Whether labor is taxable in Texas depends entirely on what the work is and what it’s being done to. Texas has no state income tax, so wages and self-employment earnings are never taxed at the state level. The state’s 6.25% sales tax — which can reach 8.25% once local rates are added — applies to labor only when the service falls into one of the categories the Legislature has specifically listed as taxable.1Texas Comptroller. Sales and Use Tax Everything else is exempt.
The Default Rule: Labor Is Exempt Unless Listed
Texas sales tax targets the sale of physical goods first, services second. A service is taxable only if the Tax Code names it. Section 151.0101 sets out 17 taxable service categories, and anything outside those categories is not subject to sales tax.2State of Texas. Texas Tax Code TAX 151.0101 – Taxable Services
Lawyers, accountants, architects, doctors, consultants, teachers — none of that labor carries sales tax. The relevant question isn’t who is doing the work but what the work is. The same plumber can perform a taxable job in the morning and an exempt one in the afternoon depending on where the pipe runs.
Repair and Maintenance of Personal Property
When someone repairs, remodels, maintains, or restores tangible personal property — appliances, industrial equipment, office machines, and similar physical items — the entire invoice is taxable. Labor, parts, and supplies all count, and separating labor from materials on the bill doesn’t reduce the tax owed.3Cornell Law Institute. Texas Administrative Code 34 TAC 3.292 – Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property
Several important carve-outs run the other way. Labor to repair or maintain motor vehicles, aircraft, and most boats and vessels is exempt.2State of Texas. Texas Tax Code TAX 151.0101 – Taxable Services For a car at the shop, the mechanic does not charge tax on labor, but the replacement parts remain taxable as a sale of goods. Here the invoice structure matters: parts and labor need to be separated so tax applies only to the parts.
Work on computer programs — repairing, maintaining, creating, or restoring software — is also exempt when the person performing the work isn’t also selling the program.2State of Texas. Texas Tax Code TAX 151.0101 – Taxable Services Custom software development on commission doesn’t trigger a labor tax. Selling off-the-shelf software is a different transaction.
Work on Real Property
Real property — land, buildings, and anything permanently attached — is where the rules get sharpest. Texas treats new construction, residential repair, nonresidential repair, and periodic maintenance as four different things, and each one is taxed differently.
New Construction and Permanent Improvements
Labor to build a new structure or make a lasting improvement to real property is not taxable. Building a home, adding a room, installing a new roof, or replacing an entire HVAC system all qualify. The work has to create something new or make a substantial, lasting change to the property.4Cornell Law Institute. Texas Administrative Code 34 TAC 3.357 – Nonresidential Real Property Repair, Remodeling, Maintenance, and Restoration; Real Property Maintenance
Nonresidential Repair and Remodeling
Repairing or remodeling a commercial building, industrial facility, or other nonresidential structure is taxable labor. The contractor must hold a Texas sales tax permit and collect tax from the customer. Fix a warehouse roof or remodel a retail storefront, and the labor portion of that bill carries sales tax.4Cornell Law Institute. Texas Administrative Code 34 TAC 3.357 – Nonresidential Real Property Repair, Remodeling, Maintenance, and Restoration; Real Property Maintenance
Residential Repair and Remodeling
The same repair work on a house or apartment is treated the opposite way. Residential real property repair and remodeling falls under the contractor rules, and the labor is not subject to sales tax.4Cornell Law Institute. Texas Administrative Code 34 TAC 3.357 – Nonresidential Real Property Repair, Remodeling, Maintenance, and Restoration; Real Property Maintenance Fix a cracked foundation or remodel a kitchen for a homeowner, and no sales tax applies to the labor. The residential-versus-nonresidential line is one of the most consequential distinctions in Texas sales tax, and contractors frequently get it wrong.
