What's Happening?
The Texas Comptroller of Public Accounts has upheld an assessment of additional sales tax on construction services performed between 2014 and 2017. This decision affects contractors who use lump sum contracts that combine taxable and non-taxable services.
The ruling emphasizes that repairs and remodeling are taxable, while new construction is exempt but must be substantiated with proper documentation. The Administrative Law Judge confirmed the assessment, highlighting the importance of maintaining detailed records to distinguish between taxable and exempt services.
Why It's Important?
This ruling underscores the critical need for contractors and developers to maintain meticulous records to avoid significant tax liabilities. The decision could lead to increased scrutiny of lump sum contracts by tax authorities, potentially affecting the financial planning and operations of construction businesses. Contractors who fail to separate taxable services from exempt new construction may face additional tax burdens, impacting their profitability and competitiveness in the market.
What's Next?
Contractors are advised to review their contracts and invoices to ensure clear separation of new construction from repair and remodeling work. They should maintain comprehensive project records and train staff to recognize taxable versus exempt work. A proactive review or self-audit may help identify potential tax exposure before an official audit occurs.
