Tax Policy News

Webfile is a secure, online tool for filing and paying taxes and fees. And now it's even better!

If you file and pay sales tax via Webfile, get ready for a streamlined experience! We've updated this tool with an easy-to-follow user interface, so you can

• Navigate quickly to frequently used services
• Update your accounts
• Save and resume your filing progress

If you already use Webfile, your username and password won't change. You will still have 24/7 access and the ability to file early and pay on the due date.

Webfile users (including franchise taxpayers) who have not accessed their profile since Feb. 1, 2021, will be required to set up three new security questions before they can use the enhanced Webfile system. Taxpayers will also be asked to add an optional mobile number to their profile. Adding a mobile number helps make password resets simple and secure.

If your profile is locked and you haven’t set up security questions in the new system, you will need to contact Taxpayer Services at 800-252-5555 or Electronic Reporting at 800-442-3453 for password assistance.

Due to statewide inclement weather in February 2021, the Texas Comptroller of Public Accounts automatically extended the due date for the 2021 Texas franchise tax reports to June 15, 2021, consistent with the Internal Revenue Service (IRS). The due date extension applies to all taxpayers. The extension is automatic, and taxpayers do not need to file any additional forms.

Texas taxpayers can save money on tax-free purchases of certain ENERGY STAR ^® energy-efficient products and certain water-efficient and water-conserving products during the annual Texas ENERGY STAR ^® Sales Tax Holiday and Texas Water-Efficient Products Sales Tax Holiday. The 2021 holidays begin Saturday, May 29, and go through Memorial Day (Monday, May 31, ending at midnight). There is no limit on the number of qualifying items you can buy, and you do not need to give the seller an exemption certificate to buy items tax free.

Online Purchases and Telephone Orders

During the Energy Star Sales Tax Holiday, you can buy qualifying ENERGY STAR^® energy-efficient products online or by telephone, mail, custom order or any other means (including in-store purchases) tax free, when either

• the item is both delivered to, and paid for, by the customer during the exemption period; or
• the customer orders and pays for the item, and the seller accepts the order during the exemption period for immediate shipment, even if delivery is made after the exemption period ends.

A seller accepts an order when the seller has acted to fill the order for immediate shipment. An order is filled for immediate shipment regardless of whether the shipment is delayed due to a backlog of orders or because stock is currently unavailable or on back order.

In-Store Purchases

The Comptroller’s office urges all taxpayers buying certain ENERGY STAR^® energy-efficient products at their local retailers to practice appropriate social distancing as described in the Center for Disease Control and Prevention guidelines.

ENERGY STAR Sales Tax Holiday

You can buy, rent or lease only the following ENERGY STAR^®-labeled items tax free:

• air conditioners (with a sales price of $6,000 or less)
• refrigerators (with a sales price of $2,000 or less)
• ceiling fans
• incandescent and fluorescent light bulbs
• clothes washers
• dishwashers
• dehumidifiers

Non-Qualifying Products

Examples of items that do not qualify and are taxable, even if they are ENERGY STAR^®-labeled include

• water heaters
• clothes dryers
• freezers
• stoves
• attic fans
• heat pumps
• wine refrigerators
• kegerators
• beverage chillers

Additional Charges Affect the Sales Price

Delivery, shipping, handling, and transportation charges by the seller are part of the item's sales price. Charges for installing free-standing items are also part of the item's sales price. If the item you buy is not taxable, then these charges are not taxable.

For air conditioners and refrigerators (because they have a price cap), you have to look at the item's total sales price to determine whether you can buy it tax free.

For example, you buy an ENERGY STAR^® refrigerator for $1,995 with a $50 delivery charge for a total sales price of $2,045. Because the refrigerator's total sales price is more than the $2,000 cap for refrigerators, tax is due on the entire $2,045 sales price.

If a delivery charge is billed per item, and an invoice has both exempt and taxable items, only the qualifying exempt item's delivery charge is exempt.

For a flat-rate delivery charge, the total delivery charge is applied to the tax-exempt items and is exempt if it does not cause the item's sales price to exceed its price cap.

