# Texas Contractor Taxes and Licensing: Labor, Materials, Franchise Tax and Licenses

In Texas, the building type decides whether labor is taxed. Labor to repair, remodel or restore residential real property isn't taxable, and neither is new construction labor. Repairing or remodeling nonresidential property is taxable on the total charge, labor included. Materials follow the contract: lump-sum contractors pay tax on purchases; separated contracts charge tax on materials.

## Key takeaways

- Residential repair and remodel labor: not taxable. Nonresidential repair and remodel: the whole charge is taxable.
- Lump-sum contract: you pay tax on materials when you buy them. Separated contract: buy with a resale certificate and charge tax on the materials line.
- Landscaping, lawn care, pest control and janitorial work are taxable services in Texas even when done on real property.
- No personal income tax, but LLCs and corporations file franchise (margin) tax reports. The 2026 and 2027 no-tax-due threshold is $2,650,000.
- Workers' comp is optional for most private employers. Electrical, A/C and plumbing are state-licensed; general building is mostly regulated by cities.

## What makes Texas different for contractors?

Texas is the rare state where the **same remodel** is taxed differently depending on who lives or works in the building. Redo a kitchen in a house and the labor is tax-free. Redo the break room in an office and the Comptroller taxes the full invoice. Texas also lets most private employers skip workers' comp entirely, and it has no state license for general building contractors. Those three facts shape how Texas shops bid, bill and insure.

What follows summarizes the Texas Comptroller, TDLR and TDI sources as of 2026-10-19. It's general information, not tax advice. Your contracts and customers are specific, so run them past a CPA who knows Texas sales tax.

## Is labor taxable in Texas?

It depends on the property and the type of work. Comptroller Publication 94-116 says "the construction labor is not taxable" for new construction, and labor to repair, remodel or restore **residential** real property "is not taxable." For **nonresidential** property, "the total amount charged for remodeling, repairing, or restoring nonresidential real property is taxable." Residential means family dwellings such as houses, apartments, condos, nursing homes and retirement homes; hotels and short-term rentals are treated differently.

**Texas sales tax on contractor labor**

| Work | Residential | Nonresidential |
| --- | --- | --- |
| New construction | Labor not taxable | Labor not taxable |
| Repair, remodel or restoration | Labor not taxable | Total charge taxable, labor included |
| Landscaping and lawn maintenance | Listed as a taxable service (check residential exceptions with the Comptroller) | Taxable service |
| Pest control, janitorial, waste removal | Taxable service | Taxable service |

_Sources: Texas Comptroller Pub 94-116 and Pub 96-259, verified 2026-10-19._

Publication 96-259 lists "landscaping and lawn maintenance (including tree surgery and plant leasing)" and "pest control and extermination, garbage and other waste collection or removal, janitorial and custodial services" as taxable real property services. If you mow, spray or clean, you're likely collecting tax even though a roofer isn't. Whether a residential exception applies to your yard work is something to check with the Comptroller.

## Who pays tax on materials: lump-sum vs. separated contracts

On residential and new construction work, the contract format decides who pays. "Under a lump-sum contract, you pay tax on all your supplies, materials, equipment, and taxable services when you buy them," the Comptroller says, and you don't charge the customer tax. Under a **separated** contract, where materials are stated separately from labor, you give your supplier a resale certificate for the materials that go into the job and collect state and local tax from the customer on the materials. Labor stays untaxed.

> **Example: a $12,000 job with $5,000 of materials (illustrative)**
>
> **Residential remodel, lump sum:** pay tax on the $5,000 at the supply house; invoice $12,000 with no tax.
>
> **Residential remodel, separated:** buy the $5,000 with a resale certificate; charge 6.25% state plus local tax on the $5,000 materials line only.
>
> **Office remodel:** collect tax on the full $12,000.

Tools, trucks and consumables you use up yourself are taxable to you either way. If an out-of-state vendor didn't charge Texas tax, you may owe use tax; see [use tax for contractors](https://www.brix.so/learn/use-tax-for-contractors). For the multi-state picture, read [sales tax on labor vs. materials](https://www.brix.so/learn/sales-tax-on-labor-vs-materials).

## What is the Texas sales tax rate?

"Texas imposes a 6.25 percent state sales and use tax on all retail sales, leases and rentals of most goods," and cities, counties, transit authorities and special districts "can also impose up to 2 percent sales and use tax for a maximum combined rate of 8.25 percent." Collect the local rate based on the Comptroller's sourcing rules, which are covered in its local sales tax guidance.

