaster by the Governor of Texas or by the President of the United States is not taxable. The materials stay taxable, the damage has to come from the condition that caused the declaration, and the charge for the labor has to be itemized separately from the incorporated materials.

A $250,000 commercial reroof after a declared hailstorm, $150,000 labor and $100,000 materials, carries $8,250 of tax when the labor is itemized separately and $20,625 when it is buried in one number. That is $12,375 of difference on your proposal, against a competitor who wrote one line.

Schools, cities and churches: buy the job tax-free

Work for a governmental agency, federal, State of Texas or Texas local government, carries no tax to the customer. Exempt nonprofits with a Comptroller exemption letter are the same, where the improvement relates to their exempt purpose, and they give you an exemption certificate.

Under Tex. Tax Code s.151.311 the exemption reaches further back than most bidders price for. On a contract to improve realty for one of those entities you may give suppliers an exemption certificate instead of paying tax on materials incorporated into the realty, on property that is necessary and essential to the contract and completely consumed at the job site, and on taxable services performed at the job site that the contract requires or that are integral to performing it. The statute defines completely consumed as used up or destroyed after one use, and rented or leased items do not qualify.

Tax stays due on machinery and equipment and their accessories, on repair and replacement parts used at the job site, and on office supplies, furniture and computers. So a school job carrying $9,000 of genuinely consumed material is $742.50 of tax a bidder who prices it in is carrying against a bidder who does not. Public work is also where those jobs are posted before they close, which is what find work is for.

The permit, the certificate, and the half percent Texas pays you back

The mechanics are one afternoon.

That last row is small money and free money: Texas takes half a percent off the tax you already collected, for filing on the day you were going to file anyway.

Two habits keep the tax-free buying clean. Keep resale stock separate from shop stock, because material bought tax-free and then used on a lump-sum job or in your own building owes tax on what you paid for it. And if you pour, note s.151.056(g): a ready mix concrete contractor who produces concrete and incorporates it into the job has to invoice each yard separately, with the tax applied to the greater of the invoice price or the fair market value of the concrete, and public works invoices carved out. That one is worth reading against your own billing if you run a truck, and the rest of the setup for pour work is in concrete contracting in Texas.

Write it into the contract, then let the invoice do the rest

The election is made when the contract is signed, so it belongs in your template rather than in a decision somebody makes under time pressure on a Thursday.

Three lines settle it. Name the contract as lump-sum or separated. If separated, carry materials and labor as two amounts, with the materials at or above your cost. On nonresidential work that mixes new footage with remodeling, state the remodeling charge on its own, every time.

AEC Stack builds the invoice off that election, so the tax line appears where the contract says it should and stays off where it should not, with the job-site rate applied rather than your shop's. There is no monthly subscription. The platform fee is 2.5 percent of each invoice processed through the platform, taken on the payment due date.

Set the election on your next contract, then see it land on the bill in invoicing and getting paid in Texas, and count the payment clock that invoice starts in the Texas lien deadline calculator. The other Texas filing that decides your year is the franchise tax report, and if the company itself is not formed yet, starting a construction business in Texas puts the permit and the entity in the right order.