Contractors and Taxable Service Providers

If you perform new construction or residential repair and remodeling contract work, you are a contractor. If you repair or remodel nonresidential real property, you are a taxable service provider.

Purchases

As a contractor or taxable service provider, you can buy qualifying ENERGY STAR^® energy-efficient products tax free to keep in your inventory. You do not need to give the seller an exemption or resale certificate.

Sales

During the holiday, contractors and taxable service providers can sell ENERGY STAR^® energy-efficient products tax free if they are incorporated into real property under a separated contract.

Examples of products incorporated into real property are central air conditioning units, ceiling fans and built-in appliances such as dishwashers. This exemption applies to both residential and business customers.

Water-Efficient Products Sales Tax Holiday

During the holiday period, you can buy any product tax free that displays a WaterSense^® label or logo. These items can be bought for either personal or business purposes.

Water-Conserving Products

You can also buy certain water-conserving products tax free during the holiday period.

Unlike WaterSense^®-labeled items, these items are only exempt when you buy them for use at your residential property.

You can buy items tax free during the holiday that are used or planted for

• conserving or retaining groundwater;
• recharging water tables; or
• decreasing ambient air temperature, and so limiting water evaporation.

Examples of items that qualify for the exemption include

• a soaker or drip-irrigation hose
• a moisture control for a sprinkler or irrigation system
• mulch
• a rain barrel or an alternative rain and moisture collection system
• a permeable ground cover surface that allows water to reach underground basins, aquifers or water collection points
• plants, trees and grasses
• water-saving surfactants
• soil and compost

Examples of items that do not qualify for the exemption include

• construction/building materials
• awnings and other items used to create shade
• air conditioners
• ceiling fans
• sprinklers

Contractors, Landscapers and Other Service Providers

WaterSense Products Purchases

Contractors, landscapers and other service providers can buy WaterSense^® products tax free to keep in inventory. An exemption or resale certificate is not required.

WaterSense Products Sales

Contractors, landscapers and other service providers can sell WaterSense^® products tax free under a separated contract during the holiday period. This exemption applies to residential and business customers.

Water-Conserving Products Purchases

Since the exemption does not apply to water-conserving products used for business, lump-sum contractors cannot buy water-conserving products tax free to keep in inventory until ready for use in new or existing residential property or in new commercial property. You must continue to pay tax on these items.

Service providers repairing and remodeling commercial property, and all separated contractors, must give a resale certificate to the seller for water-conserving products bought during the holiday period.

Water-Conserving Products Sales

Separated contractors can sell water-conserving products tax free only to individual customers for their residences during the holiday period. Sales to businesses are taxable.

Sales Tax Holiday Refund Requests

During the annual Texas ENERGY STAR^® and Water-Efficient Products Sales Tax Holiday, purchasers can buy certain ENERGY STAR^® energy-efficient products and certain water-efficient and water-conserving products tax free. If you pay sales tax on these items during the sales tax holiday, you can ask the seller for a refund of the tax paid. The seller can either grant the refund or provide their customer with Form 00-985, Assignment of Right to Refund (PDF) which allows the purchaser to file the refund claim directly with the Comptroller's office.

Should you have additional questions about refund requests, please contact us at 800-531-5441, ext. 34545, or visit our Sales Tax Refunds web page for further details on filing a refund claim.

More Information

For more information about the upcoming sales tax holidays, contact us at Tax Help, or call 800-252-5555.

Our office offers video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

The Comptroller's office offers Sales and Use Tax Seminars throughout the year. New taxpayers are especially encouraged to attend these overviews of tax responsibilities for buyers, sellers and service providers.

Currently we are offering virtual Taxpayer Seminars conducted via Webex Events. For more information, visit the Taxpayer Seminars webpage.

Visit our Tax Training Resources webpage to

• find out more about our training resources
• register for upcoming webinars
• view the Podcast and Webinar Archive sections for previous recordings

In 2020 and 2021, Congress passed several COVID-related relief packages, including the CARES Act, the Paycheck Protection Program and the American Rescue Plan. These programs have provided much-needed money to businesses via loans and grants. The federal government will forgive the loans (thus not requiring repayment), and will not consider the grants taxable income, if a business meets certain requirements.

Generally, forgiven loan proceeds and grants must be reported as income for federal tax purposes. Based on the application of the Internal Revenue Code to the Texas franchise tax, the federal determination that the forgiven loan proceeds and grants are not includable as income did not affect the way Texas franchise tax is calculated. Under the law prior to May 8, 2021, forgiven loan proceeds and grants were generally included in an entity’s total revenue. This inclusion could increase the amount of franchise tax an entity owed. The law was clear and the only way to separate the forgiven loan proceeds and grants from total revenue was legislative action.

HB 1195 was passed through both houses of the legislature and had immediate effect when it was signed by the Governor on May 8, 2021. This bill added section 171.10131 to the Texas Tax Code. For franchise tax reports originally due on or after Jan. 1, 2021, forgiven loan proceeds and grants from qualifying COVID-related federal programs are not included in total revenue and should not be reported on the franchise tax report as revenue. Further, expenses paid using those loan proceeds and grants may be claimed as a cost-of-goods sold or as compensation, if eligible under Tax Code Sections 171.1012 and 171.1013, in the franchise tax calculation.

Qualifying COVID-related federal loan and grant programs include the following:

• Coronavirus Aid, Relief, and Economic Security (CARES) Act
• Paycheck Protection Program (PPP) Flexibility Act of 2020
• PPP Extension Act of 2021
• American Rescue Plan Act of 2021
• Consolidated Appropriations Act, 2021

In this month’s issue, we continue our series focusing on the sales tax responsibilities of nonprofit organizations, and examine purchases and sales made by special nonprofit groups.

Sales Tax Responsibilities of Nonprofit Organizations

As mentioned in our April Tax Policy News article, Sales Tax Exemptions for Qualified Organizations – Purchases and Sales, certain nonprofit organizations are exempt from paying Texas sales tax on qualifying purchases. Religious, charitable, educational and IRC 501(c)(3), (4), (8), (10) and (19) organizations must apply for sales tax exemption with our office before making tax-free purchases of qualifying items. Once approved, these organizations can purchase items related to their exempt purpose tax free by presenting their vendor with a properly completed Form 01-339 (back), Texas Sales and Use Tax Exemption Certification (PDF).

Qualified organizations are not exempt, however, from collecting sales tax for items they sell. Exempt or nonprofit organizations must obtain a sales tax permit and collect and remit sales tax for all taxable items and services they sell unless an exception applies. An organization that has been exempted by our office can hold two one-day tax-free sales or auctions each calendar year. The organization does not need to collect sales tax during each of its one-day tax-free sales. To purchase taxable items tax free for resale during the tax-free sales days, the organization can either give the seller a properly completed Form 01-339 (front), Texas Sales and Use Tax Resale Certificate (PDF) (if it has a sales tax permit) or an exemption certificate (PDF).

Special Nonprofit Groups

The following nonprofit groups are eligible to make tax-free sales.

Volunteer Fire Departments

A volunteer fire department is a company, department or association organized to answer fire alarms and extinguish fires. Its members may also provide emergency medical services and receive little or no compensation for their services.

Volunteer fire departments are eligible to hold 10 tax-free sales or auctions each calendar year. Each sale or auction can last 72 hours or less. A tax-free sale or auction longer than 72 consecutive hours is considered more than one exempt sale or auction.

If the volunteer fire department only makes sales during its 10 tax-free sales days, it does not need to hold an active sales tax permit. If the organization makes ongoing sales outside of its 10 tax-free sales days, then a sales tax permit is required.

Higher Education Student Organizations

Qualified higher education student organizations must provide the Comptroller’s office a certification issued by an accredited institution of higher education, or a private or independent college, or university located in Texas showing that the organization is affiliated with that institution, college or university. Once an application for state tax exemption has been submitted and approved, in addition to the certification, each of these organizations can hold a one-day, tax-free sale each month.

To qualify as tax-free sales, the primary purpose for the sales must be to raise funds for the organization. During a tax-free sale the organization does not have to collect sales tax on taxable items it sells for $5,000 or less. If an item sells for more than $5,000, the organization does not have to collect sales tax if it manufactured the item or the taxable item was donated to the organization and not sold to the donor. Otherwise the organization must collect tax on an item that sells for more than $5,000.

