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Quick Start for:

Disasters and Texas Sales Tax

April 2006

CLEAN UP AND REPAIRS:

1. Are charges to repair residential real property damaged in a disaster area taxable?

Labor charges for repair or remodeling services performed on residential property are not subject to sales tax. However, materials used during the repair or restoration are taxable, even in a disaster area. The contractor will collect tax from his customer if the contract calls for separate charges for materials and labor. If the contract calls for a single charge that includes materials and labor, then the contractor will not collect tax from his customer, but will pay sales tax when he buys the materials. See Texas Administrative Code Rule 3.291, "Contractors," for additional information.

2. Is the charge for labor to repair non-residential real property damaged in a disaster area taxable?

Usually repair and remodeling services performed on nonresidential real property are taxable. See Texas Administrative Code Rule 3.357. However, in a declared disaster area, purchasers may claim an exemption from sales tax on separately stated charges for labor to repair or restore nonresidential real property damaged by the disaster. The materials that are used to perform the repairs are taxable. To claim the exemption on the labor charge, the purchaser should give the repair contractor an exemption certificate.

If the service provider charges a lump-sum charge, then that charge is taxable. However, the service provider may later separate the charge for materials. When the charge for labor is separately stated, the customer can then give the contractor a completed exemption certificate so that the service provider may refund the sales tax collected on the charge for labor.

3. Is the labor to repair personal property damaged in a disaster area taxable?

Taxpayers may claim an exemption from sales tax on charges for labor to repair or restore items damaged by a disaster. The exemption may be claimed on labor to repair furniture, appliances, or other items of tangible personal property. The exemption includes labor costs to launder or dry clean damaged clothes or other property.

To receive an exemption from tax on the charges for the labor, the purchaser must give the seller an exemption certificate showing both the seller's and the purchaser's names and addresses and the item(s) being repaired. The certificate must also give the reason for claiming the exemption; for example, "Repair due to Hurricane XXXXX in ________ County."

See Texas Administrative Code Rule 3.292, "Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property," for additional information.

4. Are charges for cutting down damaged branches or cutting up a down tree in a disaster area taxable?

Arborists services, such as cutting down or cutting up a damaged or dead tree in a declared disaster area, are not taxable.

To receive an exemption from tax on the charges for the labor, the purchaser must give the seller an exemption certificate showing both the seller's and the purchaser's names and addresses and the type of arborist services performed. The certificate must also give the reason for claiming the exemption; for example, "Repair of damaged tree due to Hurricane Rita in ________ County."

Hauling away branches, limbs, or trees are waste removal services, which are taxable.

Charges for nontaxable services should be separately stated from charges for taxable services. A lump sum charge for taxable and nontaxable services will be presumed taxable if the taxable portion is greater than 5 percent of the total bill.

5. Are charges for removing and disposing of debris in a disaster area taxable?

Charges for removing and disposing of debris or other waste in a disaster area are taxable.

See Texas Administrative Code Rule 3.356, "Real Property Service."


PURCHASES:

6. Can disaster victims making purchases with personal funds receive an exemption from sales tax?

Unless the purchase is otherwise exempt, tax is due on purchases made with personal funds unless the buyer donates the items to a qualifying exempt entity and does not use the donated items prior to the donation.

7. Are purchases made with a FEMA debit card or FEMA vouchers exempt from Texas sales and use tax?

Yes, goods and taxable services may be purchased tax free with FEMA debit cards or FEMA vouchers. Retailers should keep documentation that the items were purchased with FEMA debit cards or vouchers. Because these are federal government purchases, no further documentation is necessary.

If a taxable item is purchased with a combination of a FEMA voucher or debit card and with cash or personal credit or debit card, the retailer should collect tax on the amount of the purchase that was paid for with personal funds, but not on the amount of the voucher or FEMA debit card.

8. Are purchases made with a Red Cross voucher or debit card exempt from Texas sales and use tax?

Yes, customers are not required to pay Texas state and local sales taxes on taxable items purchased with a Red Cross voucher or debit card. Retailers must keep documentation that the items were purchased with a Red Cross debit card or voucher. The documentation may be either a copy of a voucher or a copy of the receipt issued to the purchaser. The receipt copy should be clearly marked "Red Cross" and should be signed by the purchaser. For purchases made with vouchers, retailers should show the amount of the Red Cross voucher on the invoice, deduct that amount before computing the sales tax, and keep a copy of the voucher to substantiate the sale to the Red Cross on behalf of the individual. Exemption certificates are not required on these purchases.

9. Can disaster victims making purchases with money received from FEMA or Red Cross through a money order or direct deposit in a personal bank account receive an exemption from sales tax or claim a refund of taxes paid on items purchased in Texas with those funds?

