Aerial Wildlife Management

Selling a gunner’s seat on an aircraft used in agriculture operations to a person who will participate in predator control (such as feral hog eradication) is subject to Texas sales and use tax as an amusement service. The seller must obtain a Texas sales and use tax permit, collect tax on the sale of the seat, and remit the tax to the Comptroller.

Although items used by the provider of an amusement service are typically taxable, the purchase of an aircraft used to provide predator control is exempt from tax under Tax Code Sec. 151.328 (a)(5) if it is bought for exclusive use in agricultural operations as the term is defined in Tax Code Section. 23.51.

Qualifying agricultural activities include:

  • predator control;
  • wildlife or livestock capture;
  • wildlife or livestock surveys;
  • census counts of wildlife or livestock;
  • animal or plant health inspection services; and
  • crop dusting, pollination or seeding.

An aircraft is considered to be “exclusively” used in agricultural operations if 95 percent of its use is for one of the purposes listed above. The 95 percent provision allows travel of less than 30 miles each way to a location to perform these exempt services.

The aircraft owner must maintain flight records for all uses of the aircraft and must make them available to the Comptroller upon request.

Any use of the aircraft for nonagricultural purposes will result in loss of the exemption.

The exemption under Tax Code Section 151.328 also applies to repair and replacement parts for the aircraft and repair labor. The exemption does not apply to firearms, ammunition or other machinery or equipment used on or with the aircraft or used by the aircraft owner or operator. But, an aircraft operator performing crop dusting or other operations classified as “agricultural” under 14 C.F.R. Section 137.3, may,obtain an Ag/Timber number from the Comptroller and then claim an exemption on chemicals and other equipment used exclusively to perform crop dusting and the other agricultural services specifically identified in the federal definition under Tax Code Section 151.316(a)(11). This exemption does not apply to firearms, bullets or other equipment used to perform predator control, wildlife census counts or other services not included under 14 C.F.R. Section 137.3.

For more information, see Tax Exemptions for Agriculture (Pub. 94-101).

*Originally published in the July edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1207.html

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Fees Relating to Insurance

Many different kinds of insurance companies operate in Texas to provide residents and businesses with the coverage they need. These companies can be classified into two categories: admitted insurers and non-admitted insurers.

The admitted insurance market is composed of all licensed insurance companies that have received a certificate of authority from the Texas Department of Insurance (TDI) to conduct the business of insurance in Texas. The premium associated with the issuance of a policy of insurance by an admitted insurance company is subject to a premium tax that insurers are required to pay.

The non-admitted insurance market refers to insurers who are not licensed by the TDI, including insurers who have met eligibility requirements to write coverage in the surplus lines market. This market also includes insurance placed as “independently procured” or as “unauthorized” insurance. In the non-admitted market, the premium tax is a transaction tax that is either collected from the policyholder and remitted by the surplus lines agent, or is paid directly by the policyholder, the agent or the insurer.

Insurance Code Chapters 221, 222, 225 and 226 define premium for tax reporting purposes to include premiums, membership fees, assessments, dues, and any other consideration for insurance. In addition, Rule 3.822(a)(4) defines premium to include “agent fees that are charged in addition to, or in lieu of, a commission.” Therefore, “fees in lieu of commission” are considered premium in the admitted and non-admitted insurance markets and as such are subject to premium tax.

An insurance agent or broker who did not include these fees in the taxable premium base, collect, report and pay the surplus lines or other non-admitted insurance premium tax for “fees in lieu of commission” or an insurer who failed to include these fees in the tax base should amend prior premium tax returns in order to correct this reporting error.

Fees charged that are not related to procuring a policy of insurance are not considered premium, and an agent or broker is not required to report and pay premium tax on these fees. The fees could, however, be subject to sales tax if charged for the performance of taxable insurance services. Insurance agents and brokers often provide services that may or may not be in connection with selling or placing an insurance policy, such as loss prevention services that minimize the occurrence of accidents, losses or damage. Other examples of taxable insurance services include loss and damage appraisal, inspection, investigation, actuarial analysis and research and claims adjustment and processing.

See Rule 3.355 for additional information on sales tax on insurance services and STAR document 200603647L for information regarding sales tax on fees in lieu of commission.