For sales outside its monthly tax-free sale day, the student organization’s first $5,000 in taxable sales per calendar year are also exempt from tax. When making taxable sales over the first $5,000, student organizations are responsible for collecting the appropriate sales tax and remitting it to the Comptroller’s office. If the organization needs to be permitted to make taxable sales, they can apply for a sales tax permit online.

Senior Citizen Groups

Nonprofit senior citizen groups are exempt from tax if they sell taxable items that are manufactured, produced, made or assembled exclusively by persons 65 years old or older and the purpose of the sale is to raise funds to aid the elderly. All proceeds must go to the organization or the person who produced the taxable items.

Nonprofit senior citizen groups can hold four tax-free sales events each calendar year. When combined, a group’s four events cannot last for more than 20 days per year.

Animal Shelters

Animals sold by a nonprofit animal shelter, along with any adoption fee, are exempt from sales tax. While the adoption fees are exempt from sales tax, sales of taxable items (e.g., leashes, collars, and grooming supplies) are subject to sales tax.

It is important to note that animal rescue groups are different from animal shelters. An animal shelter is defined by the Texas Health and Safety Code as a facility that keeps or legally impounds stray, homeless, abandoned or unwanted animals. A shelter must meet the Health and Safety Code’s standards for animal shelters. As a result, adoption fees charged by an animal rescue group are subject to sales and use tax.

If, however, the animal rescue group is a 501(c)(3) or (4) and has been granted sales tax exemption from our office, they qualify for two one-day, tax-free sales each calendar year. Any adoption fees collected during the group’s tax-free sales would be exempt.

A legislative change is needed to exempt the adoption fee charged by a nonprofit animal rescue group during periods outside of the two one-day tax-free sales. Representative Turner and Senator Paxton filed such legislation, House Bill 592 and Senate Bill 227, to exempt the adoption fee by certain nonprofit animal rescue groups. We will monitor HB 592 and Senate Bill 227 through the legislative session and will provide an update if passed.
[Editor's Note: This legislation ultimately passed as Senate Bill 197, effective 10/01/2021.]

More Information

• Rule 3.316 – Occasional Sales; Transfers Without Change in Ownership; Sales by Senior Citizens' Organizations; Sales by University and College Student Organizations; and Sales by Nonprofit Animal Shelters
• Rule 3.322 – Exempt Organizations
• Publication 96-1045 – Guidelines for Texas Tax Exemptions
• Publication 96-122 – Nonprofit and Exempt Organizations – Purchases and Sales
• Animal Rescue Groups and Nonprofit Animal Shelters

The Comptroller’s office updated the following publications:

• Publication 94-105 – Local Sales and Use Tax Collection – A Guide for Sellers (PDF)
• Publicación 94-105s – La Recaudación del Impuesto Local Sobre Ventas y Uso – Una Guía para Vendedores
• Publication 94-113 – Motor Vehicle Repairs, Remodels and Maintenance
• Publicación 94-113s – Reparaciones, Mantenimiento y Remodelaciones de Vehículos de Motor
• Publication 94-124 – Manufacturing Exemptions
• Publication 94-438 – Off-Highway Vehicles

To see the latest items added to our State Tax Automated Research (STAR) system, use the New Documents link on the STAR home page.

The Monthly Updates Search Form defaults to the current month and "All Taxes." Use the pull-down menu to choose a different month or a particular tax. Selecting "All Taxes" brings up the documents organized by tax type.

The Taxes webpage has links to:

• All Texas taxes and fees.
• Resources for taxpayers.
• Filing and paying taxes.
• Tax laws and rules.

Our Account Update Tools make it easy for you to:

• Change your address.
• Add a location.
• Close a location.
• Change return/email notifications.

We host free taxpayer seminars across the state about the tax responsibilities of buyers, sellers and service providers.

Our Video Library has online tutorials on tax-related topics as well as information about our office.

The Practitioners’ Corner is a one-stop resource for information about filing and paying taxes, links to tax research sources and searchable databases.

• Tax Due Dates
• Holiday Schedule