Texas Oil & Gas -Southwest Royalties, Inc. vs. Susan Combs Most Likely Heading to Supreme Court

The issue concerning whether tangible personal property placed inside a well (i.e., “downhole”) qualifies for the manufacturing exemption has been pending in the Texas court system for several years. The trial judge ruled in favor of the Comptroller on April 30, 2012, and the Third Court of Appeals heard oral arguments on September 25, 2013. After considering the issue for almost 11 months, the Third Court of Appeals issued an opinion on August 13, 2014, affirming the trial court’s judgment for the Comptroller. (more…)

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Mixed Beverage Gross Receipts Tax

Mixed Beverage Gross Receipts Tax Rate Lowered; New Mixed Beverage Sales Tax Imposed

House Bill 3572, effective Jan. 1, 2014, lowers the mixed beverage gross receipts tax rate from 14 percent to 6.7 percent. The bill also imposes an 8.25 percent mixed beverage sales tax.

Mixed beverage gross receipts tax is imposed on the mixed beverage permittee and will be administered the same as before but at a lower rate. In addition, a mixed beverage permittee will collect an 8.25 percent tax on each mixed beverage sold, prepared or served. The new sales tax is also due on ice and each nonalcoholic beverage sold, prepared or served to be mixed with an alcoholic beverage and consumed on the permitted premises. (more…)

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Sales Tax Reporting Requirements for Contractors

The Comptroller’s office was asked to provide a speaker to discuss the applicability of sales tax for plumbing contractors at the Buda headquarters of the Plumbing-Heating-Cooling Contractors Association of Texas. Jim Mathieson spoke to the association about reporting requirements under Rules 3.2913.3573.292 and 3.322.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1304.html#issue9.

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Direct Pay Permit Holders and “Tax-Included” Sales

Tax responsibilities can be confusing when a sale occurs between a seller and a direct pay permit holder, and the seller indicates that tax will be included as part of the sales price.

The Comptroller is considering amendments to appropriate rules to explicitly state that a seller who uses “tax-included” language in contracts and on invoices is responsible for remitting the tax to the Comptroller, without regard to who the purchaser is, consistent with longstanding law.

Additionally, if tax-included language is part of a contract when the purchaser holds a direct pay permit, the seller must remit the tax and cannot claim a refund if the direct pay permit holder also accrues and remits tax on the same transaction.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1304.html#issue8.

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Court Case Summary: Plush Toy Prizes Used to Stock Coin-Operated Amusement Crane Machines May Qualify for Resale Exemption

Roark Amusement & Vending, L.P. v. Combs, et al., Cause No. D-1-GN-06-004725

Roark Amusement & Vending, L.P. (Roark) owns and leases coin-operated amusement crane machines that customers operate to try to grab a toy prize. Roark filed a refund claim for Texas sales and use tax paid under protest on its purchases of plush toys used in its coin-operated amusement crane machines, arguing that the plush toy purchases qualified for the sale for resale exemption. (more…)

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Local Sales Tax Rate Increases – Calculating and Reporting Tax for Sellers Operating on a Cash Basis of Accounting

Businesses operating on the cash basis of accounting record all transactions in their books when money actually changes hands, meaning when payment is actually received by the company or when money is paid out by the company.

If your business operates or reports using the cash basis of accounting, and there is a change in the local tax rate between the time you execute a sales contract and payment is received, you should collect tax based on the rate in effect when the sales contract was executed, unless your contract allows for a change in the contract price based on a tax rate increase. Sales contracts must be dated and state a definite price and terms. (more…)

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Future Roundtable Discussion on Internet Hosting and Nexus

The Tax Policy Division will hold a roundtable discussion regarding House Bill 1841 (passed during the 82nd Legislature) and how the change in the law should impact our policies on Internet hosting and nexus. A date has not been set for the roundtable, but it will likely take place after the 83rd Legislature adjourns in June.

If you would like to be involved in the development of our future policies in this area by attending the roundtable meeting, please email Bryant Lomax.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1304.html#issue5.

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Franchise Tax Account Status

The Comptroller has historically issued Certificates of Account Status (“good standing”) in response to inquiries about the status of an entity’s franchise tax account. The ability to search the franchise tax status of an entity is also available on the Comptroller’s public website, Window on State Government.

In the past, being “in good standing,” or being able to obtain a Certificate of Account Status, meant that all franchise tax filing requirements had been met and no franchise tax was due. (more…)

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Future Roundtable Discussion on Cost of Goods Sold and the Printing Industry

The Tax Policy Division will hold a roundtable discussion regarding the cost of goods sold deduction and the printing industry. A date has not been set for the roundtable, but we are looking at the month of June.

If you would like to be involved in the development of our future policies in this area by attending the roundtable meeting, please email Teresa Bostick.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1304.html#issue2.

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State Tax Automated Research (STAR) System User Survey

Do you use our searchable STAR system to find information about Texas tax law and policies? We are currently evaluating STAR’s hardware and software components, and we’ve posted an online survey to learn more about how our customers use the system. We invite you to share your comments and observations through the survey. As always, we value your feedback.

If the link does not work, please copy and paste this address into your browser to take the survey.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1303.html#issue9.

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Spanish version of Fairs, Festivals, Markets and Shows

The Spanish version of Fairs, Festivals, Markets and Shows (Pub. 96-211) is now available online.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1303.html#issue6.

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Alcohol Reporting

The Comptroller’s office was asked to provide a speaker to discuss alcohol sales reporting requirements for wineries at the 2013 Annual Texas Wine and Grape Growers Association. Donald Dillard spoke to the association about reporting requirements stemming from the passage of House Bill 11 in 2011. Interested persons can learn more about alcohol reporting requirements on our website.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1303.html#issue4.

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Popular Online Resources

Our Window on State Government website is a wonderful resource for information about Texas taxes. From applying for a sales tax permit to closing a business, and all things in between, you can find answers here – just enter a keyword for the information you need in the Site Search box located on the top-right-hand corner of each website page.

You can also sign up to be notified when pages of interest to you are updated.

Some of the most popular sections include:

  • Texas Taxes – This section has links to all Texas taxes and fees. Clicking on a specific tax on the list will open its own page which will have links to everything needed to report and pay that tax, along with the statutes and rules that govern it.
  • Frequently Asked Questions – Answers to our most common questions, organized by tax
  • Tax Publications – Links to publications about specific taxes
  • Special Tax Mailings – A list of pertinent information sent to specific industries to keep them up to date about new legislation or other items of interest
  • State Tax Automated Research System (STAR) – A searchable tool for Texas tax law and tax policy, including policy letters and hearings

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1302.html#resources.

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New and Updated Agency Rules Concerning Taxability Letters and Taxpayer Rights

In January’s Tax Policy News, we announced that new Rule 3.1, relating to Private Letter Rulings and General Information Letters and amended Rule 3.10, relating to Taxpayer Bill of Rights, would be effective on Jan. 28, 2013.

We’ve created a new web page to summarize the information in Rule 3.1.

The Comptroller will issue a general information letter in response to a request for taxability information. Our response will refer the requestor to an existing resource, such as an administrative rule, a publication or a Frequently Asked Question (FAQ), to answer the question. You may want to search this list of resources to see if the answer to your question is already available, before writing to us.

A private letter ruling, on the other hand, is the Comptroller’s written determination on the application of relevant tax laws, rules and policies to a specific set of facts. When submitting a request for a private letter ruling, consult Rule 3.1 to make sure all requirements for requesting a private letter ruling are met, as the information on the web page is not intended to be a substitute for the rule.

We’ve also enhanced our Compact with Texans web page to explain when the agency will give taxpayers detrimental reliance relief in relation to the taxes, fees and other charges administered by the agency. This longstanding policy is now more clearly explained in Rule 3.10. Other aspects of the rule are updated as well, such as information about our customer service liaison, and ways to help taxpayers comply with the laws and provide input into Comptroller rules and procedures.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1302.html#issue3.

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Tax Deductions on 2012 Federal Income Tax Returns

Texans who itemize deductions on their federal income tax return can deduct state and local sales or use taxes paid on purchases made during the 2012 calendar year, including big-ticket items such as cars, recreational vehicles and boats.

To claim the federal deduction, eligible taxpayers can either:

Taxpayers who built a new home or improved their home in 2012 may deduct sales taxes paid on the materials incorporated into the real property improvement. Labor is not taxable for new construction or residential repair and remodeling.