Mixed-use buildings — structures that serve as both a residence and a business — are taxable on the whole job unless the labor on the residential portion is separately identified on the invoice. Break out the residential labor and that portion is exempt.4Cornell Law Institute. Texas Administrative Code 34 TAC 3.357 – Nonresidential Real Property Repair, Remodeling, Maintenance, and Restoration; Real Property Maintenance
Real Property Maintenance Is Not Real Property Services
These two categories sound alike and get taxed as opposites. Maintenance means scheduled, periodic work to keep property functioning — quarterly HVAC servicing, routine equipment inspections, periodic system checks. It is not a taxable service, and that treatment applies to both residential and nonresidential property.4Cornell Law Institute. Texas Administrative Code 34 TAC 3.357 – Nonresidential Real Property Repair, Remodeling, Maintenance, and Restoration; Real Property Maintenance
“Real property services” is a separately listed taxable category under Section 151.0101 that covers janitorial work, landscaping, parking lot sweeping, and trash removal.2State of Texas. Texas Tax Code TAX 151.0101 – Taxable Services The contractor who services your boiler on a quarterly schedule is performing maintenance and charges no tax; the crew that mows the lawn every week is providing a taxable real property service. Confusion between the two is a recurring source of audit trouble.
The 17 Taxable Service Categories
Every taxable service in Texas fits into one of the categories listed in Section 151.0101. If the service you provide or purchase doesn’t appear here, it isn’t taxable:2State of Texas. Texas Tax Code TAX 151.0101 – Taxable Services
- Amusement services
- Cable television services
- Personal services (laundry, massage, pet grooming, and similar)
- Motor vehicle parking and storage
- Repair, remodeling, maintenance, and restoration of tangible personal property (with the vehicle, aircraft, boat, and software carve-outs)
- Telecommunications services
- Credit reporting services
- Debt collection services
- Insurance services
- Information services
- Real property services (janitorial, landscaping, and similar)
- Data processing services
- Real property repair and remodeling (nonresidential only)
- Security services, in-person and electronic
- Telephone answering services
- Internet access service
- Transmission and distribution utility services
Provide any of these and you must collect and remit sales tax. Provide legal advice, accounting, consulting, medical care, teaching, or any other service not on the list, and no sales tax applies.
How Materials Get Taxed When Labor Doesn’t
On exempt-labor jobs like new construction, real property improvements, and residential repair, the question moves to how the materials are taxed. Texas recognizes two contract structures.5Texas Comptroller. Homebuilders and Real Property Services
Under a lump-sum contract, the contractor bills a single price without breaking out labor and materials. The contractor is treated as the final consumer of the materials and pays sales tax when buying them from suppliers. Nothing is collected from the customer, and no sales tax line appears on the customer’s bill.
Under a separated contract, the bill shows labor and materials as separate amounts. The contractor operates as a retailer of the materials, buys them tax-free with a resale certificate, and then charges the customer sales tax on the materials portion. The labor charge is still untaxed. The contractor still owes tax on its own equipment, consumable supplies, and any taxable services used on the job.5Texas Comptroller. Homebuilders and Real Property Services
Neither structure changes the total tax paid on materials. It changes who pays it and when. Lump-sum is simpler; separated can help when the customer qualifies for material exemptions.
Permits, Collection, and Penalties
Any person or business making taxable sales or performing taxable services in Texas must obtain a Texas Sales and Use Tax Permit before starting. This applies to sole proprietors and corporations alike, regardless of how often they make taxable sales.6Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions The Comptroller then assigns a filing frequency based on sales volume.
Late filers face stacking penalties:1Texas Comptroller. Sales and Use Tax
- A $50 flat penalty for each report filed after the due date
- A 5% penalty on tax paid 1–30 days late
- A 10% penalty on tax paid more than 30 days late
Interest accrues on top of those penalties. A business that should have been collecting sales tax and wasn’t doesn’t just owe the uncollected tax; it owes that tax out of its own pocket, plus the penalties and interest. Labor classification is one of the most common audit findings.
A Note on Federal Taxes
Sales tax on labor is a separate question from income tax on what you earn from labor. Texas has no state income tax, but federal income tax and self-employment tax still apply to anyone earning money in the state. The self-employment tax rate is 15.3%, covering 12.4% for Social Security and 2.9% for Medicare.7Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) Whether sales tax applies to a job has no bearing on whether federal tax applies to the earnings from it. They are two different taxes, run by two different governments, answering two different questions.