On February 22, 2021, the IRS issued guidance, IR-2021-44, deferring tax filing and payment deadlines for taxpayers impacted by the winter storms in Texas. Often overlooked are some of the other relief measures provided for those impacted. The following are details about sales and use tax exemptions allowed under Texas Tax Code Section 151.350 and next steps for taxpayers. To learn more about other relief provided—including deferred federal income and franchise tax report deadlines—see our article.
Declared Texas Disaster Areas
Sales and use tax exemptions are available for taxpayers in counties where the US president or Texas governor declares a location in Texas to be a disaster area. As of the date of publication, 108 counties have been listed by FEMA as declared disaster areas under Disaster 4586.
Texas Sales and Use Tax Exemptions
Labor and Materials
For nonresidential real property repairs related to damage in a disaster area, the labor under a separately stated contract wouldn’t be taxed. The service provider must collect tax on the separate materials. Under a lump-sum contract, the service provider would still need to collect tax on both the materials and labor from the customer.
Repair and Restoration of Damaged Items
A purchaser can claim an exemption from sales and use tax on charges for labor to repair or restore items damaged, including laundering or dry cleaning. This applies to clothing, furniture, or other tangible personal property that was damaged.
Repair and Removal of Trees
Tax is due on the purchase, lease, or rental of chainsaws, stump cutters, and other equipment used to repair or remove trees. Purchasers can claim an exemption from sales tax on labor charges for cutting down damaged branches or cutting up a damaged tree. Charges for hauling away branches, limbs, or trees are taxable.
Next Steps for Retailers
For Tax Exemption on Labor Charges
For a customer to receive an exemption from tax on labor charges, the service provider must use a separated contract that indicates labor and material for nonresidential work and accept an exemption certificate from the customer for the labor.
The exemption certificate must include the following:
- Service provider’s name and address
- Customer’s name and address
- List of the items being repaired
- Reason for claiming the exemption—“Repair due to Texas winter storm in Dallas County,” for example
Items purchased with FEMA debit cards or Red Cross vouchers aren’t subject to sales and use tax because they’re considered purchases made by the federal government. The exemption doesn’t include alcohol or tobacco products. Exemption certificates aren’t required to be obtained, but sellers must maintain documentation to support these sales for four years from the date of sale. The receipt copy must be clearly marked “FEMA” or “Red Cross” and must be signed by the purchaser.
For exempt entity purchases, retailers can check the Texas Tax-Exempt Entity Search to verify exemption in lieu of obtaining an exemption certificate.
We’re Here to Help
If you have questions about your individual or business’s taxes, please contact your Moss Adams professional.