Sales Tax Exemptions in Disaster Areas

With the waters receding, funding, labor, and other aid have poured into Houston and the surrounding areas. Some have suggested damages could be in the hundreds of billions and that full recovery could take over 10 years (see also Governor Greg Abbott).

 As property owners struggle to find ways to rebuild their homes and businesses, it’s worth bearing in mind certain important aspects of the Texas sales tax.

First, the purchase of residential real property repair and remodeling services is generally not subject to Texas sales tax. However, the separately-stated purchase of other items, such as materials incorporated into realty, as part of a contract to repair residential real property may be subject to sales tax. (Expect a blog post in the coming weeks on the more global difficulties in determining how sales tax applies to construction contracts.)

Second, certain expenses associated with the restoration of other types of property damaged by Hurricane Harvey may be exempted from Texas sales or use tax.

Specifically, labor involved in the restoration of nonresidential real property or tangible personal property is exempt from Texas sales or use tax if such labor is separately stated and the restoration is performed on property damaged within an officially declared disaster area by the condition that caused the area to be declared a disaster area. A person who receives services that qualify for this exemption must provide the service provider with an exemption certificate, as the service provider is generally required to presume that all such work is taxable unless she receives an exemption certificate covering a separately-stated labor portion of the bill.

Currently, Governor Abbott has proclaimed the following counties to be in a state of disaster as a result of Hurricane Harvey: Angelina, Aransas, Atascosa, Austin, Bastrop, Bee, Bexar, Brazos, Burleson, Caldwell, Calhoun, Cameron, Chambers, Colorado, Comal, Brazoria, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Grimes, Guadalupe, Hardin, Harris, Jackson, Jasper, Jefferson, Jim Wells, Karnes, Kerr, Kleberg, Lavaca, Lee, Leon, Liberty, Live Oak, Madison, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Trinity, Tyler, Victoria, Waller, Walker, Washington, Wharton, Willacy, and Wilson.

Our hearts are with our friends affected in South, Southeast, and Central Texas. Feel free to give us a call / shoot us an email if you have any questions, tax-related or otherwise.

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