Is asbestos abatement (collection, encapsulation, removal, disposal) taxable in Texas, and what about the repair work done to restore the building afterward?

Plain-English summary

The Comptroller confirmed that the core asbestos abatement service — collecting, encapsulating, removing, and disposing of asbestos — is not taxable to the purchaser. But once the abatement is done, the follow-on work to restore the building (replacing insulation, siding, ceiling tiles, paint, and similar improvements to the realty) is taxable as nonresidential repair, restoration, or remodeling, if it's performed on nonresidential real property.

The letter also lays out two ways to fix a situation where tax was mistakenly charged on the nontaxable abatement portion:

• Standard refund path: the purchaser can request a refund of the mistakenly-charged tax from the seller (the asbestos removal contractor). The Comptroller's office only refunds tax to the seller who collected/remitted it, after that seller has already refunded the purchaser — though the seller can instead assign its right to the refund to the purchaser, letting the purchaser receive the refund directly by submitting a refund request together with an assignment form. The statute of limitations for refunds is four years from when the tax was due and payable to the state.
• New credit option (effective October 1, 1999): a retailer with a Texas sales tax permit can now take a credit on its own sales tax return for tax it paid on items/services that are exempt under the law — previously, a credit for overpaid tax was only available for taxable items the retailer resold. If the purchaser is a retailer with a permit, this credit route may be simpler than requesting a refund from the seller (though the purchaser obviously can't both take the credit and separately request a refund from the seller for the same tax).

What this means for you

Asbestos abatement contractors

Bill the core abatement work (collection, encapsulation, removal, disposal) as nontaxable, but bill any post-abatement restoration/repair work (new insulation, siding, ceiling tiles, paint) as taxable nonresidential repair and remodeling when performed on nonresidential property — separate these charges clearly on the invoice.

Building owners who were overcharged tax on abatement services

You have two paths to recover mistakenly-charged tax: a refund request through the seller within four years, or — if you're a retailer with your own Texas sales tax permit — a direct credit on your own sales tax return under the new (Oct. 1, 1999) rule, without needing the seller's refund first.

Accountants and tax professionals

Watch the four-year statute of limitations on refund requests, and flag the new October 1999 self-credit option for retailer clients — it's a meaningfully faster path than waiting on a seller-initiated refund.

Common questions

Q: Is asbestos removal taxable in Texas?
A: No — the abatement service itself (collection, encapsulation, removal, disposal) is nontaxable.

Q: Is repairing the building after asbestos removal taxable?
A: Yes, if it's nonresidential real property — replacing insulation, siding, ceiling tiles, paint, and similar improvements is taxed as nonresidential repair, restoration, or remodeling.

Q: How do I get a refund if I was charged tax on a nontaxable abatement service?
A: Request a refund from the seller within four years of when the tax was due, or have the seller assign you the refund right directly; alternatively, if you're a retailer with a Texas sales tax permit, you can take a credit on your own return (effective October 1, 1999) instead.

Q: Can I both request a refund and take a credit for the same overpaid tax?
A: No — the letter notes a customer can't request a refund from the seller if they're already taking a credit for that tax on their own return.

Citations and references

No specific Tax Code section or Comptroller rule number is quoted in this letter for the abatement/repair distinction; the refund and credit mechanics are described in the Comptroller's own words, referencing Form 01-135 (Vendor's Request for Refund and Assignment of Right to Refund) available from the Comptroller's website.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9910836L

Original ruling text

October 28, 1999

Dear **:

Thank you for your letter concerning the taxability of asbestos abatement
services.

Charges connected to the asbestos abatement service (collection, encapsulation,
removal, disposal) are not taxable to the purchaser. Charges for replacement
of insulation, siding, ceiling tiles, paint, and other improvements to the
realty in connection with the abatement are taxable as nonresidential repair,
restoration, or remodeling services, if the work is performed on nonresidential
realty.

A purchaser may request a refund of tax from the seller (asbestos removal
contractor) when tax is paid on a nontaxable service. The Comptroller's office
may only refund the sales tax to the seller who collected and remitted the tax
after the tax has been refunded to the purchaser. However, the seller may
assign the right to the refund to the purchaser. In that case, the refund
request and the assignment form is forwarded together to the Comptroller's
office. The assignment form simply authorizes the Comptroller to refund the
purchaser rather than the seller. The statute of limitations for refunds is
four years from the date the tax collected by the seller was due and payable to
the State of Texas.

The Sales Tax Refund Instructions and the Vendor's Request for Refund and
Assignment of Right to Refund (Form 01-135) are available online at the Window
on State Government web site at . Under the heading
for Quick Links, click on "Tax Forms" and then on the "Sales and Use Tax"
forms.

Effective October 1, 1999, a retailer with a sales tax permit may take a credit
when filing a sales tax return for items or services the retailer paid tax on
which are exempt under the law. Previously, a credit for overpaid tax could
only be taken for taxable items the retailer resold. This may be an option for
your customer if he is a retailer with a sales tax permit. Obviously, the
customer cannot request a refund from you if taking a credit for the tax on his
own sales tax return.

This opinion is based on the facts you submitted. Other facts, though similar,
may yield different results.

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Policy, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Policy Division