Sales tax on professional services

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Issue
The state of Texas imposes a sales tax on retail sales, leases and rentals of most goods, and some taxable services. All local governmental entities have the option of imposing an additional local sales tax for a maximum combined state and local tax of 8.25%.

During past legislative sessions, some discussion has concentrated on expanding the state sales tax base to include professional services. All professional services, including real estate services, would be taxed.

What does this mean for the real estate industry?
According to the Real Estate Center at Texas A&M, the average home sale in Texas in October 2016 was $260,012, which would mean, depending on commission rate and local options, the tax could add well over $20,000 due at closing.

The Texas REALTOR® position
The Texas Association of REALTORS® steadfastly opposes efforts to expand the sales-tax base to include professional services. Furthermore, the association believes any taxing structure should not place an undue burden on the real estate industry or hamper the continued economic recovery in Texas.

Most people are willing to pay their share of taxes as long as the system is perceived as reasonable—meaning the largest number of taxpayers paying the smallest possible dollar amount and people in similar circumstances paying similar taxes.

Legislative outlook
Several groups have already released proposals calling for an expansion of the sales-tax base to include real estate services as part of a larger state tax restructure.

Historical perspective
Studies from the National Association of REALTORS®, the Real Estate Center at Texas A&M, and other industry think-tanks confirm that adding a tax on real estate commissions would have a detrimental effect on the housing industry—one study indicates an overall 3% drop in the real estate market.

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