Texas guide for HVAC, plumbing and electrical contractors

Sales tax and bookkeeping for HVAC, plumbing and electrical contractors in Texas

In Texas a contractor's labor is not taxed on homes, apartment complexes or new construction. Repair and remodeling of commercial property is taxed on the total charge, at up to 8.25% combined.

In Texas the whole question turns on the building. Repair or remodel labor on a home or apartment complex is not taxed, and neither is labor on new construction. The same work on an office, shop, restaurant or warehouse is taxed on the entire bill, labor included. Underneath that sits a second choice, lump-sum or separated contract, that decides who pays tax on the materials. Here is how the Comptroller draws both lines, with the state's own documents next to each rule.

Checked against Texas’s own sources on October 18, 2026. By the Books and Trucks team. Not tax advice.

Texas at a glance
Labor	Not taxed on homes, apartment complexes and new construction. Taxed on the total charge for repairing or remodeling commercial property, at the job-site rate up to 8.25%.
Materials	Lump-sum residential job: you pay tax at the supply house and charge the customer none. Separated contract: buy on a resale certificate and collect tax on the materials line.
Filing	Monthly if you owe $1,500 or more of state tax a quarter, quarterly below that, yearly under $1,000 a year with approval. Due the 20th. File even with nothing to report.
Rate	6.25% state, plus up to 2% of city, county and district tax: 8.25% at most.
Licence	HVAC and electrical through the Texas Department of Licensing and Regulation, plumbing through the State Board of Plumbing Examiners, all renewed every year.
Income tax	None. Franchise tax is due only above $2,650,000 of annualized revenue for 2026 and 2027 reports.

Sales tax on labor

Residential or commercial, new or repair: three questions decide the tax

The Comptroller asks three things about every trades job: is the property residential or nonresidential, is the work new construction or repair and remodel, and is the contract lump-sum or separated. Residential means houses, apartment complexes, condominiums, nursing homes and retirement homes, whether or not the owner lives there. Hotels and anything rented for under 30 days are not residential.

Labor to repair, remodel or restore residential property is not taxable. Labor on new construction, residential or commercial, is not taxable either.
Source: Texas Comptroller, Publication 94-116, Real Property Repair and Remodeling
The total charge for repairing, remodeling or restoring nonresidential property is taxable: labor, materials and passed-through costs. Only separately stated building permit fees are excluded.
Source: Texas Comptroller, Publication 94-116, Real Property Repair and Remodeling
Taxable services include work to rebuild, replace, alter, modify or upgrade existing nonresidential realty. Adding new usable square footage and scheduled periodic maintenance are not taxable.
Source: Texas Comptroller, Publication 96-259, Taxable Services
For commercial repair the lump-sum vs separated distinction no longer applies. You collect tax on the total sales price whichever way you bill, and local tax follows the job site.
Source: 34 Tex. Admin. Code 3.357, Nonresidential Real Property Repair, Remodeling and Restoration
Maintenance is different from repair. Maintenance is scheduled, periodic work on property that is not broken, and its labor is not taxable on commercial property, but you need a contract or similar paperwork showing it is scheduled. Parts used in maintenance are taxable.
Source: 34 Tex. Admin. Code 3.357, Nonresidential Real Property Repair, Remodeling and Restoration
The 5% rule: when repair work is more than 5% of a single commercial charge that also includes nontaxable work, the whole charge is presumed taxable unless the taxable part is separately stated at the time of sale.
Source: Texas Comptroller, Publication 94-116, Real Property Repair and Remodeling
Repairs to commercial property damaged in a declared disaster: labor is not taxable, materials are, and the bill must separately state the two.
Source: Texas Comptroller, Publication 94-116, Real Property Repair and Remodeling
A subcontractor on a commercial repair can give the prime a resale certificate; the prime collects tax from the end customer.
Source: Texas Comptroller, Publication 94-116, Real Property Repair and Remodeling

Lump-sum or separated

On residential and new construction work, the contract type decides who pays tax on materials

Lump-sum contract: one price for the whole job. You pay sales tax on all materials, supplies and equipment when you buy them and do not charge the customer tax.
Source: Texas Comptroller, Publication 94-116, Real Property Repair and Remodeling
A lump-sum contractor shall not collect from a customer any amount represented to be tax on a lump-sum charge. Tax collected in error must be refunded or sent to the state. You may not keep it.
Source: 34 Tex. Admin. Code 3.291, Contractors
Separated contract: the price is split into a separately stated charge for incorporated materials and a charge for labor. You give suppliers a resale certificate, then collect state and local tax from the customer on the materials line. Labor stays untaxed.
Source: Texas Comptroller, Publication 94-116, Real Property Repair and Remodeling
A separated contractor is a retailer of all materials physically incorporated into the realty and must hold a sales tax permit. A lump-sum contractor may not issue resale certificates.
Source: 34 Tex. Admin. Code 3.291, Contractors
On a separated contract the price of incorporated materials cannot be less than what you paid for them. Tax is due on the greater of the stated price or your cost.
Source: 34 Tex. Admin. Code 3.291, Contractors
Local tax on a separated residential or new construction job is based on the job site, not your shop address.
Source: Texas Comptroller, Publication 94-105, Local Sales and Use Tax Collection
Tools, equipment and consumables that do not go into the property are taxed to you under either contract type.
Source: 34 Tex. Admin. Code 3.291, Contractors
During the ENERGY STAR sales tax holiday (May 23 to 25 in 2026) ENERGY STAR air conditioners priced at $6,000 or less could be sold tax free when incorporated under a separated contract. Heat pumps and water heaters did not qualify.
Source: Texas Comptroller, Publication 96-1331, ENERGY STAR Sales Tax Holiday

