In Texas, you charge sales tax on a service only if it falls within one of the 16 categories the Tax Code specifically lists as taxable; everything else is untaxed by default. That is the opposite of how Texas treats tangible goods, which are taxed broadly. The state rate is 6.25%, and local jurisdictions can add up to 2% more, for a maximum combined rate of 8.25%.1Texas Comptroller. Sales and Use Tax If your service is not on the enumerated list, you do not collect sales tax on it.2Texas Comptroller. Taxable Services
Which Services Are Taxable
The Tax Code names 16 broad categories, and each covers a range of specific activities. The ones below catch the most service businesses off guard.
Repair and Remodeling of Nonresidential Real Property
Work to repair, remodel, or restore commercial buildings, offices, warehouses, hospitals, and similar structures is taxable once the initial finish-out is complete. Under a lump-sum bill, the entire charge for labor and materials is taxable.3Texas Comptroller. Real Property Repair and Remodeling
Two exceptions matter. Labor to repair or remodel residential real property (houses, duplexes, apartments, condominiums, nursing homes) is not taxable. And new construction labor is never taxable regardless of property type, which includes finishing out a previously unfinished structure and adding new usable square footage.3Texas Comptroller. Real Property Repair and Remodeling
Services on Tangible Personal Property
Repairing, restoring, maintaining, or remodeling tangible personal property is taxable. Appliance repair, motor vehicle service, jewelry cleaning, furniture restoration. Tax applies to the total charge, including labor and any parts used.2Texas Comptroller. Taxable Services
A related trap: labor that produces a new taxable product. Photography, printing, custom sewing, welding, catering, and assembling items like computer systems or furniture are taxable as sales of tangible personal property, even when the customer supplies the raw materials.2Texas Comptroller. Taxable Services
Data Processing and SaaS
Data processing is defined broadly as using a computer to prepare data and produce output: word processing, data entry, data conversion, check preparation, and web hosting all qualify. Software-as-a-service and application service providers are classified as data processing sellers, so SaaS subscriptions are taxable.2Texas Comptroller. Taxable Services There is a built-in break: 20% of the charge is exempt, so you collect tax on 80% of the bill.4Legal Information Institute. 34 Texas Admin Code 3.330 – Data Processing Services
Using a computer as a tool to deliver a professional service (an accountant working in spreadsheets, an engineer running simulations) does not convert the service into data processing.
Information Services
Furnishing research, data, or compiled information is taxable. Database subscriptions, financial market reports, news clipping services, mailing lists, and electronic data retrieval all fall here. As with data processing, 20% of the charge is exempt.2Texas Comptroller. Taxable Services
Security, Cleaning, and Landscaping
Taxable security services include guard services, alarm installation and monitoring, armored car and armed courier services, investigative and detective work, locksmith services, and computer forensic services.5Texas Comptroller. Security Services
Cleaning and janitorial work on nonresidential property is taxable: office cleaning, window washing, commercial facility maintenance.6Legal Information Institute. 34 Texas Admin Code 3.356 – Real Property Service
Landscaping is different from other real property services because it is taxable on both residential and commercial property. The main exception is landscaping done as part of new residential construction (a builder landscaping a newly built home for sale). Ongoing mowing, trimming, and fertilizing on an existing home is taxable.7Texas Comptroller. Landscaping and Lawn Care Services
Telecommunications, Amusement, and Credit Reporting
Telecommunications services, including local and long-distance calls, are generally taxable, though interstate calls are excluded from tax under federal law and not every local jurisdiction imposes local tax on them.8Texas Comptroller. Local Sales and Use Tax Collection – A Guide for Sellers
Amusement services cover entertainment, recreation, and membership in private clubs providing social, dining, or sports facilities. Fitness centers, golf courses, and event venues fall inside the definition; educational or health services prescribed by a licensed practitioner are excluded.9State of Texas. Texas Tax Code 151.0028 – Amusement Services
Credit reporting is taxable on the total billing, including any dues or fees.10Texas Comptroller. Credit Reporting Services
Services That Are Not Taxable
Because Texas only taxes the listed categories, the default answer for anything else is no. A few common cases are worth naming directly.
Professional services stay untaxed. Legal advice, medical treatment, accounting, architecture, and engineering consultation are non-taxable, and the labor charge remains non-taxable even when the professional uses a computer or delivers a written report.