*Originally published in the July edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1207.html

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Complimentary Champagne

In a recent communication, a restaurant asked how complimentary champagne would be treated for audit purposes. The champagne would be given away one day a week as a marketing tool. The restaurant does not sell champagne, but does sell other types of wine.

The restaurant’s plan was to have the restaurant’s vendor issue a separate purchase invoice for the champagne, and the restaurant would pay sales tax on the purchase of champagne. Champagne would be given away both to customers who purchase a meal and to customers who do not purchase a meal. The restaurant would not advertise in any way that champagne is included with the purchase of a meal.

Rule 3.1001, regarding mixed beverage gross receipts tax, defines a complimentary alcoholic beverage as one served without any consideration paid to the permittee. “Consideration” includes a purchase of a meal, any other item sold with service of the beverage, an entertainment fee or an entry fee. Champagne given indiscriminately to customers who purchase and do not purchase a meal is a complimentary alcoholic beverage. Since the restaurant receives no consideration for the complimentary champagne, it should be excluded from the mixed beverage gross receipts tax base.

Written or verbal advertisements and promotions that suggest in any way champagne is included with the purchase of a meal, such as champagne brunch, champagne buffet or dinners receive complimentary champagne, is viewed as selling champagne and not as complimentary.

The restaurant must keep all purchase invoices showing sales tax paid on the complimentary champagne, as required by Tax Code Section 111.0041 and Rule 3.1001. A service check must record each individual service of complimentary champagne with the total number of complimentary services of champagne included in the restaurant’s daily summary.

*Originally published in the July edition of Tax Policy News a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1207.html

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David Eric Williams, 37, of Brownwood

David Eric Williams, 37, of Brownwood, was arrested for the second-degree felony offense of Transporting Motor Fuel without Shipping Documents, and the third-degree felony offense of Engaging in a Motor Fuel Transaction without a License, after a joint investigation by the Crane County Sheriff’s Office and the Comptroller’s Criminal Investigation Division relating to theft of dyed diesel fuel. Williams’ cases are pending indictment in Crane County.

*Originally published at http://www.window.state.tx.us/about/cid/case_news.html

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Jerry Aguilar, 30, of Del Rio

Jerry Aguilar, 30, of Del Rio, was convicted of the Class A misdemeanor offense of Concealing Motor Fuel. Aguilar pled guilty and was sentenced to one year in the Glasscock County Jail, probated for one year, and fined $1500. The case, filed as cause number 829, was prosecuted in Glasscock County.

*Originally published at http://www.window.state.tx.us/about/cid/case_news.html

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Vernon Glynn Breland II, 31, of Harrisonburg, LA

Vernon Glynn Breland II, 31, of Harrisonburg, LA was convicted of a Class A misdemeanor offense of Concealing Motor Fuel in a case relating to the illegal use of dyed diesel in a motor vehicle upon a Texas public highway. Breland pled guilty and was sentenced to pay a $1500 fine. Breland’s case, filed as cause number 830, was prosecuted in Glasscock County.

*Originally published at http://www.window.state.tx.us/about/cid/case_news.html

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Carlos Mondragon Chavez, 39, of Bertram

Carlos Mondragon Chavez, 39, of Bertram, pled guilty to Engaging in Organized Criminal Activity to commit Theft of $1,500 or more but less than $20,000. The offense is a third-degree felony. Chavez was sentenced to 3 years deferred adjudication and ordered to pay a $500 fine, pay $460 in restitution to West Texas Gas, and perform 150 hours of community service restitution. The case, filed as cause number CR39960, was prosecuted in Midland County.

*Originally published at http://www.window.state.tx.us/about/cid/case_news.html

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Thuy Thu Do, 45, of Arlington

Thuy Thu Do, 45, of Arlington, was arrested after being indicted June 14, 2011 by a Travis County Grand Jury for two counts of tobacco tax fraud. According to the indictment, Do is accused of failing to keep books and records relating to taxed tobacco products, and of possessing other tobacco products with more than $50 in tax due. Both offenses are third-degree felonies. Do’s indictment, filed as D1DC11-900182, is pending in Travis County District Court.

