What records prove a Texas job was new construction?

Almost nobody gets this wrong on purpose. The contractors who end up in trouble here classified the job correctly at the time, knew exactly why, and simply never wrote the reason down anywhere that survived. Three years later the invoice says what was charged and nothing at all about why the labor was not taxed, and the person who knew has moved on. If that sounds uncomfortably familiar, you are in ordinary company.

The good news is that Texas names the documents. To establish that part of a job was new construction rather than taxable remodeling, the rule points to written contracts that detail the scope of work, bid sheets, tally sheets, schedules of values, and blueprints. Both you and your customer are required to keep that documentation, and sales and use tax records generally have to be retained for at least four years.

You almost certainly produce most of those documents already. Bid sheets exist. Blueprints exist. Schedules of values are usual on larger jobs. In our experience the problem is rarely that the evidence was never created; it is that it was created, used, and then scattered across an email thread, a truck, a project management tool that has since been canceled, and somebody’s laptop.

This guide sets out what the rule accepts as proof, how to build a job file that survives without adding real work to a live job, and what to do about jobs already closed without one. The records side is what we can speak to directly. Whether a specific job qualifies as new construction is a determination under the Comptroller’s rules and a question for your CPA, and nothing here decides it for you. AliCat Solutions builds and maintains these files for Central Texas contractors.

Estimated reading time: 14 min read

Overview

Claiming a job was new construction is claiming an exclusion, and an exclusion is something you have to be able to evidence years later. What that takes:

• The documents the rule names by type: written contracts detailing scope, bid sheets, tally sheets, schedules of values, blueprints
• Documentation clearly defining the work, showing that if the new construction and the remodeling had been done separately, each charge would reasonably approximate the amount allocated
• A written certification prepared by the customer and the service provider where no written contract clearly shows the agreed split
• Retention on both sides of the contract, for at least four years, and longer while any audit, appeal, or refund is unresolved
• A description good enough that somebody who was never on site can tell what physically changed about the building

What this guide covers

• What the rule accepts as proof
• Four years, and why it is longer than it sounds
• Building a job file that survives
• What to do about jobs already closed

What the rule accepts as proof

Where a nonresidential job mixes new construction with repair, restoration, or remodeling under a single charge, the separate-identification duty does not bite on every job. Minor repair, restoration, or remodeling performed in connection with new construction is not taxable where that portion is 5.0 percent or less of the overall lump-sum charge. Above that threshold, the parties must separately identify the taxable and nontaxable labor and the charges attributable to each, and where they do not, the entire contract is presumed to be taxable remodeling. Separately stated taxable charges are taxable regardless, even where they fall under five percent.

So the documentation duty described in this guide attaches to jobs that cross that line, or that separately state taxable work. A genuinely minor bit of remodeling folded into a new build does not drag the whole contract into it, which is worth knowing before you build a filing regime around jobs that never needed one.

The standard the documentation has to meet is stated plainly: it must clearly define the work performed, and show that had the new construction and the remodeling been done independently, the charge for each would reasonably approximate the amount allocated.

That is a useful test to hold your own paperwork against. It is not asking whether your split looks fair. It is asking whether an outsider, reading your documents, could rebuild the same split from the underlying work and land in roughly the same place.

Where no written contract clearly shows agreement on the taxable and nontaxable work, the customer and the service provider must prepare a written certification verifying the allocation of charges between repair, restoration, or remodeling and new construction. That is a fallback worth knowing about, and the rule frames it as something the two parties prepare rather than specifying a signature ritual, and a poor substitute for having got it right in the contract, because it requires the cooperation of a customer who may by then have no reason to give it.

Four years, and why it is longer than it sounds

Texas sales and use tax records must be kept for at least four years. Those records have to show gross receipts from all sales, all taxable services, taxable purchases, and enough supporting material to substantiate any deduction or exclusion claimed. Where an audit, appeal, or refund matter is open, records are kept until that is resolved rather than until the four years expire.

Four years is long enough that a contracting business may change accounting software, change project management tools, and turn over the staff who knew the job. The evidence does not have to survive your memory. It has to survive your systems.

The failure mode we see most often is specific and predictable. A job is classified correctly at the time by somebody who knew the building. The classification goes into the invoice. The reasoning goes nowhere. Three years later the invoice says what was charged and nothing at all about why the labor was not taxed, and the person who knew is no longer employed.

The fix is the least glamorous thing in this article, which is filing the evidence at the point it is created rather than at the point it is needed. Our record retention guide sets out how long each category of business record has to be kept.

Building a job file that survives

The practical target is that any closed job can be opened four years later and answer three questions without anyone being consulted: what physically changed about the building, what the agreed split was, and how that split was arrived at.

That is a short list of documents, and every one of them exists already on a normal job.

What goes in the job file	What it proves	When it gets filed
Signed contract with the scope detailed	What the parties agreed was being done	At signing, before work starts
Bid sheet and tally sheets	How the allocation was built from the actual work	At bid, kept even when the bid changed
Schedule of values	The line-level split across the job	At contract, and each revision
Blueprints or drawings, before and after	What existed before and what exists now	At contract, plus any change orders
Change orders	Why the scope moved and which side of the line it moved to	As issued, never retrospectively
Permits, with fees separately stated	The permit position, and a charge that comes out of the taxable total on nonresidential remodeling when separately stated	As issued
Invoices matching the contract split	That what was billed agrees with what was agreed	As issued
Written certification, where no contract shows the split	The allocation, as prepared by the customer and the service provider	As early as possible, while the customer is still engaged

None of this asks the crew to do anything. It asks somebody to put documents that already exist into a per-job location and keep them there, consistently, on every job, including the small ones that never seemed worth it. Small jobs are where this fails, and a review does not confine itself to the interesting contracts.

