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What are the laws on Retainage as far as Sales Tax?

TexasRetainage

We have a General Contractor who deducts 5% retainage on the Sales Tax only. Is this legal?

1 reply

Dec 20, 2019
Texas has confusing retainage requirements, but those requirements don't discuss taxes or even place limitations on what a contractor can withhold from their subcontractor. So, because there don't seem to be relevant regulations, retainage between a contractor and their sub should be used in accordance with the contract. And, if the contract is silent as to retainage, then a contractor should likely not be withholding retainage at all. After all, that'd constitute withholding payment that's already owed for work performed without any grounds for doing so. 5% of a small part of the contract sounds like a meager retainage amount, but the point stands - in order to utilize retainage, that right should be established in the contract. And, when payments are being withheld in a way that's out of line with the contract, then it may be time to evaluate payment recovery options. For more discussion on retainage in Texas: Texas Mechanics Lien Guide and FAQs.
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