*Originally published at http://www.window.state.tx.us/about/cid/case_news.html

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Sunsetting the Sales Tax on Sunscreen

As of June 18, 2012, sunscreen is once again exempt from Texas sales and use tax thanks to a new Food and Drug Administration (FDA) rule (PDF, 225KB).

Over-the-counter (OTC) drugs and medicines, including sunscreen, were exempted from sales tax on April 1, 2000.

Legislation that became effective Sept. 1, 2007, however amended the definition of OTC drugs in Texas Tax Code Section 151.313 (a)(3) to provide that an over-the-counter item is exempt from sales tax only if the OTC drug or medicine is required by the FDA to be labeled with a drug facts panel. As a result of that statutory change, sunscreen became taxable because it was not required to be labeled with a drug facts panel.

At the time the amendment to Tax Code Section 151.313 occurred, the FDA had proposed, but then delayed, a drug panel labeling requirement for sunscreen. Due to the FDA proposal, many sunscreen manufacturers began voluntarily labeling their products with a drug facts panel. But, because OTC sunscreen drug products were not required by the FDA to be labeled with a drug facts panel, sunscreen products were subject to sales tax based on Tax Code Section 151.313 (a)(3) even if the product displayed a drug facts label.

The FDA has now published a final rule to establish labeling and testing requirements for OTC sunscreen drug products, and the rule requires sunscreen drug products to bear the drug facts panel. The FDA rule became effective June 18, 2012.

Because sunscreen is now required by the FDA to be labeled with a drug facts panel, it also now qualifies for the exemption set out in Tax Code Section 151.313 (a)(3). Therefore, as of June 18, 2012, sunscreen is once again exempt from Texas sales and use tax.

Originally published in the June Edition of the Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1206.html

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Tax-Exempt Insurance Premium for Certain Groups of Public Employees

The Insurance Code exempts from any state tax, regulatory fee or surcharge (including a premium or maintenance tax or fee) the life and accident and health premiums received from certain groups of public employees. Broadly speaking, the groups are:

  • state employees and retirees;
  • state college and university employees and retirees;
  • active public school employees;
  • retired public school employees;
  • employees of municipal, county or hospital districts in Texas where the group covered by the policy consists of a single nonprofit trust established to provide coverage; and
  • employees of the federal government.

The Employees Retirement System of Texas administers insurance benefits for state employees and retirees. The premiums received are exempt from tax by the Insurance Code, Chapter 1551 (PDF, 204KB), under the Texas Employees Group Benefits Act. Included in this Act are appointed and elected officers and employees of the state of Texas, employees of state institutions of higher education and retirees under the state’s Employee Retirement System. An “institution of higher education” is any public junior college or senior college or university, except those in the University of Texas System or the Texas A&M University System, which are covered by a separate act as explained below.

Employees and retirees of the University of Texas System or the Texas A&M University System obtain their insurance through those systems. The premiums received for coverage are exempt from tax by the Insurance Code, Chapter 1601 (PDF, 95KB), under the Uniform Insurance Benefits Act for Employees of the University of Texas System and the Texas A&M University System.

The premiums received for those who participate in the Teacher Retirement System of Texas (TRS) are exempt from tax under the Insurance Code, Chapter 1579 (PDF, 73KB), Texas School Employees Uniform Group Health Coverage. This program is referred to as “TRS-ActiveCare.” This group includes employees of school districts, regional education service centers and charter schools that open their records to inspection and audit relating to participation in the program. School districts with 500 or fewer employees are required to participate under this chapter unless the district was self-funded on Jan. 1, 2001; school districts having greater than 500 employees may elect to participate.

Insurance Code Chapter 1575 (PDF, 114KB) covers retirees of the TRS who are not eligible for coverage under either Chapter 1551 or Chapter 1601. Premiums or contributions on a policy, insurance contract, or agreement under this chapter are exempt from tax. This program is referred to as “TRS-Care””.

Under the Insurance Code, Chapter 1576 (PDF, 46KB), both active employees contributing to the TRS as well as TRS retirees (including spouses, surviving spouses, parents, grandparents, fathers-in-law and mothers-in-law) may purchase long-term care insurance at their own expense, the premiums for which are also exempt from tax. The premiums received from a single non-profit trust established for the benefit of certain municipal, county or hospital district employees are exempt under Insurance Code, Chapter 222 (PDF, 47KB), Section 222.002(c)(5). See the October 2011 Tax Policy News for more information.