Rates, permits and filing

6.25% state, up to 8.25% combined, and a discount for filing on time

The state rate is 6.25%. Cities, counties, special purpose districts and transit authorities can add up to 2%, for a maximum combined rate of 8.25%.
Source: Texas Comptroller, Sales and Use Tax
A sales tax permit is required for anyone selling taxable services or tangible goods in Texas. Performing services with employees or subcontractors counts as engaged in business. You must file a return even for a period with no taxable sales.
Source: Texas Comptroller, sales tax permit FAQ
Filing frequency: monthly if you owe $1,500 or more of state sales tax a quarter, quarterly if less than $1,500 a quarter, yearly with Comptroller approval if under $1,000 a year. Yearly status ends automatically once liability passes $1,000.
Source: 34 Tex. Admin. Code 3.286, filing frequency
Returns and payment are due by the 20th of the month after the period. Quarterly returns fall on April 20, July 20, October 20 and January 20.
Source: Texas Comptroller, Sales and Use Tax
Timely filers keep a 0.5% discount. Monthly or quarterly filers who prepay get a further 1.25%.
Source: Texas Comptroller, reporting and paying FAQ
Government customers generally pay no tax; exempt nonprofits must give you an exemption certificate. For an exempt customer you may also buy consumables used up at the job site tax free, but not equipment, repair parts for equipment or office supplies.
Source: Texas Comptroller, Publication 94-116, Real Property Repair and Remodeling

Licensing

Three state programs, all renewed every year

Texas licenses the three trades at state level, and every licence renews annually. For a shop that holds an ACR licence, an electrical contractor licence and a master plumber, that is three renewal dates and three continuing education cycles a year to track.

HVAC: the Texas Department of Licensing and Regulation licenses air conditioning and refrigeration contractors. Class A works on any size unit; Class B is limited to cooling of 25 tons and under and heating of 1.5 million BTU an hour and under. Application $115, licence valid one year.
Source: TDLR, air conditioning and refrigeration contractor licence
ACR insurance: Class A needs general liability of $300,000 per occurrence and $600,000 aggregate; Class B $100,000 and $200,000, each with matching products and completed operations cover.
Source: TDLR, air conditioning and refrigeration contractor licence
ACR renewal $65 a year; 1.5 times the fee up to 90 days late, double after that. Eight hours of approved continuing education each year, including one hour on Texas law and rules.
Source: TDLR, ACR contractor renewal
Plumbing: the Texas State Board of Plumbing Examiners issues Tradesman Plumber-Limited (one and two family homes, 4,000 hours), Journeyman (8,000 hours plus a course or apprenticeship, $40 renewal) and Master Plumber (two years as a journeyman, $75 renewal). Licences renew annually with six hours of continuing education.
Source: Texas State Board of Plumbing Examiners, licence types
Electrical: all electrical work runs through a TDLR-licensed electrical contractor employing a master electrician as master of record. Contractor application $110, renewal $110 a year, $165 if up to 90 days late, $220 after. Insurance of $300,000 per occurrence and $600,000 aggregate.
Source: TDLR, electrical contractor licence
Masters, journeymen, wiremen and apprentices complete four hours of continuing education per renewal; contractors and residential appliance installers are exempt from it.
Source: TDLR, electrician continuing education

Payroll and business taxes

No income tax, a franchise tax most small shops do not owe, and one state payroll tax

Texas has no individual income tax. The state constitution bars the legislature from taxing the net income of individuals, including their share of partnership income.
Source: Texas Constitution, Article 8, Section 24-a (HJR 38, 2019)
Franchise tax for 2026 and 2027 reports: no tax due if annualized total revenue is $2,650,000 or less. You still file a Public Information Report or Ownership Information Report by May 15.
Source: Texas Comptroller, Franchise Tax
Above the threshold the rate is 0.75% of margin for most businesses, 0.375% for retail or wholesale, with an EZ computation of 0.331% for revenue of $20 million or less.
Source: Texas Comptroller, Franchise Tax
State unemployment insurance through the Texas Workforce Commission: new employers pay the greater of 2.7% or their industry average on a $9,000 taxable wage base per employee. Experienced employers pay 0.32% to 6.32% in 2026.
Source: Texas Workforce Commission, unemployment tax rates
No Texas law requires paid vacation or paid sick leave. Once you write a leave policy, though, it is enforced as wages under the Texas Payday Law, so put it in writing carefully.
Source: Texas Workforce Commission, Texas Guidebook for Employers, leave policies