To be eligible for the deduction, the homeowner must have:

  • purchased the materials directly from, and paid tax to, the building materials supplier; or
  • worked with a contractor under a separated contract.

Lump-sum (one price) contracts are not eligible for the deduction because a contractor performing a contract for a lump-sum price pays the sales tax on materials and does not collect tax from the customer. Since the customer did not pay tax to the contractor, the customer cannot deduct the tax on the federal income tax return.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1302.html#issue2.

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Homeowners Renting a Room to the Public

The many upcoming springtime festivals, rodeos, races and other entertainment events have some Texans leasing their homes to visitors in town for the events. Remember though, that persons leasing rooms or houses must collect hotel occupancy tax from their customers, in the same way a hotel or motel collects the tax from its patrons.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1302.html#issue1.

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Franchise Tax – Rule 3.588

The Tax Policy Division recently hosted a roundtable discussion on Rule 3.588 related to margin and the costs of goods sold. The roundtable discussion was based on a draft rule amendment that was sent to representatives of various businesses who had participated in a work group on the issue of qualifying labor costs for Cost of Goods Sold. The amendment has not been formally proposed in the Texas Register.

We’ll be holding more roundtables to allow interested people to have input in the rules we propose, and we’ll keep you informed of upcoming events through this newsletter.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1302.html#roundtable.

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REMINDER – It’s a New Calendar Year for Certain Nonprofit Organizations

It’s a new calendar year for nonprofit organizations allowed to hold two one-day, tax-free sales during a calendar year. A qualified organization that has obtained sales tax exemption from our office must designate in its records before a sale which two, one-day sales will be exempt during a calendar year. This may require careful planning and coordination for organizations operating on a fiscal year basis.

For example, PTAsPTOs and other school groups often plan events based on school years rather than calendar years. When planning fundraising activities (PDF, 412KB) for a new school year, the school groups should verify the number of tax-free fundraisers conducted by the organization during the prior school year that occurred during the current calendar year.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1301.html#issue3.

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REMINDER – It’s Time to Renew Cigarette/Tobacco Non-Retailer Permits

Current cigarette and tobacco products non-retailer permits expire Feb. 28, 2013.

Renewal packets with preprinted applications were recently mailed to all cigarette, cigar and/or tobacco products manufacturers, importers, distributors, bonded agents and wholesalers for renewing their cigarette and tobacco products non-retailer permits for March 1, 2013, through Feb. 28, 2014.

Non-retailers should review the preprinted information, make any corrections and return all pages of the packet (and any other documentation) with the applicable permit fee to our office by the date printed on the application form.

Returning the renewal packet and application fee by the return date will allow enough time for us to process the renewal before the current permit expires.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1301.html#issue3.

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“Good Standing” Account Status – Changes Are Coming

Businesses have been reporting under the revised franchise tax since 2008. Due largely to the complications of combined reporting, companies can be “not in good standing” due to a reporting error, not a tax delinquency. A “not in good standing” status can be costly to a company conducting a business or financial transaction.

The Comptroller took another look at good standing in the light of concerns from businesses. The result of that review is that being “in good standing” for franchise tax will mean that the company’s right to transact business in Texas is intact.

Being in good standing has evolved over the years, as we made changes to accommodate processing times and filing requirement changes. There are also different types of good standing, and this office may not be able to issue a certificate under certain good standing conditions. In short, it’s become complicated.

The decision to simplify and update the franchise tax good standing status definition was based on several factors:

  • Fairness. The good standing calculation is done by the certificate of account status application in real time. If a report processes that is missing a schedule, for example, the website will show the company to be “not in good standing” immediately – even before the company has been notified of the problem.
  • Transparency. The term “good standing” is misleading in that it addresses only franchise tax, although a company in good standing could have liabilities in multiple other taxes.
  • Clarity. A good standing can be confused with a certificate of existence, which is issued by the Secretary of State and attests to the status of an entity’s registration in Texas.

What’s Next?

A project team is looking at the procedural and programming changes necessary to replace good standing with the status of the entity’s right to transact business in Texas. See Texas Tax Code 171.251 – 171.259. This new definition means that a business will receive a written notice of any issues with its franchise tax filing, and will have at least 45 days to cure those issues, before the business is not in good standing.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1301.html#issue1.

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