Is Texas sales tax due when a city bills a telephone company to reimburse it for repairing water lines that the telephone company's employees accidentally damaged?

Subject

Damaged Public Property (City Water Lines) By Telephone Company Employees — City Repairs Lines And Bills For Reimbursement — Not Taxable Job

Plain-English summary

While doing their work, employees of a telephone company (referred to as Company A) accidentally damaged water lines belonging to a city (referred to as Company B). The city's own employees repaired the damage, and the city then billed the telephone company an invoice covering the labor and equipment hours needed to make the repair.

The letter shows the Comptroller's office initially had a different view but revisited the question internally — the response states that after discussing the issue in a weekly staff meeting, the reviewer was persuaded that the reimbursement charge was not taxable, reversed the earlier position, and apologized for any inconvenience caused. As rendered, the final answer is that this reimbursement billing is not a taxable transaction.

What this means for you

Businesses that damage third-party property and get billed for repairs

If your company's employees accidentally damage property belonging to another party (including a government entity), and that party performs its own repairs and then invoices you to recover its labor and equipment costs, this letter indicates the Comptroller has treated that kind of reimbursement charge as not taxable. This is a narrow, fact-specific letter, so confirm your situation matches before relying on it.

Accountants and tax professionals

This letter is a useful illustration that the Comptroller's letter rulings are based strictly on the facts submitted, and that even the agency can revise its own preliminary answer before finalizing a ruling. The letter explicitly notes the opinion is rendered based on the facts submitted and that other facts, though similar, may yield different results.

Common questions

Q: Is a city's invoice to a company for repairing property the company's employees damaged subject to Texas sales tax?
A: In this letter, no — the Comptroller's final response states the reimbursement charge is not taxable.

Q: Does this ruling apply to any repair-reimbursement situation?
A: No. The Comptroller emphasizes the opinion is based on the specific facts submitted, and other facts, though similar, may yield different results. Businesses should not assume every reimbursement-for-damages arrangement is automatically nontaxable.

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/9501L1330G12

Original ruling text

January 16, 1995

Dear **:

Thank you for your recent letter which is restated in part with response below.

In the course of their work, Company A employees damaged property
belonging to the Company B. Employees of Company B repaired the damage.
Company B then sent Company A an invoice for reimbursement for the number
of man and equipment hours to make the repair .

Response: I brought this issue up in our weekly staff meeting and was
convinced by my coworkers that the charge was not taxable. Accordingly, I would
like to change my opinion and apologize for any inconvenience you have
suffered.

This opinion is rendered 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. 3-4680. The direct line is
512/463-4680. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9501826L