Premiums received from the Employees Health Benefits Fund, which is administered by the Office of Personnel Management, for enrollees of the Federal Employees Health Benefit Plan are pre-empted from tax as well, under Section 8909, Title 5, United States Code.

*Originally published in the June edition of Tax Policy News a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1206.html

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Sales Tax Holiday is August 17, 18 and 19!

This year’s annual sales tax holiday begins at 12:01 a.m. on Friday, August 17th and ends at midnight on Sunday, August 19th. During this three-day period, Texas shoppers get a break from state and local sales taxes on purchases of school supplies, clothing and most backpacks priced under $100.

*Originally published in June edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1206.html

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Battling Drought – Sales Tax Exemptions for Items Used to Enhance the Availability of Water

The severe drought covering most of the state has prompted many Texans to examine ways to save water. Similarly, the rising cost of living has many of us looking for ways to save money. The sales tax exemptions authorized under Tax Code Section 151.355 can help with both objectives.

An exemption applies to equipment, supplies and/or services used solely for certain types of water conservation. For the purpose of exemption, “solely” means the equipment, supplies or services are used exclusively for the reason stated. Items that do not meet the “sole purpose test” are not exempt. For example, a toilet (even a low-water-use toilet) does not qualify for the exemption since it is not solely used to reduce or eliminate water use. But, a water dam in a toilet tank is only used to save water, so it qualifies for the exemption.

Other items that do not meet the “sole purpose test” and are subject to tax include:

  • artificial turf;
  • lawnmowers;
  • low-flush toilets;
  • pumps for fountains or water displays;
  • shredders;
  • tools used for landscaping or lawn care;
  • water-efficient appliances; and
  • water hoses.

What Conservation Activities Are Exempt?

The exemption applies to equipment, supplies and services used solely in the types of conservation activities listed below.

Rainwater Harvesting

Equipment, supplies and services used solely for capturing and storing rainwater for subsequent use are exempt from sales tax, including:

  • rainwater filtration equipment;
  • purification equipment;
  • rain barrels;
  • gutters used solely to route the water into rain barrels or rainwater collection systems;
  • tanks and cisterns;
  • roof washers used in a harvesting systems;
  • screens and filters for the gutters, barrels, tanks, cisterns and roof washers; and
  • a collection surface area that is not used as a roof of a structure or storage area.

Piping, plumbing or sprinkler systems used to distribute water inside a house or other structure or throughout a yard or other grounds are not considered part of rainwater harvesting equipment and are not exempt.

Water Recycling and Reuse

Equipment, services and supplies used solely to capture and recycle water qualify for exemption, including:

  • pipes;
  • pumps;
  • chemicals;
  • tanks;
  • cisterns; and
  • water recycling systems for washing machines.

Reduction or Elimination of Water Use

Equipment, services and supplies used solely to reduce or eliminate water use qualify for exemption, including:

  • water dams for toilets;
  • timers and rain sensors attached to sprinkler systems;
  • water displacement devices for toilet tanks; and
  • faucet sensors that shut off water flow.

Items such as low-flow showerheads, xeriscaping services, native and drought-resistant plants, rock gardens and artificial turf do not qualify since they are not used solely to reduce water use.

Desalination of Surface Water or Groundwater

“Desalination” is the process of removing salts from undrinkable or brackish surface water or groundwater to obtain useable fresh water or high-quality drinking water.

Equipment, services and supplies used solely for desalination qualify for exemption, including:

  • reverse osmosis systems;
  • cleaning and pickling valves;
  • filters;
  • membranes;
  • pre-filter pumps;
  • product flow meters;
  • salinity meters; and
  • high-pressure control valves

Brush Control Designed to Increase the Availability of Water

“Brush control” is the selective control, removal or reduction from watershed rangelands of mesquite, prickly pear, salt cedar or other deep-rooted woody plants to enhance the availability of water.

Equipment, services and supplies used solely for brush control are exempt from sales tax, including:

  • bulldozers;
  • root plows;
  • crawler tractors;
  • hydro axes;
  • chains;
  • roller choppers;
  • aerial sprayers;
  • sling blades;
  • oil;
  • batteries;
  • herbicides; and
  • repair services performed on brush control equipment.

Precipitation Enhancement

“Precipitation enhancement” is an activity, such as cloud seeding, done to artificially induce rain clouds to produce rain.

Purchases of equipment, services and supplies used solely for precipitation enhancement are exempt from sales tax, including:

  • end-burning cloud-base flares;
  • acetone solution wing-tip generators;
  • pressure transducers; spectrometer probes;
  • calibration equipment.

Water or Wastewater Systems

Equipment, services and supplies used to construct or operate a water or wastewater system certified by the Texas Commission on Environmental Quality (TCEQ) as a regional system and water or wastewater systems constructed or operated as a public-private partnership qualify for exemption.

The exemption also covers a water supply or wastewater system built or operated by a private entity if the system is certified by a political subdivision or by a non-profit water supply corporation created and operated under Chapter 67 of the Texas Water Code. See Rule 3.318 regarding water-related exemptions and Water and Wastewater Systems (Pub. 94-123) (PDF, 1004KB).

Fracturing at an Oil or Gas Well

Production and completion of oil or gas wells can sometimes require fracturing, which requires injecting a large volume of water into the well to fracture rock formations and release the oil or gas. Recycling and reusing the recovered contaminated wastewater reduces the amount of fresh water used in oil and gas drilling.

Equipment and supplies specifically used to process, reuse or recycle the wastewater resulting from the fracturing at an oil or gas well qualify for sales tax exemption.

The purchaser of qualifying items used for the sole purpose of water conservation or reuse must present to the seller a Texas Sales and Use Tax Exemption Certificate (Form 01-339) (PDF, 57KB) stating valid qualifications for the exemption. The certificate must also show the purchaser’s name and address; description of the item; the reason the purchase is tax exempt; the purchaser’s signature; the date; and the seller’s name and address.

*Originally published in the June edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1206.html

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Calvin Russell Laird, Jr., 50, of Lawn

Calvin Russell Laird, Jr., 50, of Lawn, was convicted of second-degree felony motor fuel tax fraud and sentenced to a term of 20 years imprisonment in the Institutional Division of the Texas Department of Criminal Justice. The sentence is the maximum allowed by law for the offense. Laird was convicted after pleading guilty to the indictment, which alleged that he intentionally and knowingly evading and attempting to evade motor fuel tax by delivering dyed diesel into the fuel tank of a motor vehicle for use upon a public highway. The case was prosecuted as cause number 24940A in Taylor County.

*Originally published at http://www.window.state.tx.us/about/cid/case_news.html

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State Sales and Use Tax

The following rule was submitted for filing with the Secretary of State with a publication date of May 18, 2012. The comment period ends 30 days after publication.

3.346 – Use Tax

*Originally published in the May edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1205.html

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State Sales and Use Tax

The following rule was submitted for filing with the Secretary of State with a publication date of May 18, 2012. The comment period ends 30 days after publication.

3.346 – Use Tax

*Originally published in the July edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1205.html

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Spring Cleaning and Occasional Sales

You may want to clear some space in your closets and garage and get a little cash at the same time by advertising your items for sale via online advertisements or auction sites or by holding a garage or yard sale.

You aren’t in business – or at least you don’t think you are – but you could still be responsible for collecting tax on the items you sell. Here is some information to help you know whether you need a sales tax permit and must collect sales tax.

In general, sales tax applies to the sale of taxable items in Texas regardless of the price of the item, or the number of sales made by the seller. Texas sales tax is a “transaction tax” imposed on the sale, lease or rental of taxable items. A sale occurs when title or possession of a taxable item transfers for consideration. Each time an item is sold for consideration, sales tax is due and the person who sells the taxable item is required to hold a sales tax permit, collect the tax and remit it to the Comptroller. See Texas Tax Code Sections 151.005, 151.051(a), 151.006, 151.151 and 151.154.

Certain transactions, however, may qualify for exemption from tax as an “occasional sale” under Texas Tax Code Section 151.304. Persons who make only occasional sales (as that term is defined in the Tax Code) are not required to hold a sales tax permit or collect tax on their sales of qualifying items.

The following types of transactions generally made by individuals selling personal items can qualify as an “occasional sale”:

  • sales, regardless of price, of one or two taxable items, other than an amusement service, during any 12-month period by a person who does not hold, or is not required to hold, a Texas sales and use tax permit or a similar permit or license issued by another state (Tax Code Sec. 151.304(b)(1); or
  • sales of up to $3,000 in a calendar year of items that were originally acquired for personal use by the person or a family member of the person selling them (Tax Code Section 151.304(b)(5).

Under the first and oldest provision (selling only one or two taxable items), the sales price of the items does not matter. For example, you can sell an organ for $4,000 and a bicycle for $200 in the same calendar year. If you decide to sell your used lawnmower before the end of that calendar year, you are required to obtain a sales tax permit and collect sales tax because that would be a third sale. This type of occasional sale exemption applies to sales made by individuals and others including businesses who do not regularly sell taxable items such as businesses who ordinarily sell nontaxable services.

Under the second provision, you can make as many sales as you like, as long as you are selling only items that were originally acquired for your or your family’s personal use and you don’t earn more than $3,000 in a calendar year from the sale of such goods.

For example, you may hold a garage sale in May and earn $1,000; in August sell your used bicycle to your neighbor for $200.00; and then earn $500.00 in December of the same calendar year by selling a childhood toy as a collectible through an online auction site. You have made more than two sales transactions in a calendar year so the exemption provided by Section 151.304(b)(1 ) does not apply, but since the total amount you earned from the sales was less than $3,000, the exemption provided by Section 151.304(b)(5 ) applies instead. This type of occasional sale exemption applies only to individuals. It does not extend to similar sales made by groups or organizations (such as student groups or church groups) that collect items to sell at a garage sale type event; or to “community-wide” type events that are coordinated or produced by a third party if the seller is required to pay a fee or commission in order to participate in the event (i.e., booth or space rental fees). In these situations, sales tax is required to be collected unless other exemptions apply.

If you continue to sell taxable items after you have reached the $3,000 limit and you have made more than two sales, you will be considered engaged in business, and required to obtain a sales tax permit and start collecting tax on all subsequent sales of taxable items, beginning with the first sale that occurs after the limit is reached.

The occasional sale exemption does not apply to persons engaged in the business of making sales. A person who buys or otherwise obtains goods from others for the purpose of reselling them (including barters or trades), or a person who routinely engages in making sales of taxable items, including an artist or craftsman who fabricates goods for sale, is considered to be engaged in the business of selling taxable items and is required to have a Texas sales tax permit and collect tax on all sales of taxable items. A person engaged in the business of making taxable sales may not claim an exemption from tax on the first two sales or on the first $3,000 worth of taxable items sold in a calendar year.

As with all exemptions, the seller is required to maintain records to document that the exemption applies.

Use this chart to see if the occasional sale exemption applies to you:

If… and… then…
you have a sales tax permit sales tax is due (unless another exemption applies to the sale).
you are an individual who does not have, and is not required to have, a sales tax permit
  • you sell taxable items during a calendar year (via a garage sale or an online auction, for example); and
  • the taxable items were originally bought for your personal use (or for use by a member of your family); and
  • the total amount of money received for the sales (no matter how many sales) does not exceed $3000 during that calendar year
you are not required to collect sales tax.NOTE: If the purchaser has a sales tax permit, the purchaser is not required to accrue and report the sales tax. See STAR document 200711090L.
you are an individual or a business who does not have, and is not required to have, a sales tax permit make two sales per calendar year (regardless of the dollar amount of the sales)
  • the $3000 limit does not apply and
  • the individual or business is not required to collect sales tax.

NOTE: If the purchaser has a sales tax permit, the purchaser is required to report its purchase of a taxable item as a “taxable purchase” on its sales tax return. See Tax Code Section 151.304(g).

 

*Originally published in the May edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1205.html

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Reminder: Filing Late Reports Means a $50 Late Filing Penalty

As noted in the August 2011 TPN legislative update issue, a $50 penalty is assessed for certain taxpayers who file their tax reports late, whether they report them online or by mail. A report is late when it is filed after the due date. To help taxpayers file on time, we have a calendar on our website detailing when reports and payments are due.

