Know the Rules

On February 12, 2021, Governor Greg Abbott issued a disaster declaration in all 254 counties in response to severe winter weather. If you are a business that has suffered property damage or a contractor who will be repairing commercial property due to damage caused by the storm, it is important for you to know the sales tax exemptions that are available to you.

Per Texas Tax Rule 3.357(d)9, labor to repair real or tangible personal property that is damaged within a disaster area is exempt from tax if the labor charge is stated separately to the customer. Materials to perform the repair will continue to be taxable. You can claim exemption from sales tax on the labor charge by giving the contractor or service provider an exemption certificate (template attached). The certificate must give the reason for claiming the exemption: Repair of “property” due to a declared natural disaster in February 2021.

  • Non-residential real property with separately stated labor charge: Purchasers can claim a sales tax exemption from separately stated labor charges to repair or restore non-residential real property damaged by the disaster.
  • Non-residential real property billed lump-sum (one charge for materials and labor): If the contractor or service provider charges a lump-sum charge, the full charge is presumed to be taxable. However, the contractor or service provider can overcome this presumption (even after the service is completed) by accepting an exemption certificate and then separately stating the labor and materials charges and then refund the sales tax collected on the charge for labor.
  • Personal property: Purchasers can claim an exemption from sales tax on charges for labor to repair or restore items damaged by a declared natural disaster, including furniture and other items of tangible personal property. The exemption can also be claimed on costs to launder or dry clean damaged clothing or other items. Once again, an exemption certificate stating the disaster is required to exempt the sales tax.
  • Trees: Purchasers can claim an exemption from sales tax on labor charges for cutting down damaged branches or cutting up a damaged tree caused by the disaster. Charges for non-taxable services should be separately stated from charges for taxable services. A lump-sum charge for taxable and nontaxable services will be presumed taxable if the taxable portion is greater than five percent of the total bill.

If you have any questions about these exemptions, please contact me at susan.berry@bgc-tax.com and we will help you insure you are complaint.

Reference: STAR 201710027L