## Which Texas contractor licenses do you need?

Texas licenses specific trades statewide and leaves general building to cities. TDLR says anyone who performs "non-exempt electrical work in the state of Texas" must be licensed and work through a licensed electrical contractor. Air conditioning and refrigeration contractors "must have a TDLR license." Plumbing is licensed by the Texas State Board of Plumbing Examiners. These licenses apply regardless of job size.

**Texas contractor licenses by trade**

| Trade | Agency | License | Link |
| --- | --- | --- | --- |
| Electrical | Texas Department of Licensing and Regulation (TDLR) | Electrical contractor license; individual electrician licenses (e.g., master, journeyman) | [TDLR electricians](https://www.tdlr.texas.gov/electricians/elec.htm) |
| HVAC / refrigeration | TDLR | Air conditioning and refrigeration contractor license | [TDLR ACR](https://www.tdlr.texas.gov/acr/acr.htm) |
| Plumbing | Texas State Board of Plumbing Examiners | Responsible master plumber, master, journeyman, tradesman-limited | [TSBPE](https://tsbpe.texas.gov/) |
| General contractor / remodeler | No statewide license found | City registration and permits | Check with your city |
| Roofing | No statewide license found | City registration and permits | Check with your city |

_Sources: TDLR and TSBPE, verified 2026-10-19. We found no state general contractor or roofing license on official pages; confirm with TDLR and the city._

**Local licensing:** many Texas cities require contractors to register, show insurance and pull permits before work starts. Requirements differ city to city, so check with the building department where the job is. More on how licensing works across states in our [contractor license guide](https://www.brix.so/learn/contractor-license).

## Does Texas have income tax or franchise tax for contractors?

Texas has no personal income tax, and a 2019 constitutional amendment (HJR 38) was written to "prohibit the legislature from imposing a tax on the net incomes of individuals." Instead, many businesses owe the **franchise tax**, also called the margin tax.

- **Who files:** corporations and LLCs, including a single-member LLC taxed as a sole proprietor federally. A sole proprietorship "that is not legally organized in a manner that limits its liability is not a taxable entity."
- **No tax due:** for 2026 and 2027 reports, entities at or below **$2,650,000** in revenue owe no tax but still file a Public Information Report or Ownership Report.
- **Rates:** 0.75% for most businesses, 0.375% for retail and wholesale. The EZ computation, for total revenue up to $20 million, is 0.331%.

Federal income and self-employment tax still apply to your profit, so set money aside for [quarterly estimated taxes](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors). Our [quarterly estimated tax calculator](https://www.brix.so/tools/quarterly-estimated-tax-calculator) gives a starting number to review with your CPA.

## Do Texas contractors have to carry workers' comp?

Usually not. TDI's Division of Workers' Compensation says "private employers can choose to carry workers' compensation insurance coverage, but it is not required in most cases." Employers who opt out, called non-subscribers, must report to the state that they don't have coverage and report certain injuries. Public construction contracts and many general contractors require subs to carry coverage anyway, so check your contracts. Going without coverage also changes your legal exposure if a worker is hurt; read [workers' compensation for contractors](https://www.brix.so/learn/workers-compensation) and talk to an insurance agent.

## What local taxes apply in Texas?

- **Local sales and use tax** up to 2%, for a combined maximum of 8.25%.
- **No local income tax**, since there is no state personal income tax.
- **City contractor registration and permit fees.** These aren't taxes, but they belong in your bid.

## Nearby state guides

Crossing the Red River? [Oklahoma](https://www.brix.so/taxes/oklahoma) also has no state general contractor license but taxes labor differently. [Louisiana](https://www.brix.so/taxes/louisiana) taxes repairs to movable property, and [Arkansas](https://www.brix.so/taxes/arkansas) taxes some installation labor. [Florida](https://www.brix.so/taxes/florida) is the other no-income-tax state in our southern guides.

BRIX keeps materials and labor on separate lines in quotes and invoices, which matters when you write separated contracts in Texas. It also tracks licenses, insurance certificates and permits and flags renewals, so a TDLR license or a city registration doesn't lapse unnoticed. Tax decisions stay with you and your CPA.