Season and market

Cash arrives in July and August

Texas HVAC runs on the summer. The state grid set its all-time demand record on July 22, 2026, and every summer record on file fell in July or August. For an HVAC shop that is when the year is made, often with a smaller heating bump in winter. For bookkeeping it means the busy months have to carry the quiet ones, so cash planning, licence renewals and tax clean-up belong in the off season.

ERCOT's all-time peak demand of 91,134 MW was set on July 22, 2026, beating the August 10, 2023 record of 85,508 MW.
Source: U.S. Energy Information Administration on the July 2026 ERCOT record
In 2024 Texas had about 9,800 plumbing and HVAC contractor establishments with about 116,800 jobs, and about 7,400 electrical contractor establishments with about 107,600 jobs. Residential plumbing and HVAC alone: 6,905 establishments.
Source: BLS Quarterly Census of Employment and Wages, Texas 2024

What goes wrong

The Texas mistakes we fix most often

1Residential rules on commercial workThe same repair that is tax free in a house is taxable on the whole bill in a restaurant, office or warehouse, and hotels count as commercial. We set the customer type in QuickBooks so the tax follows the building, not the habit.
2Charging tax on a lump-sum residential jobA lump-sum contractor may not collect anything represented as tax. Anything collected by mistake has to be refunded or sent to the state. We check invoice templates so a lump-sum job cannot carry a tax line.
3Mixing the two contract methodsPaying tax at the supply house and also charging the customer, or using a resale certificate on a lump-sum job. Audits usually cover four years and run on your purchase records, so each materials purchase has to be coded to its contract type.

In QuickBooks Online

Set up tax the way Texas expects

In Texas the same furnace swap is tax free in a house and fully taxable in a shop, so the customer record has to carry residential or commercial, and the invoice template has to follow it. Lump-sum jobs carry no tax line at all; separated jobs carry tax on the materials line at the job-site rate. Materials purchases get coded to their contract type so an audit can be answered from the books.

Sales tax filing is part of our monthly bookkeeping for trade shops on QuickBooks Online, from $599 a month: see HVAC bookkeeping, plumbing bookkeeping and electrical contractor bookkeeping.

See monthly bookkeeping Book a 15-minute call

Booked calls: weekdays, 9am to 5pm Eastern. By phone, or 30 minutes on Teams.

Books behind or tax set up wrong? New clients start with a free QuickBooks cleanup.

Questions

Texas owners ask

Do HVAC companies charge sales tax in Texas?

For a house or apartment complex, no tax on labor, and on a lump-sum job no tax at all, because you already paid tax on the equipment and parts. On a commercial building the whole repair or replacement bill, labor included, is taxable at the job-site rate, up to 8.25%.

Source: Publication 94-116

Is plumbing labor taxable in Texas?

Labor to repair or remodel a home, duplex or apartment complex is not taxable, and neither is labor on new construction. Labor to repair plumbing in a restaurant, office, store or hotel is taxable as part of the total charge.

Source: Publication 94-116

Do electricians need a sales tax permit in Texas?

Yes if you bill materials separately or do any commercial repair or remodel work, because you are then a retailer of materials or a seller of a taxable service. A pure lump-sum residential or new construction contractor pays tax to suppliers and does not collect, though a permit is needed to buy for resale on separated jobs.

Source: Rule 3.291, Contractors

How often do I file sales tax in Texas?

Monthly if you owe $1,500 or more of state sales tax a quarter, quarterly if less than $1,500 a quarter, and yearly with Comptroller approval if under $1,000 a year. Returns are due on the 20th after the period ends. The Comptroller tells you your schedule by letter after your permit is approved.

Source: Rule 3.286

Does my LLC have to pay Texas franchise tax?

Every taxable entity files, but for 2026 and 2027 reports you owe nothing if annualized total revenue is $2,650,000 or less. You still must file the Public Information Report or Ownership Information Report by May 15 or face late penalties and eventual forfeiture.

Source: Texas Comptroller, Franchise Tax

Can you set this up in our QuickBooks?

Yes. Sales tax filing is part of our monthly bookkeeping for trade shops on QuickBooks Online. For Texas that means each customer marked residential or commercial, each job marked lump-sum or separated, materials coded to match, and the return filed by the 20th with the timely-filing discount taken.

Sources

Every rule above was read in these Texas documents. Open the source before you change how you bill.

Other states

The short answer for every state is in contractor sales tax by state. Full guides so far: