A Practical Guide to HB 3572

The 83rd Legislative Session passed House Bill 3572, which impacts all Mixed Beverage Tax permit holders in the state. It increases the overall tax rate paid to the state to 14.95%. The law takes effect beginning on January 1, 2014. This law does the following things:

1) It reduces the Mixed Beverage Gross Receipts Tax rate from the current 14% to 6.7%.
2) It creates a new tax known as the Mixed Beverage Sales Tax (MBST). The rate of this tax is 8.25%. However, this tax is NOT the same as the current Sales Tax and needs to be accounted for and reported separately.
3) You will need to choose how to account and report this new tax: Tax Included or Separate line item showing the tax.
4) It increases your reporting responsibilities.
5) It increases your documentation responsibilities.

Wes Boullioun – Former Texas Comptroller State Tax Auditor, 8 Years

Wes Boullioun – Former Texas Comptroller State Tax Auditor, 8 Years

Decision #1 – Tax Included or Separate Line Item?

The first decision that needs to be made by each mixed beverage permit holder is: Am I going to account and report for the new tax by declaring tax is included in the sales price or am I going to account for the tax separately? The state will allow either procedure. Your individual accounting systems (POS systems or manual cash registers) may dictate your ultimate choice. The state is assuming most bars will choose to report tax included as bars like to deal in round numbers. They assume the rest of the population will account and report the new tax as a separate line item. An example will help clarify the difference between the two methods.

Tax Included

In this example, let’s assume I sell a margarita for $5.00, tax included. The first thing I must do is let my customer know on his receipt that MBST is included in the $5.00 charge he is seeing. Next, when I report this to the state, I would show the following:

On the Mixed Beverage Gross Receipts Tax monthly Report, I would report:

Gross Sales: 5.00/1.0825 = 4.62

Mixed Beverage Gross Receipts Tax = 4.62 * .067 = .31 Gross Receipts Tax

On the Mixed Beverage Sales Tax Return, I would report:

$4.62* .0825 = .38 Mixed Beverage Sales Tax

Note that the .38 cents calculated in this manner equals the 5.00 – 4.62 = .38

Finally, on the monthly Sales and Use Tax Report, this transaction would show up as 4.62 in Gross Sales, but would not show up in taxable sales at all.

Decision #2 – Separate Line Item

Now let’s assume I sell that same margarita in a system where I separately account and report the mixed beverage sales tax separately. The first thing is on the receipt I give my customer, it will say
Margarita $5.00
MBST .41
Total $5.41

When I report this sale to the state, the Mixed Beverage Gross Receipts Tax would be as follows:
Gross Sales: $5.00
Mixed Beverage Gross Receipts Tax = $5.00 * .067 = .34

On the Mixed Beverage Sales Tax Return I will report:
Sales = $5.00
MBST = $5.00*.0825 = .41

Note this matches what my customer got on his receipt

On the monthly Sales and Use Tax Return, the transaction would show up as $5.00 in Gross Sales and zero in taxable sales.

Summary

To summarize, here is what you need to know about HB3572. It lowers the Mixed Beverage Gross Receipts Tax Rate from 14% to 6.7%. It creates a new tax, the Mixed Beverage Sales Tax, and that tax rate is 8.25%. This tax is different from sales tax and needs to be accounted for and reported separately. Mixed Beverage permit holders need to make a decision as to how they account for the new tax: either tax included or separately stated. The receipts given to customers need to reflect this decision. The documentation and reporting requirements become greater under the new law.

Texas Mixed Beverage Tax Audit
An Open Letter to All Mixed Beverage Permit Holders in the State of Texas
Audit Division and the Fraud Penalty