- [Quotes and estimates](https://www.brix.so/features/quotes-estimates): Builds accurate quotes on site and follows up on every open estimate.
- [Invoicing and payments](https://www.brix.so/features/invoicing-payments): Turns finished jobs into invoices and politely chases unpaid ones until the money is in your account.
- [Compliance and permit tracking](https://www.brix.so/#use-cases): Tracks licenses, safety documents and permits and flags renewals before they lapse.

## Frequently asked questions

### Do contractors charge sales tax on labor in Texas?

Not on residential repair, remodeling or restoration, and not on new construction. For nonresidential property, the Comptroller taxes the total charge for repair, remodeling or restoration, so labor is included. Some services like landscaping, pest control and janitorial work are taxable on their own.

### What's the difference between a lump-sum and separated contract in Texas?

Under a lump-sum contract, the contractor pays tax on materials when buying them and charges the customer no tax. Under a separated contract, the contractor buys materials with a resale certificate and collects tax from the customer on the materials. Labor isn't taxed under either for residential work.

### Is a commercial remodel taxable in Texas?

Yes. Texas taxes the total amount charged for remodeling, repairing or restoring nonresidential real property, including labor. New commercial construction labor is not taxable, so it matters whether the job is new construction or a remodel.

### Does Texas require a general contractor license?

We found no statewide general contractor license on official Texas pages. Electrical and air conditioning work are licensed by TDLR, and plumbing by the plumbing board. Cities often require contractor registration, insurance and permits, so check with the city where you work.

### Is workers' comp required in Texas?

Not for most private employers. Texas lets employers choose whether to carry workers' comp, but those without it must notify the state and report certain injuries. Many contracts, especially public jobs and larger general contractors, require subs to carry it anyway.

### Do Texas LLCs pay franchise tax?

LLCs are taxable entities and must file, but for 2026 and 2027 reports, those with revenue at or below $2,650,000 owe no tax. They still file a Public Information Report or Ownership Report. Sole proprietors without a liability-limiting entity aren't subject to franchise tax.

### What is the sales tax rate for contractors in Texas?

The state rate is 6.25%, and local jurisdictions can add up to 2% for a maximum combined rate of 8.25%. Contractors pay this on taxable purchases and collect it on taxable sales and services, such as materials under a separated contract.

## Related

- [Do Contractors Charge Sales Tax on Labor or Materials?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [Quarterly Estimated Taxes for Contractors: How They Work in 2026](https://www.brix.so/learn/quarterly-estimated-taxes-for-contractors)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Oklahoma Contractor Taxes and Licensing: Materials Tax, CIB Licenses and Income Tax](https://www.brix.so/taxes/oklahoma)
- [Louisiana Contractor Taxes and Licensing: Sales Tax, LSLBC Licenses and Income Tax](https://www.brix.so/taxes/louisiana)
- [Florida Contractor Taxes and Licensing: Sales Tax, Licenses and Workers' Comp](https://www.brix.so/taxes/florida)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [Texas Comptroller — Publication 94-116, Real Property Repair and Remodeling](https://comptroller.texas.gov/taxes/publications/94-116.php) (checked 2026-10-19)
- [Texas Comptroller — Publication 96-259, Taxable Services](https://comptroller.texas.gov/taxes/publications/96-259.php) (checked 2026-10-19)
- [Texas Comptroller — Sales and Use Tax (6.25% state, up to 2% local)](https://comptroller.texas.gov/taxes/sales/) (checked 2026-10-19)
- [Texas Comptroller — Franchise Tax (2026–2027 threshold and rates)](https://comptroller.texas.gov/taxes/franchise/) (checked 2026-10-19)
- [Texas Comptroller — Franchise Tax FAQ, Taxable Entities](https://comptroller.texas.gov/taxes/franchise/faq/taxable-entities.php) (checked 2026-10-19)
- [TDLR — Electricians](https://www.tdlr.texas.gov/electricians/elec.htm) (checked 2026-10-19)
- [TDLR — Air Conditioning and Refrigeration Contractors](https://www.tdlr.texas.gov/acr/acr.htm) (checked 2026-10-19)
- [Texas State Board of Plumbing Examiners](https://tsbpe.texas.gov/) (checked 2026-10-19)
- [TDI Division of Workers' Compensation — Employer resources](https://www.tdi.texas.gov/wc/employer/index.html) (checked 2026-10-19)
- [Texas Legislature — HJR 38 (86R) bill analysis, prohibition on personal income tax](https://capitol.texas.gov/tlodocs/86R/analysis/html/HJ00038E.htm) (checked 2026-10-19)

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Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/texas