Is repair labor exempt from Texas sales tax for property damaged in a disaster area, and are Red Cross voucher purchases taxable?

Plain-English summary

Following flooding that led the Governor to declare 35 counties a disaster area in October 1994, the Comptroller's office sent this letter to explain how sales tax applies to disaster-related repairs and Red Cross assistance purchases.

Texas sales tax law exempts labor charges to repair real or personal property that was damaged by the specific occurrence that caused an area to be declared a disaster area. To claim the exemption, the charge for labor must be separately stated from the charge for replacement parts and materials — the parts and materials themselves are still taxable. Because of this rule, flood victims in the 35 affected counties could claim a sales tax exemption on labor to repair or restore property damaged by the flood.

To use the exemption, the purchaser gives the seller an exemption certificate listing both parties' names and addresses, the item(s) purchased, and the reason for the exemption (for example, "Repair due to October 1994 flood in ______ county"). The exemption covers labor to repair furniture, appliances, and other tangible personal property, as well as labor to repair nonresidential improvements to realty (labor to repair residential realty was already untaxed). It also covers labor to launder or dry-clean damaged clothes, drapes, or carpets, and rug cleaning.

Separately, flood victims making purchases with a Red Cross voucher do not owe tax on the amount covered by the voucher. Any amount paid above the voucher amount is taxable. For example, if a family receives a $500 Red Cross voucher toward a $600 refrigerator, only the $100 difference is taxed. Retailers should note the voucher amount on the invoice and keep supporting documents (such as a copy of the voucher) to substantiate the sale to the Red Cross on the individual's behalf. Exemption certificates are not required for these Red Cross voucher purchases, though they may still be issued.

What this means for you

Disaster victims repairing damaged property

If your property was damaged by the specific event that caused your area to be declared a disaster area, ask your repair contractor to separately state labor charges on the invoice — that labor is exempt from Texas sales tax, even though the parts and materials used in the repair remain taxable. You (or the contractor on your behalf) should give the seller a completed exemption certificate stating the reason for the exemption.

Contractors and retailers serving disaster areas

Separately state labor from parts and materials on invoices for disaster repair work so the labor exemption can be properly claimed, and collect an exemption certificate from the customer identifying the disaster (for example, referencing the specific flood and county). For sales made using a Red Cross voucher, tax only the amount the customer pays above the voucher, note the voucher amount on the invoice, and retain documentation (such as a copy of the voucher) to support the exempt portion of the sale.

Accountants and tax professionals

This letter is a useful reference for the mechanics of Texas's disaster-repair labor exemption: it requires separately stated labor, ties the exemption to the specific disaster-causing occurrence, and extends to certain services beyond traditional "repair" (laundering, dry cleaning, rug cleaning) when the underlying property was damaged by the disaster. It also confirms the narrower tax treatment of Red Cross voucher purchases, where only the excess over the voucher is taxable and no exemption certificate is strictly required.

Common questions

Q: Is labor to repair a disaster-damaged item exempt from Texas sales tax?
A: Yes, if the property was damaged by the occurrence that caused the area to be declared a disaster area, and the labor charge is separately stated from the charge for replacement parts and materials. The parts and materials remain taxable.

Q: Does the exemption cover repairs to homes as well as personal property?
A: It covers labor to repair furniture, appliances, and other tangible personal property, and labor to repair nonresidential improvements to realty. Labor to repair residential realty was already not taxed under existing law.

Q: What paperwork is needed to claim the disaster repair labor exemption?
A: The purchaser gives the seller an exemption certificate showing both parties' names and addresses, the items purchased, and the reason for the exemption (for example, referencing the specific flood and county).

Q: Are purchases made with a Red Cross voucher taxable?
A: Not up to the amount of the voucher. Any amount the purchaser pays above the voucher amount is taxable. Retailers should document the voucher amount on the invoice and keep records substantiating the sale.

Q: Is an exemption certificate required for Red Cross voucher purchases?
A: No, exemption certificates are not required for these purchases, though a retailer may still issue or obtain one.

Citations and references

No specific statutes or administrative rules are cited in the text of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9411L1322E03

Original ruling text

November 14, 1994

Dear **:

Thank you for your time on the telephone this morning. As we discussed,
I am following up our conversation with a letter for your files and to be
disseminated to the subdivisions in your area.

The Texas sales tax law provides an exemption for labor to repair real or
personal property damaged in a disaster area by the occurrence that caused
the area to be declared a disaster area. The charge for the labor must be
separately stated from the charge for the replacement parts and materials;
the charge for replacement parts and materials must be taxed. Because of
this exemption, flood victims in the 35 counties Comprising the disaster
area may claim a sales tax exemption on labor to repair or restore property
damaged by the flood.

In place of the tax, the purchaser must give the seller an exemption
certificate showing both the seller's and purchaser's names and addresses
and the item(s) being purchased. The certificate must also give the reason
for claiming the exemption; for example, "Repair due to October 1994 flood in
______ county." I have enclosed an exemption certificate that may be
duplicated.

The exemption may be claimed on labor to repair furniture, appliances, other
items of tangible personal property, as well as labor to repair nonresidential
improvements to realty; of course, labor to repair residential realty is not
taxed. The exemption includes labor costs to launder or dry clean damaged
clothes or drapes and carpet or tug cleaning.

In addition to the exemption for repair labor, flood victims are not required
to pay tax on taxable items purchased with a Red Cross voucher. Any purchases
above the amount of the Red Cross voucher must be taxed. For example, a family
is given a $500.00 Red Cross voucher to buy a refrigerator; the refrigerator
costs $600.00. Only the $ 100.00 above the voucher amount is taxed. Retailers
should show the amount of the Red Cross voucher on the invoice and keep
documents (copies of the voucher, etc.) to substantiate the sale to the Red
Cross on behalf of the individual. Exemption certificates are not required
(but may be issued) on these purchases.

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

Sincerely,

Tax Administration Division

NOTE: Previous Accession Number 9411678L