The other half is the accounting file. A job file proves an individual job; the accounting file has to be able to produce the totals. If your file cannot report taxable and nontaxable labor for a period without somebody opening invoices one at a time, the reporting burden lands on whoever is least able to carry it at the moment it arrives. That configuration work is what proper job costing is for.

What to do about jobs already closed

Most contractors who read this far are not starting clean. There are closed jobs behind them where the classification was right and the file is thin.

That is recoverable, and it gets less recoverable every month. The documents often still exist somewhere: in the customer’s hands, in email, in the old estimating system, with the architect. The people who remember the job are still reachable. Neither of those stays true.

• Work backwards from the largest contracts first, because that is where exposure concentrates
• Pull what exists from email and the old systems before those systems are decommissioned
• Ask the customer for their copy while the relationship is warm, since the retention duty is theirs too
• Where nothing written shows the agreed split, prepare the written certification now rather than later
• Record what could not be recovered, honestly, so the gap is known rather than discovered

That last point matters more than it looks. A known gap is a decision your CPA can plan around. An unknown gap is a surprise in the middle of a review, and surprises are what turn a document request into something longer.

Reconstructing closed-job documentation is ordinary cleanup work, and it is the kind of thing our bookkeeping cleanup and catch-up service handles routinely: going back through finished periods, rebuilding what the records should have carried, and getting the file into a state that holds.

Questions contractors ask about documentation

Q: What specific documents does Texas accept as proof of new construction?

A: The rule names written contracts that detail the scope of work, bid sheets, tally sheets, schedules of values, and blueprints as examples of acceptable documentation. The test they have to satisfy is that the documentation clearly defines the work performed and shows that if the new construction and the remodeling had been done independently, the charge for each would reasonably approximate the amount allocated. Where no written contract clearly shows agreement on the taxable and nontaxable work, the customer and the service provider must prepare a written certification verifying the allocation.

Q: How long do I have to keep them?

A: Texas sales and use tax records must be kept for at least four years. They need to show gross receipts, taxable services, taxable purchases, and support for any deduction or exclusion claimed. Where an audit, appeal, or refund matter is open, records should be kept until that matter is resolved rather than discarded at the four-year mark. Treat a new-construction classification as an exclusion you will have to evidence, because that is exactly what it is.

Q: Does my customer have to keep records too?

A: Yes. Where a contract combines new construction and remodeling, both parties are required to retain documentation that clearly defines the work performed. That is worth knowing for two reasons. It means a customer who no longer has their copy has their own problem, and it means a customer is a legitimate source when you are reconstructing a thin file, because they were supposed to have kept it as well.

Q: We classified correctly but the paperwork is thin. What now?

A: Reconstruct while it is still possible, largest contracts first. The documents usually still exist somewhere: with the customer, in email, in an estimating system that has not yet been switched off, or with the architect. Where nothing written shows the agreed split, prepare the written certification with the customer now, while the relationship is current. Then record honestly what could not be recovered, so the gap is a known planning problem for your CPA rather than a discovery mid-review.

Q: Is this something a bookkeeper does, or a CPA?

A: Both, in different lanes. Whether a given job qualifies as new construction is a determination under the Comptroller’s rules, and how it applies to a specific contract is a question for your CPA. Building the per-job file, getting the documents filed at the point they are created, and configuring the accounting file so the totals can be reported rather than reconstructed is bookkeeping. The classification is worth nothing if the evidence behind it was never filed, which is why the two jobs have to be done together.

Who keeps the job file

AliCat Solutions keeps job-level records for contractors and service businesses across Cedar Park, Round Rock, Leander, Georgetown, and the wider Austin metro, under CPA supervision. That means per-job files that hold their own evidence, an accounting file that can report rather than reconstruct, and filings that go in on time. Our sales tax and compliance service covers calculation, filing and remittance, multi-jurisdiction tracking, and documentation support if a review arrives.

Citations

• 34 Tex. Admin. Code section 3.357, Nonresidential Real Property Repair, Remodeling, and Restoration. The rule governing mixed contracts: minor repair or remodeling in connection with new construction is not taxable at 5.0 percent or less of a lump-sum charge; above that the parties must separately identify taxable and nontaxable labor or the entire contract is presumed taxable; separately stated taxable charges are taxable regardless. It also sets the documentation standard, names the acceptable document types, provides the written-certification fallback, and requires both parties to retain the records. https://www.law.cornell.edu/regulations/texas/34-Tex-Admin-Code-SS-3-357
• Texas Sales and Use Tax Frequently Asked Questions, Keeping Records (Texas Comptroller of Public Accounts). The retention requirement: records kept at least four years, showing gross receipts, taxable services and purchases, and support for any claimed deduction or exclusion. https://comptroller.texas.gov/taxes/sales/faq/records.php
• 34 Tex. Admin. Code section 3.291, Contractors. The definition of new construction, including initial finish-out and the addition of new usable square footage, and the rule that reallocating existing square footage inside a building is remodeling. https://www.law.cornell.edu/regulations/texas/34-Tex-Admin-Code-SS-3-291
• Real Property Repair and Remodeling (Texas Comptroller of Public Accounts, publication 94-116). The Comptroller’s plain-language statement of what is taxable on residential and nonresidential repair and remodeling, including the separately stated building permit fee exception. https://comptroller.texas.gov/taxes/publications/94-116.php

Related reading

• Is remodeling labor taxable in Texas when new construction isn’t?
• How long do I need to keep business records?
• Do I need to collect sales tax as a Texas contractor?
• How do I track job costs in a construction business?
• AliCat’s record retention guide