Taxes or fees subject to the $50 penalty are:

The penalty applies to reports filed late, beginning with reports originally due on or after Oct. 1, 2011, and is due in addition to any other penalties assessed for a reporting period. It is due regardless of whether the taxpayer later files the report or whether any taxes or fees were due from the taxpayer for the period covered by the late-filed report.

The fact that a person does not receive or obtain the correct report form from our office does not relieve them of their responsibility to file a report and to remit the required tax or fee.

*Originally published in the May edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1205.html

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Real Property Services Performed at Oil and Gas Well Sites

Waste Removal or Collection

The removal or collection of garbage, rubbish or other solid waste is usually a taxable real property service.

An exclusion from taxable waste removal services is the removal or collection of waste material that results from an activity associated with the exploration, development, or production of oil, gas, geothermal resources, or any other substance or material regulated by the Railroad Commission of Texas (RRC) under Section 91.101, Natural Resources Code. For example, the collection and disposal of used and depleted drilling mud, drilling fluids, saltwater, broken pipe or other waste directly coming from an oil or gas well is not a taxable service when provided during the exploration, development and production of an oil or gas well. See Tax Code Section 151.0048(a)(3)(C).

An exemption certificate (Form 01-339/back) (PDF) is not required in order to purchase the services of collection and/or disposal of qualifying oil and gas well-related materials tax free as long as the invoice and contract between service provider and customer clearly state that the waste removal service is for waste created from the exploration, development and production of an oil or gas well or substances regulated by the RRC. A waste disposal service operator providing the service may also request an exemption certificate from the purchaser of the service as additional documentation that the sale qualified for exclusion from tax.

The collection and removal of any other waste that does not directly result from the exploration, development or production of an oil or gas well is taxable. Examples are empty food and beverage containers, wrappers, bags and other unwanted personal disposal items. It doesn’t matter that the waste was generated by the well service staff, roustabouts, roughnecks, operator or others. Collecting and removing personal disposal items is a taxable real property service.

Weed Control

Landscaping activities, including cutting or mowing grass and weeds for aesthetic purposes, are taxable as real property services. When performed at an oil or gas well site, water disposal or injection well, these services are not taxable real property services. The service provider does not need to collect the sales tax. See Rule 3.324.

On the other hand, pest control services to kill insects or remove weeds at an oil field related location, such a well site, compressor or booster station, etc., through the use of pesticides, herbicides or other similar chemicals are taxable as structural pest control services regardless of whether an aesthetic effect is achieved. Structural pest control services that use chemical means to prevent, control, or eliminate an infestation of weeds, wood-infesting organisms and other pests that are covered by Section 1951.003, Occupation Code are considered a taxable real property service.

At some oil field related locations, some of the machinery and equipment is tangible personal property and not deemed to be either a structure or improvement to realty. For example, a pump jack, flow line, heater treater, separator, or wellhead christmas tree is tangible personal property. Pest control services provided at a location where there are only items of tangible personal property are not taxable structural pest control services.

Tanks with a capacity of 500 barrels or less are also considered tangible personal property. Tanks with a capacity exceeding 500 barrels are considered to be a structure or improvement to realty. Therefore, the charge for the pest control service at the well site should be separately stated for the services related to structural/realty components and the tangible personal property in order for the sales tax to only apply to the structural/realty components. Otherwise, sales tax would apply to the total combined charge if the service relating to the structural/realty components represents more than 5.0 percent of the total charge.

*Originally published in the May edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1205.html

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Proper Calculation of Sales and Use Tax

All Texas sellers must collect sales tax on each separate retail sale in accordance with the statutory bracket system in Tax Code Section 151.053.

Tax Code Section 151.053 states, “If the sales price involves a fraction of a dollar, the sales tax to be added to the sales price shall be computed by multiplying the percentage rate of the sales tax times the amount of the sale. A fraction of one cent that is less than one-half of one cent is not collected and a fraction of one cent that is equal to one-half of one cent or more is collected as one cent of tax.”