Advertising agency work is non-taxable for creative services, consultation, and media placement. If the agency also produces tangible items like printed brochures or promotional merchandise, the sale of those physical goods is still taxable.
Insurance premiums are not subject to standard sales tax. They fall under a separate framework, primarily a gross receipts tax paid by the insurer.11Texas Comptroller. Insurance Taxes Frequently Asked Questions
A normally taxable service becomes exempt when another service provider buys it for resale as an integral part of their own taxable service to an end customer. The purchasing provider issues a Texas resale certificate at the time of purchase instead of paying tax.12Legal Information Institute. 34 Texas Admin Code 3.285 – Resale Certificate, Sales for Resale
How You Bill Changes What Is Taxed
On real property jobs, your invoice format has direct tax consequences. Under a lump-sum contract for nonresidential repair or remodeling, the entire charge is taxable. Under a separated contract that itemizes materials and labor, tax applies to the materials and certain identified services, while non-taxable labor (such as new construction or residential work) stays non-taxable on the customer’s bill.3Texas Comptroller. Real Property Repair and Remodeling
Under a lump-sum residential repair or new construction contract, the contractor pays tax on materials at the time of purchase and collects no sales tax from the customer.3Texas Comptroller. Real Property Repair and Remodeling If a job mixes taxable and non-taxable elements, separating the billing usually reduces what the customer owes; lumping everything together on a nonresidential job makes the whole amount taxable.
If You Have to Collect: Permit, Rate, and Returns
Before collecting Texas sales tax, you need a Sales Tax Permit from the Texas Comptroller of Public Accounts. There is no fee, though the Comptroller may require a security bond depending on your situation, and you apply online through the Comptroller’s website.13Texas Comptroller. Texas Sales and Use Tax Frequently Asked Questions1Texas Comptroller. Sales and Use Tax
The permit requirement applies once you have nexus with Texas. Physical nexus comes from an office, warehouse, or employee in the state. Economic nexus applies to remote sellers whose total Texas revenue (taxable and non-taxable combined) exceeds $500,000 in the preceding 12 calendar months. After crossing the threshold, you must begin collecting no later than the first day of the fourth month after the month you exceeded $500,000.14Texas Comptroller. Remote Sellers15Texas Comptroller. Remote Sellers and Marketplace Frequently Asked Questions
Every transaction takes the 6.25% state rate plus the applicable local rates from cities, counties, transit authorities, and special purpose districts, up to a combined 8.25%.1Texas Comptroller. Sales and Use Tax Local boundaries rarely track ZIP codes, so verify the rate for the specific address using the Comptroller’s online rate lookup. For most services, you source local tax to where the service is performed; real property services use the job site; amusement services use where the event occurs.8Texas Comptroller. Local Sales and Use Tax Collection – A Guide for Sellers
The Comptroller assigns you a monthly, quarterly, or annual filing frequency based on your average monthly liability. Returns are due on the 20th of the month following the reporting period. If the 20th falls on a weekend or federal holiday, the deadline moves to the next business day. You file electronically, and a return is required even for periods with zero collections.16Texas Comptroller. Due Dates for Taxes, Fees and Information Reports
Filing and paying on time earns a 0.5% discount on the tax you timely report and remit.1Texas Comptroller. Sales and Use Tax Missing the deadline moves the other direction quickly: a 5% penalty from day one through day 30, 10% after 30 days, and an additional 10% (bringing the total to 20%) once a formal Notice of Tax Due is issued. Each late return also triggers a flat $50 late filing penalty, even if no tax was owed.17Texas Comptroller. Penalties for Past Due Taxes
If You Are Buying a Texas Business
One boundary worth knowing even if you were not asking about it: the purchaser of an existing Texas business is liable for the seller’s unpaid sales tax. You are required to withhold enough from the purchase price to cover the seller’s tax, penalties, and interest, and to keep withholding until the seller produces a Comptroller certificate confirming nothing is due. If you pay the full price without withholding, you become personally liable for the seller’s unpaid taxes up to the purchase price, which includes cash, assumed debt, transferred property, and forgiven debt.18Legal Information Institute. 34 Texas Admin Code 3.7 – Successor Liability, Liability Incurred by Purchase of a Business Requesting a clearance certificate from the Comptroller before closing is the way to avoid inheriting that liability.