Designing and building a house is exciting, if stressful and expensive. Each step in the process, loaded with questions and options, can easily become overwhelming. You have to find and purchase the land. You have to hire an architect and a general contractor. You have to pay, and you have to figure out when sales tax applies to charges and when it doesn’t.
Nontaxable v taxable services
The services provided by architects and engineers are exempt from Texas sales tax. Custom designs are therefore sales tax exempt. According to the Texas Comptroller:
Architects and engineers provide a nontaxable professional service when producing original plans and copies of the original plans for clients. An architect or engineer does not collect sales tax on separately stated charges for copies of blueprints or blueline prints provided to clients per client/architect/engineer agreements. In such circumstances, the service provider must pay sales tax on the purchase regardless of the exempt status of the client.
However, stock designs are considered tangible personal property, not a service. As a result, charges for stock designs are subject to Texas sales tax. According to the Texas Comptroller:
Architects, engineers and contractors who sell copies of “stock” or duplicate copies of blueprints and specifications which are not produced specifically for a client under an owner/architect/engineer agreement must collect sales tax on such sales.
Likewise, charges for services rendered by draftsman (not employed by the architect) are taxable.
General contractors as consumers
General contractors are considered to be consumers of blueprints or designs and must therefore pay sales tax on charges for copies of the designs. This is true even if the contractor works for an exempt organization or client, and even if he separately charges the owner of the property for the designs.
Examples
The Comptroller provides the following examples to illustrate the issue:
- An architect hired to design a new city building does not collect sales tax from the client because the architect is providing a nontaxable professional service.
- A draftsman (not an employee of the architect) who draws the blueprint of the building based on the architect's specifications must collect sales tax from the architect on the charges for the blueprint and any additional copies of the blueprint.
- The architect passes the cost of these blueprints to the client but collects no sales tax from the client because the architect is selling a nontaxable service, not tangible personal property.
- The architect later sells the “stock plans” of the previously designed building to another person. This is a sale of tangible personal property and it is subject to sales tax.
Do you have questions about how sales tax applies to the goods and services you provide? Avalara ProfessionalServices has answers.
