Texas Administrative Code › Title 34 - PUBLIC FINANCE › Part 1 - COMPTROLLER OF PUBLIC ACCOUNTS › Chapter 3 - TAX ADMINISTRATION › Subchapter O - STATE AND LOCAL SALES AND USE TAXES › Section 3.357 - Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance. (Tax Code, Sections 151.0047, 151.0101, 151.056, 151.058, 151.311, 151.350, 151.429)

Current through Reg. 49, No. 28; July 12, 2024
(a) Definitions.
				  The following words and terms, when used in this section, shall have the
				  following meanings, unless the context clearly indicates otherwise.
(1) Consumable items--Nondurable tangible
				  personal property that is used to improve real property and that, after being
				  used once for its intended purpose, is completely used or destroyed. Examples
				  include, but are not limited to, nonreusable concrete forms, nonreusable drop
				  cloths, barricade tape, natural gas, and electricity. Consumable items do not
				  include incorporated materials, machinery, equipment, accessories to machinery
				  and equipment, repair and replacement parts of machinery and equipment, or any
				  rented or leased item.
(2)
				  Contractor--Any person who builds new improvements to residential or
				  nonresidential real property; completes any part of an uncompleted structure
				  that is an improvement to residential or nonresidential real property; makes
				  improvements to real property as part of periodic and scheduled maintenance of
				  nonresidential real property; or repairs, restores, maintains, or remodels
				  residential real property; and who, in making the improvement, incorporates
				  tangible personal property into the real property that is improved. The term
				  includes subcontractors but does not include material men, suppliers, or
				  persons who provide taxable real property services. Contractors should refer to
				  §
											3.291 of
				  this title (relating to Contractors). Persons who provide real property
				  services should refer to §
											3.356 of
				  this title (relating to Real Property Service). Persons who repair, restore, or
				  remodel chemical plants or petrochemical refineries should refer to §
											3.362
				  of this title (relating to Labor Relating to Increasing Capacity in a
				  Production Unit in a Petrochemical Refinery or Chemical Plant).
(3) Disaster area--An area that the Governor
				  of Texas declares a disaster under the Government Code, Chapter 418, or that
				  the President of the United States declares a disaster under
				  42 United States Code,
				  §5141.
(4) Equipment--Tangible personal property
				  that is used in the performance of a contract to improve real property, such as
				  tools, machinery, implements, accessories, repair and replacement parts, or any
				  item that is rented or leased. Equipment includes all items that do not meet
				  the definitions of consumable items or incorporated materials.
(5) Incorporated materials--Tangible personal
				  property that loses its distinct and separate identity when incorporated into
				  real property. Examples of incorporated materials include framing lumber,
				  bricks, concrete, doors, and windows.
(6) Labor--For the purposes of this section,
				  labor means all components of a transaction or contract directly related to the
				  remodeling, repair, or restoration other than those components attributable to
				  materials incorporated into the realty. Unrelated components, such as charges
				  by engineers and architects, are also part of the labor component unless
				  separately stated to the customer.
(7) Maintenance on real property--For
				  operational and functional improvements to realty, maintenance means scheduled,
				  periodic work that is necessary to sustain or support safe, efficient,
				  continuous operations, or to prevent the decline, failure, lapse, or
				  deterioration of the improvement. Taxable real property services that are
				  described by §
											3.356 of
				  this title (relating to Real Property Service) do not qualify as maintenance.
				  Maintenance does not include work to remodel, modify, upgrade, perform major
				  repair, or restore, even if the work is scheduled or periodic.
(A) As it relates to maintenance, the term
				  "scheduled" means anticipated and designated to occur within a given time
				  period or production level.
(B) As
				  it relates to maintenance, the term "periodic" means ongoing or continual or at
				  least occurring at intervals of time or production that are reasonably
				  predictable.
(C) The scheduled
				  shutdown or turnaround of a manufacturing or processing plant is considered to
				  be maintenance within the meaning of this definition.
(8) New construction--All new improvements to
				  real property including initial finish out work to the interior or exterior of
				  the improvement. An example is a multiple story building that has had only its
				  first floor finished and occupied. The initial finish out of each additional
				  floor before initial occupancy or use is considered new construction. New
				  construction also includes the addition of new, usable square footage to an
				  existing structure. Examples are the addition of a new wing onto an existing
				  building, or the addition of a new mezzanine level within an existing building.
				  Reallocation of existing square footage inside a structure is remodeling and
				  does not constitute the addition of new, usable square footage. For example,
				  the removal or relocation of interior walls to expand the size of a room, or
				  the finish out of an office space that was previously used for storage, is
				  remodeling. Raising the ceiling of a room or the roof of a building is not new
				  construction unless new, usable square footage is created.
(9) Prior contract--A written contract, or a
				  written bid that becomes a written contract, into which the parties enter
				  before the effective date of the applicable section of the Tax Code. See §
											3.319
				  of this title (relating to Prior Contracts).
(10) Real property--Land, including
				  structures and other improvements that are embedded into or permanently affixed
				  to the land.
(11) Remodeling or
				  modification--To rebuild, replace, alter, modify, or upgrade existing real
				  property. However, the replacement of an item that is within an operational and
				  functional improvement to realty is not taxable remodeling or modification when
				  the work is scheduled and periodic maintenance as defined in paragraph (7) of
				  this subsection. Improvements to manufacturing or production units of chemical
				  plants or petrochemical refineries that meet the definition of increased
				  capacity are not remodeling or modification services. See §
											3.362
				  of this title (relating to Labor Relating to Increasing Capacity in a
				  Production Unit in a Petrochemical Refinery or Chemical Plant). Work that is
				  performed after the initial finish out has been completed is remodeling even
				  when the improvement has not been occupied or used. For example, a prospective
				  tenant wants the unit of a completely finished out shopping complex repainted
				  before the tenant leases the unit. The repainting is remodeling. Partial
				  demolition of existing nonresidential realty is taxable remodeling. The
				  complete demolition of an existing nonresidential improvement to real property
				  is neither remodeling nor modification and is not taxable.
(12) Repair--To mend or bring back real
				  property that was broken, damaged, or defective as near as possible to its
				  original working order. However, minor repair work that is performed on
				  operational and functional improvements to realty is not taxable repair if the
				  work is done in accordance with paragraph (7) of this subsection.
(13) Residential property--Property that is
				  used as a family dwelling, multifamily apartment or housing complex, nursing
				  home, condominium, or retirement home. The term includes homeowners
				  association-owned and apartment-owned swimming pools, laundry rooms, and other
				  common areas for tenants' use. Common areas of mixed residential and
				  nonresidential property are allocated or prorated based on the ratio of
				  residential to nonresidential use of the property. The term does not include
				  any commercial area open to nonresidents, retail outlets, hospitals, hotels, or
				  any other facilities that are subject to the hotel occupancy tax.
(14) Restoration--An activity that is
				  performed to bring back real property that is still operational and functional
				  but that has faded, declined, or deteriorated, as near as possible to its
				  original condition. Minor restorative work that is performed within the meaning
				  of paragraph (7) of this subsection is maintenance, not restoration.
(15) Unrelated service. A service is
				  unrelated if:
(A) it is not the repair,
				  remodeling, or restoration of nonresidential real property, nor a service or
				  labor that is taxable under any other provision of the Tax Code, Chapter
				  151;
(B) it is of a type that is
				  commonly provided on a stand-alone basis; and
(C) the performance of the service is
				  distinct and identifiable. Examples of unrelated services that may be excluded
				  from the tax base are the creation of engineering plans or architectural
				  designs, new construction, increased capacity, and maintenance on real
				  property.