Is labor to repair residential property damaged by a fire, flood, or other casualty taxable in Texas?

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/9310L1269D06

Plain-English Summary

A taxpayer asked the Comptroller whether an article titled "Labor to Repair Damage Caused by a Natural Disaster," published in the September 1993 "Legislative Update" bulletin, applies to residential properties. The Comptroller's response clarifies that the article was about a specific disaster-area exemption and did not change the pre-existing, separate rule for residential property repairs.

The letter explains the disaster-area exemption first: labor (not materials) to repair property damaged in a declared disaster area, by the condition that caused the disaster declaration, is exempt — for both real property (realty) and tangible personal property (TPP) — and this disaster-area exemption does not distinguish between residential and nonresidential property. The repair labor charge must be separately stated from any charge for materials or replacement parts.

The letter then draws the key distinction the taxpayer was asking about: under all other circumstances, labor to repair TPP and nonresidential improvements to realty is taxed, but labor to repair residential improvements to realty is not taxed — and this is true "whether the residential damage occurs in a disaster area or whether the residential damage occurs by normal wear, fire, or any other cause." In other words, residential repair labor is exempt across the board, disaster area or not, and the 1993 legislative update on disaster-area labor did not alter that.

The letter illustrates this with two examples: (1) if a hurricane causes damage severe enough for the governor or president to declare a disaster area, labor to repair nonresidential improvements (like office buildings) and TPP (like televisions and refrigerators) damaged by the hurricane within the disaster area is exempt when separately stated from materials charges — and residential property repair labor remains exempt as always; (2) if a fire, tornado, or other casualty (outside a declared disaster area) damages property, labor to repair TPP and nonresidential realty is taxed, but labor to repair residential realty is still not taxed.

What This Means For You

If you repair residential property: Per this letter, your labor charges to repair residential improvements to realty are not taxable, regardless of whether the damage was caused by a declared disaster, a fire, a flood, or ordinary wear and tear. You do not need a disaster declaration to claim this exemption for residential repair labor.

If you repair nonresidential property or TPP: Per this letter, your repair labor is taxable unless the damage occurred within a declared disaster area from the condition that caused the disaster declaration — in which case the labor is exempt, but only if the labor charge is separately stated from any charge for materials or replacement parts.

If you're advising a client on a mixed situation: Confirm two things from the letter's framework — whether the property is residential or nonresidential/TPP, and (if nonresidential/TPP) whether the damage occurred in a declared disaster area from the disaster-causing condition. Residential repair labor is always exempt under this letter; nonresidential/TPP repair labor is exempt only in the disaster-area scenario described.

Q&A

Q: Does the September 1993 "Legislative Update" article change how residential property repair labor is taxed?
A: No. Per the letter, that article addressed the disaster-area labor exemption, which "does not make a distinction between residential or nonresidential property," but it did not change the separate, pre-existing rule that residential repair labor is not taxed.

Q: Is labor to repair my home after a fire taxable, even though there was no declared disaster area?
A: No. The letter states residential repair labor "is not taxed. This is true whether the residential damage occurs in a disaster area or whether the residential damage occurs by normal wear, fire, or any other cause."

Q: Is labor to repair a nonresidential office building damaged by a hurricane taxable?
A: Per the letter's hurricane example, if the damage occurs within an area declared a disaster area by the governor or president, the labor to repair nonresidential improvements like office buildings is exempt when the labor charge is separately stated from charges for materials or replacement parts.

Q: What about labor to repair a television or refrigerator damaged in that same declared disaster area?
A: The letter states this labor is also exempt, and notes that "realty no longer has to be damaged for the labor to repair TPP to be exempt" within the disaster area context described.

Q: Is labor to repair TPP or nonresidential realty damaged by an ordinary fire or tornado (no disaster declaration) taxable?
A: Yes. Per the letter, "If a fire, tornado, or other casualty causes damage to property (realty and/or TPP), then the labor to repair the TPP and nonresidential realty is taxed. However, the labor to repair residential realty is not taxed."

Original ruling text

October 27, 1993

Dear ****:

I am responding to your letter questioning whether the article
entitled "Labor to Repair Damage Caused by a Natural Disaster"
applies to residential properties.

The article in the "Legislative Update" bulletin dated September,
1993, explains the exemption available for labor to repair property
damaged in a disaster area by the condition that caused the area to be
declared a disaster area. This exemption applies to labor (not
tangible personal property) to repair real property (realty) and
tangible personal property (TPP) and does not make a distinction
between residential or nonresidential property. The repair labor must
be separately stated from any charges for materials or replacement
parts, etc.

Under all other circumstances labor to repair TPP and nonresidential
improvements to realty is taxed. However, labor to repair residential
improvements to realty is not taxed. This is true whether the
residential damage occurs in a disaster area or whether the
residential damage occurs by normal wear, fire, or any other cause.

Please review the following examples that point out the differences.
If a hurricane hits the Texas coast causing enough damage for the
governor or president to declare the area to be a disaster area, then
the labor to repair property damaged by the hurricane is exempt when
the labor charge is separately stated from the charge for materials or
replacement parts. This applies to labor to repair office buildings
and other such nonresidential improvements to realty and to labor to
repair televisions, refrigerators, and other items of TPP damaged by
the hurricane within the disaster area. (Realty no longer has to be
damaged for the labor to repair TPP to be exempt.) Again, labor to
repair residential property is not taxed.

If a fire, tornado, or other casualty causes damage to property
(realty and/or TPP), then the labor to repair the TPP and
nonresidential realty is taxed. However, the labor to repair
residential realty is not taxed.

This opinion is based upon the facts presented. If there are different
or additional facts, this opinion may change.

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Administration Division

NOTE: Previous Accession Number 9311042L.3 and/or 9311042L