Did the 1993 change to the sales tax law on disaster-area real property repairs affect labor to repair residential property, and when does tax apply to non-residential repair labor for damage that occurred before the law changed?

Subject

Casualty Losses — Residential Property Repairs Due To Fires/Floods/Natural Disasters Not Affected By Law Change — Labor Remains Exempt

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1266B04

Plain-English Summary

A taxpayer wrote to the Comptroller asking for confirmation that a change in the sales tax law regarding sales tax on real property repairs to property damaged in a disaster area did not affect residential property repairs. The Comptroller confirmed it did not: the labor to repair residential property remains unchanged and untaxed.

The taxpayer also asked about non-residential property that was damaged before September 1993, where the repair job had been started but not completed by October 1. The Comptroller's answer: tax is due on any labor charges incurred after October 1, 1993 — the effective date of the law change. Because there is no prior-contract exemption, those charges are no longer exempt unless the area was declared a disaster by the President of the United States or the Governor and the damage resulted from that disaster.

The letter gives a worked example to illustrate the split treatment: if labor to repair the (non-residential) property was bid at $10,000, and $4,000 of that labor had already been performed before October 1, 1993, then the remaining $6,000 of labor would be subject to sales tax.

What This Means For You

Residential repairs are unaffected by this law change. If you're repairing residential property damaged by fire, flood, or another casualty, labor charges remain untaxed regardless of when the repair work is performed — this letter treats that point as settled and unchanged by the October 1993 amendment.

Non-residential repair contracts spanning October 1, 1993 must be split. If a non-residential repair or remodeling job was underway before October 1, 1993 and continued afterward, labor performed on or after that date is taxable, even though labor performed before that date was not. There is no grandfather clause for contracts signed or started before the change.

The disaster-area exception is narrow. The letter states charges remain exempt only where the area was declared a disaster by the President of the United States or the Governor, and the damage resulted from that declared disaster. Absent that declaration, ordinary casualty damage (e.g., an undeclared fire or flood) to non-residential property does not preserve the pre-October 1 exemption for labor performed after that date.

Apportion mixed-period billing carefully. As the letter's own example shows ($10,000 bid, $4,000 pre-October labor exempt, $6,000 post-October labor taxable), businesses billing for repair labor that spans the effective date need to allocate charges based on when the labor was actually performed, not on when the contract was signed or the damage occurred.

Q&A

Q: Did the 1993 sales tax law change affect labor to repair residential property damaged by a fire or flood?
A: No. The letter confirms the change "did not affect residential property repairs" and that "the labor to repair residential property remains unchanged and untaxed."

Q: Is labor to repair non-residential property damaged before September 1993 taxable if the job wasn't finished until after October 1, 1993?
A: Yes, for the portion of labor performed after October 1, 1993. The letter states "tax is due on any labor charges incurred after October 1, 1993, the effective change in the new law," and notes there is no prior-contract exemption.

Q: Is there any way non-residential repair labor stays exempt after October 1, 1993?
A: Only if "the area was declared a disaster by the President of the United States or the Governor and the damage resulted from the disaster."

Q: How does the letter illustrate splitting taxable and exempt labor on the same job?
A: With an example: if the labor to repair the property was bid at $10,000 and $4,000 of labor had been used prior to October 1, 1993, the remaining $6,000 would be subject to sales tax.

Q: Who signed this letter and what office issued it?
A: Wade Anderson, Assistant Director, Tax Administration, signed the letter dated October 26, 1993.

Original ruling text

October 26, 1993

Dear *****:

Recently, you wrote asking for confirmation that the change in the
sales tax law regarding sales tax on real property repairs to property
damaged in a disaster area did not affect residential property
repairs. The labor to repair residential property remains unchanged
and untaxed.

You also asked if tax would be owed on labor to non-residential
property damaged prior to September, 1993, when the repair job had
been started but not completed by October 1. Tax is due on any labor
charges incurred after October 1, 1993, the effective change in the
new law. Because there is no prior contract exemption, the charges are
no longer exempt unless the area was declared a disaster by the
President of the United States or the Governor and the damage resulted
from the disaster.

For example, if the labor to repair the property was bid at $10,000
and $4000 of labor had been used prior to October 1, 1993, the
remaining $6000 would be subject to sales tax.

I hope this satisfactorily answers your questions. If you have further
questions please call me at 1-800-531-5441, extension 3-4004.

Sincerely,

Wade Anderson
Assistant Director
Tax Administration

NOTE: Previous Accession Number 9308177L.2 and/or 9308177L