When the seller computes the sales tax by multiplying the tax rate by the sales price, the amount should be carried to the third decimal place. If the numeral numeral in the third decimal place is equal to or greater than five, the amount should be rounded up to the next cent. If the numeral in the third decimal place is four or less, the amount should be rounded down to the next cent. Taxpayers should not “round off” the amount of tax due using any other method.

For example, a taxable item is sold for $250 and the tax rate charged is 8.25 percent. The tax rate multiplied by the sales price equals $20.625. Because the third decimal place is a five, the amount should be rounded up and the tax would be $20.63.

When several taxable items are sold in the same transaction, sales tax is computed on the total sale of taxable items, not on the sale of each individual item.

For example, if two items are sold on the same transaction and each item is sold for $7, the seller must collect the tax on the total sum of $14. Tax must be reported and remitted to the Comptroller as required by Tax Code Section 151.410.

In addition to the method above, Tax Code Section 321 allows sellers to calculate the amount of taxes due by multiplying the taxable amount by the tax rate of each jurisdiction and then adding those amounts together.

For example, an item is sold for $20 and the total tax rate is 8.25 percent (6.25 percent state tax, 2 percent city tax). The seller should multiply $20 by the state tax rate (6.25 percent) and then multiply $20 by the city tax rate (2 percent). The seller would add state tax ($1.25) and the local tax ($.40) to compute the total tax due ($1.65).

Sellers are not allowed to “round off” the tax rate that is charged. The Texas state sales tax rate is 6.25 percent, and local sales and use tax rates range from 0.125 percent (1/8 percent) to 2 percent. Sellers may not round off a tax rate percentage that is a fraction of a whole number, but must instead calculate the amount of tax due based on the actual rate in effect at a location.

Sellers should also remember to charge tax only on the final sales price of a taxable item. The final sales price is the total after all discounts, coupons, “free” offers and all other price reductions have been subtracted. Tax is due only on the amount actually charged the customer. See Tax Code Section 151.007(c)(1).

For example, a retailer may offer a customer a 10 percent discount on all purchases. If the customer buys an item marked at $50, the discounted price becomes $45. Tax is computed on the final discounted sales price of $45.

*Originally published in the May edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1205.html

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Notice Required for Biodiesel and Renewable Diesel

Texas law provides a tax exemption for biodiesel, renewable diesel and for the volume of biodiesel or renewable diesel blended with taxable diesel fuel. This exemption is intended to be passed to the ultimate consumer.

The volume of biodiesel and renewable diesel and the volume of biodiesel or renewable diesel that is combined with taxable diesel fuel must be identified on the sales invoice on each sales transaction after the biodiesel or renewable diesel is produced and is first blended with taxable diesel fuel, and must continue to be identified on sales invoices until sold to the ultimate consumer. Comptroller Rule 3.433 details the information required on each sales invoice issued by wholesalers (refiners, producers, blenders, importers resellers) and retail dealers.

A wholesaler must identify on each sales invoice the volume of biodiesel or renewable diesel that is combined with taxable diesel fuel showing the number of gallons of biodiesel or renewable diesel, rounded to the nearest whole gallon, or by the percentage of biodiesel or renewable diesel, rounded to the nearest whole percentage. This is not an option. The sales invoice must also indicate the state tax collected on each sale based on the volume that is taxable petroleum-based diesel fuel.

Dealers are required to identify on each sales invoice the volume of biodiesel and renewable diesel sold through a retail pump to the ultimate consumer. On retail sales to the ultimate consumer that contain 20% or less biodiesel or renewable diesel, the dealer may identify the blended product sold as “Contains up to 5% biodiesel or renewable diesel – state diesel tax $0.19 per gallon” or “Contains up to 10% biodiesel or renewable diesel – state diesel tax $0.18 per gallon” or “Contains up to 15% biodiesel or renewable diesel – state diesel tax $0.17 per gallon” or “Contains up to 20% biodiesel or renewable diesel – state diesel tax $0.16 per gallon.”

On blends that contain more than 20% biodiesel or renewable diesel fuel, the volume must be identified to the nearest whole gallon or nearest whole percentage, with the appropriate state diesel tax rate. Identifying the volume of biodiesel and renewable diesel fuel on a sales invoice when sold by a dealer through a retail pump is not an option.

*Originally published in the May edition of Tax Policy News – a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2012/tpn1205.html

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