Unfortunately, the Texas Tax Code does not contain a provision that exempts purchases made by individuals from funds in personal accounts, even if those funds were given to the individual by an exempt organization. Purchases of taxable items in Texas by an individual do not qualify for an exemption or refund of sales tax unless the individual is donating the items to a qualifying exempt organization for use by that organization.

10. Are purchases made with Salvation Army vouchers exempt from tax?

Items purchased with a Salvation Army voucher are not subject to Texas state and local sales and use taxes. Retailers should show the amount of the Salvation Army voucher on the invoice, deduct that amount before computing the sales tax, and keep a copy of the voucher to substantiate the sale to the Salvation Army on behalf of the individual. In addition, the Salvation Army should provide a properly completed exemption certificate for purchases made with Salvation Army vouchers.

11. Can prepared food (i.e., ready-to-eat from a fast food restaurant) be purchased tax-free with a FEMA or Red Cross voucher or debit card?

Yes, ready to eat food qualifies for exemption when purchased with a FEMA or Red Cross voucher or debit card.

The seller of the prepared food should maintain a copy of the receipt in their records. The receipt must be clearly marked "Red Cross" or "FEMA" and must be signed by the person making the purchase.

12. Is sales tax due on the purchase, lease or rental of equipment such as chain saws, stump cutters, brush chippers and other tools that will be used in disaster areas?

The purchase, lease, or rental of tools and other equipment that will be used in a disaster area does not qualify for exemption from Texas sales and use tax except in the following situations:

  • Governmental agencies and qualifying nonprofit entities exempt from Texas sales tax may claim an exemption from the tax when buying, renting, or leasing the equipment in Texas. Purchase orders issued by federal, state, and local governmental entities are sufficient documentation for sellers to accept that the purchase, lease, or rental qualifies for exemption from tax. Qualifying nonprofit organizations, however, must issue exemption certificates in lieu of paying the tax. To verify that a nonprofit entity is exempt from Texas sales and use tax please check online at: http://aixtcp.cpa.state.tx.us/exemptall/allexempt_srch.php.
  • If a seller or a third-party common carrier delivers equipment to a location outside of Texas, Texas tax should not be collected. The seller must keep the shipping documentation to show that the equipment was delivered out of state.
  • No tax is due on taxable items purchased, leased, or rented with FEMA and Red Cross debit cards and vouchers. Retailers must keep documentation that the items were purchased with FEMA or Red Cross debit cards or vouchers. The documentation may be either a copy of a voucher or a copy of the receipt issued to the purchaser. The receipt copy should be clearly marked "FEMA" or "Red Cross" and should be signed by the purchaser. If a taxable item is purchased with a combination of a FEMA or Red Cross voucher or debit card and with cash or personal credit or debit card, the retailer must collect tax on the amount of the purchase that was paid for with personal funds, but not on the amount of the purchase paid for by FEMA and Red Cross voucher or debit card.
  • Sellers must maintain documentation relating to the above situations for four years from the date of sale.

FUNDRAISERS:

13. Can a school district, and their PTA, buy school supplies and clothes tax free to give to the students who are victims of a disaster?

Yes, a school district or PTA may claim an exemption from sales tax on purchases of clothing and other supplies that will be given to these students.

Vendors selling to governmental entities (including public school districts) must have written purchase orders/vouchers available for audit review to substantiate the exempt sales.

14. Can individuals or other non-profit organizations hold fundraising events and sell goods tax-free if all proceeds will be donated to disaster relief?

Generally, all sales of taxable items are subject to tax, even if all proceeds will be donated to a charity. However, there are a variety of events that can be held as fundraisers that are not subject to tax; examples include

  • Bake sales
  • Car washes
  • Concerts - if the admission is based on donations only or if the concert is sponsored by a non-profit organization. Otherwise, a set price for admission to a concert, even for a fundraising event, is subject to tax.

Each chapter of an organization qualifying for sales tax exemption under the religious, educational or charitable category, as well as organizations exempted from sales tax based on their IRS Section 501 (c)(3), (4), (8), (10) or (19) status, can hold two one-day, tax-free sales or auctions each calendar year. During each one-day sale, the organization does not need to collect sales tax. For purposes of the exemption, one day is counted as 24 consecutive hours. The exemption does not apply to items sold for more than $5,000 unless the item is manufactured by the organization, or the item is donated to the organization and not sold back to the donor.

Youth athletic organizations, volunteer fire departments and chambers of commerce cannot hold tax-free sales.

College or university student organizations affiliated with an institution of higher education can hold a one-day, tax-free sale each month. The organization must have a primary purpose other than engaging in business or performing an activity designed to make a profit, and the purpose of the sale must be to raise funds for the organization. The exemption does not apply to items sold for more than $5,000 unless the item is manufactured by the organization, or the item is donated to the organization and not sold back to the donor.

See Texas Administrative Code Rule 3.322, "Exempt Organizations," for additional information.

94-182
(04/2006)

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