Is labor to repair real or personal property damaged by a disaster exempt from Texas sales tax even if the damage occurred outside an area officially declared a disaster area?

Plain-English summary

A taxpayer's representative argued to the Comptroller's office that labor to restore real or tangible personal property damaged in a disaster should remain tax-exempt, even for damage occurring outside an officially declared disaster area. The argument relied on the fact that, starting in 1988, the Comptroller had a rule interpreting disaster/accident repair services as non-taxable "repair and remodeling" services — and that rule was not formally revised until roughly a year after the Legislature later enacted Tax Code Sec. 151.350, which limits the exemption to repairs on property damaged within a declared disaster area. The taxpayer's position was that, during that gap period before the rule itself was amended, the old (broader) rule should still control.

The Comptroller's office rejected this. It explained that its rulemaking authority over the definition of real property repair and remodeling services under Sec. 151.0101(b) exists only because the Legislature gave it that authority — and the Legislature can take away or modify what it gave. When the Legislature adopted Sec. 151.350, it specifically limited the disaster-repair exemption to property damaged within a declared disaster area. That statutory choice controls over the Comptroller's earlier, broader rule, and an agency's rule cannot override or conflict with a statute (a principle recognized in case law and codified at Tax Code Sec. 111.002(a)). The letter also notes the taxpayer's client was notified in writing of the legislative change and that the law presumes knowledge of legislative changes regardless. The Comptroller recommended that the tax be upheld.

What this means for you

Businesses and property owners repairing disaster-damaged property

Repair labor on real or personal property damaged by a disaster is exempt from Texas sales tax only if the damage occurred within an area officially declared a disaster area by the Governor or the President. Damage outside a declared disaster area does not qualify for this exemption, even if the damage resulted from a comparable event.

Taxpayers relying on an older Comptroller rule that hasn't yet been formally updated

This letter shows that a Comptroller rule cannot extend an exemption beyond what a later-enacted statute allows, even during a transition period before the rule text itself catches up to the law. If the Legislature narrows or changes an exemption, that statutory change controls immediately — you can't rely on the old rule's broader language just because it hasn't been formally amended yet.

Accountants and tax professionals

This is a useful illustration of the hierarchy between agency rulemaking authority and statute: the Comptroller's authority to interpret "repair and remodeling services" under Sec. 151.0101(b) is delegated by the Legislature, so a later statute (here, Sec. 151.350) supersedes an earlier, more permissive Comptroller rule on the same subject, per Sec. 111.002(a).

Common questions

Q: Is labor to repair property damaged by a disaster always exempt from Texas sales tax?
A: No. It's exempt only if the property was damaged within an area officially declared a disaster area by the Governor or the President, per Tax Code Sec. 151.350.

Q: What if the damage happened before the Comptroller updated its rule to match the new law?
A: It doesn't matter. The Comptroller's office held that the statute (Sec. 151.350) controlled from the time the Legislature enacted it, regardless of whether the Comptroller's own rule had yet been formally revised to reflect it.

Q: Can a Comptroller rule provide a broader tax exemption than what a statute allows?
A: No. Per Tax Code Sec. 111.002(a) and general agency-law principles, an agency's rules cannot override or conflict with the state's statutes. The Legislature's later, narrower rule in Sec. 151.350 controlled over the Comptroller's earlier, broader rule.

Q: Did the taxpayer argue they didn't know about the legislative change?
A: Yes, but the Comptroller's office rejected that argument too, noting that the law presumes knowledge of legislative changes and that the office had also sent the taxpayer's client written notice of the change.

Q: What was the Comptroller's ultimate recommendation in this letter?
A: That the tax be upheld — i.e., that the disputed repair labor did not qualify for the disaster-area exemption because the damage was outside a declared disaster area.

Citations and references

• Tax Code Sec. 151.0101(b) — gives the Comptroller exclusive authority to interpret the definition of real property repair and remodeling services.
• Tax Code Sec. 151.350 — exempts labor to repair real or personal property only if the property was damaged within an area declared a disaster area by the Governor or President.
• Tax Code Sec. 111.002(a) — codifies the principle that an agency's rules cannot override or conflict with the state's constitution or statutes.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9607L1424A13

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

July 10, 1996

Dear **:

After ** and you laid out your argument concerning the taxability of
labor to restore real or tangible properly damaged in a disaster, I discussed
your argument with Martin Cherry. Neither of us agrees with your position.

Section 151.0101(b), Tax Code, gives the Comptroller the exclusive jurisdiction
to interpret the definition of real property repair and remodeling services.
Pursuant to that authority, the Comptroller by rule interpreted services performed
on property damaged as a result of a disaster or accident as not being taxable
repair and remodeling services, beginning in 1988 and continuing until the legislature
adopted Section 151.350. That provision specifically exempts repairs to property
damaged as a result of a disaster within a disaster area as declared by the Governor
or the President.

Our previous rule was not revised for a year or so after the law was changed.
You argue in effect that the rule continued to grant an exemption for damaged
property without regard to the legislative revision, until such time as the rule
was amended.

Assuming the Comptroller had the authority in 1988 to define such repairs and
remodeling to be outside the taxing provisions of subsection (a), the Legislature
had a superior right to set out its interpretation and did so. After all, the
Comptroller's authority under Sec. 1512.0101(b) exists only because of legislative
action, and certainly the legislature can take away or modify what it has previously given.

We believe that is exactly what Sec. 151.350, Tax Code, does. The legislature chose to
exempt labor to repair real or personal property only if the repair is to property
damaged within an area declared a disaster area by the governor or president. In light
of the legislative change, it appears clear to me that repair or remodeling of property
damaged outside a declared disaster area is not exempt.

Apart form the issue of the extent of the Comptroller having the exclusive authority to
interpret these provisions, there is also the recognized concept that an agency's rules
cannot override or conflict with the constitution or statutes of the state. This principle
is well recognized in case law, and is codified for Tax Code purposes at Sec. 111.002(a).
Were we to adopt your position for periods after the adoption of Sec. 151.350, the result
would be a rule that is directly in conflict with that statutory provision.

You also argue that your client was unaware of the legislative change. However, not only does
the law presume knowledge when a legislative change is made, but our office sent notification
to your client of the legislative change. Under these circumstances, I must recommend that the
tax be upheld.

Sincerely,
Wade Anderson
Director, Tax Policy