If casualty-loss repair labor was performed and finished before October 1, 1993, but most of the payment isn't collected until October 1993, is that labor taxed under the new law that took effect October 1, 1993?

Subject

Casualty Loss Repair Labor — Taxability Turns On The Date Labor Was Performed, Not The Casualty Date Or Payment Date

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9311L1269A11

Plain-English Summary

A company had contracted to repair damage from a natural disaster that occurred in April 1993. The repair labor was performed and completed before October 1, 1993, but most of the payment for that work was not collected until October 1993. The taxpayer asked the Comptroller whether the labor became taxable because of a law change that took effect October 1, 1993 (an amendment to Tax Code Sec. 151.350 affecting the exemption for labor to repair tangible personal property and nonresidential realty).

The Comptroller answered no: tax is not due on the labor, because the labor itself was performed and completed before October 1, 1993, and it qualified under the Comptroller's administrative provisions in effect at that time (Rule 3.357 and Rule 3.310). The letter directs that the transaction amount should still be shown in total sales on the return, but the labor amount should not be included in taxable sales.

The letter then states the general transition rule for casualty-loss repairs spanning the October 1, 1993 change: the only date that matters is the date the labor was performed. Neither the date the casualty loss or disaster occurred, nor the date payment was made or received, is used to make the determination. Labor performed on or before September 30, 1993 is governed by the prior administrative provisions (Rule 3.357 and Rule 3.310). Labor performed on or after October 1, 1993 is governed by the amended statute, Sec. 151.350, under which labor to repair tangible personal property and nonresidential improvements to realty is taxable unless the revised exemption applies.

What This Means For You

If you performed casualty-loss repair labor that straddles October 1, 1993: What matters is the calendar date the labor work itself was actually performed and completed — not when the storm or disaster happened, and not when your customer pays you. If the labor was done on or before September 30, 1993, it's governed by the old rules (Rule 3.357 and Rule 3.310); if performed on or after October 1, 1993, it falls under the amended Sec. 151.350 and its revised exemption.

If you're billing for pre-October-1 repair labor with a delayed payment: This letter confirms that collecting payment after October 1, 1993 does not pull labor completed before that date into the new, potentially taxable regime. Still report the full transaction amount in total sales on your return, but exclude the labor amount from taxable sales.

Caveat on scope: This is a fact-specific opinion — the letter itself says it is "based upon the facts presented" and that "[i]f there are additional or different facts, this opinion may change." It also notes the implementing rules for the revised Sec. 151.350 exemption were, at the time of the letter, still being revised and not yet available for distribution.

Q&A

Q: My repair labor was finished before October 1, 1993, but the customer didn't pay the bulk of the invoice until October. Is the labor now taxable under the new rule?
A: No, according to this letter. Tax is not due on labor that was performed and completed before October 1, 1993, as long as it qualifies under the prior administrative provisions (Rule 3.357 and Rule 3.310) — regardless of when payment is collected.

Q: Does the date the casualty or natural disaster occurred determine which rule applies?
A: No. The letter is explicit that "[n]either the date the casualty loss or disaster occurred nor the date of payment for services rendered is used to make the determination." Only the date the labor was performed controls.

Q: How do I know which rule set applies to my casualty-loss repair labor?
A: Look only at when the labor was performed. Labor performed on or before September 30, 1993 falls under the Comptroller's prior administrative provisions in Rule 3.357 and Rule 3.310. Labor performed on or after October 1, 1993 falls under the amended Tax Code Sec. 151.350, which makes labor to repair tangible personal property and nonresidential improvements to realty taxable unless the revised exemption applies.

Q: If my exempt pre-October-1 labor is exempt, how should I report it on my sales tax return?
A: The letter instructs to show the amount of the transaction in total sales, but not to include the labor amount in taxable sales when filing the return covering that transaction.

Original ruling text

November 4, 1993

Dear **:

Thank you for your letter regarding the change to the exemptions
available for labor to repair damage due to natural disasters, etc.
Your particular question dealt with damage due to a natural disaster
in April of 1993.

In your letter and our telephone conversation on November 4, 1993, you
explained that your company entered into a contract to repair damage
due to a natural disaster that occurred in April, 1993. The work was
performed and completed before October 1, 1993, but the bulk of the
payment is being collected in October of 1993. You asked whether tax
was due on the labor due to the change effective October 1, 1993.

No, tax is not due on the labor performed and completed before October
1, 1993, as long as it qualifies under the Comptroller's administrative
provisions as set out in Rule 3.357 and Rule 3.310. Be sure to show the
amount of this transaction in total sales, but do not
include the labor amount in the taxable sales when you file the sales
tax return covering this transaction.

For casualties occurring before October 1, 1993, to determine which
provision applies one must look to the date that the labor is
performed. Neither the date the casualty loss or disaster occurred nor
the date of payment for services rendered is used to make the
determination.

For labor performed on or before September 30, 1993, the Comptroller's
administrative provisions as set out in Rule 3.357 and Rule 3.310
apply. For labor performed on and after October 1, 1993, the statute
amendment (151.350) effective October 1, 1993, applies. Labor to
repair tangible personal property and nonresidential improvements to
realty will be taxable unless the revised exemption applies.

You stated that you understood the revised exemption. I have enclosed
a copy of this section of the statute for your review. The applicable
rules are being revised and are not available for distribution at this
time, but I enclosed the "old" versions for comparison to the statute.

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

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

Sincerely,

Tax Policy Division

NOTE: Previous Accession Number 9311031L.3 and/or 9311031L