Tax Policy News

If you itemize deductions on your 2023 federal income tax return, you have the option of claiming a deduction for state and local sales taxes paid during 2023. See the IRS Sales Tax Deduction Calculator for more information on claiming the deduction.

Current cigarette and tobacco products non-retailer permits expire Feb. 29, 2024.

The Comptroller's office mailed renewal packets with preprinted applications to all cigarette, cigar and/or tobacco products manufacturers, importers, distributors, bonded agents, export warehouses, import warehouses and wholesalers to renew their cigarette and tobacco products non-retailer permits for March 1, 2024, through Feb. 28, 2025.

If you did not receive your packet, call us at 800-862-2260 to request one.

Non-retailers should review the preprinted information, make any corrections, sign the renewal form 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 renewal form. You can also renew online by submitting your renewal and payment electronically through our Webfile system.

A $50 late filing fee will be assessed on non-retailer renewals postmarked after Feb. 29, 2024.

The 2023 annual insurance premium and maintenance tax reports and payments for licensed insurance companies and miscellaneous organizations (such as HMOs) are due on or before March 1, 2024.

Annual insurance premium tax reports and payments for Texas licensed surplus lines agents and agencies, and entities required to report unauthorized insurance premium taxes, are also due on or before March 1, 2024.

As of January 2021, taxpayers no longer receive a paper tax report. Instead, the taxpayer receives an email reminder about the filing deadline. Email reminders were sent in January 2024.

For any questions regarding insurance tax reports, please contact us at insurance.tax@cpa.texas.gov

Property and casualty insurance companies authorized by the Texas Department of Insurance to write automobile insurance as described in Insurance Code, Art. 5.01(e) must report and pay the Motor Vehicle Crime Prevention Authority Fee on or before March 1, 2024, for automobile policies effective from July 1, 2023, through Dec. 31, 2023. Companies licensed to write automobile coverage must file the form even if no fee is due. Refer to Form 25-107, Insurance Motor Vehicle Crime Prevention Authority Semiannual Fee Report - July through December (PDF).

Effective Sept. 1, 2023, wound care and family care items are exempt from sales and use tax. Retailers should not collect sales and use tax on these items, including:

• Adhesive bandages (including strip adhesive bandages, large adhesive bandages and butterfly closures).
• Adult diapers.
• Baby bottles.
• Baby wipes.
• Breast milk pumping products.
• Children’s diapers.
• Corn cushions.
• Feminine hygiene products (including tampons, sanitary napkins, menstrual cups, and menstrual pads).
• Gauze rolls and pads.
• Maternity clothing.

During Texas’s annual sales tax holidays, certain taxable items are exempt from tax for a limited time. We know timing and planning are critical for retailers, so we encourage you to mark your 2024 calendar for this year’s four sales tax holidays:

Emergency Preparation Supplies
Saturday, April 27, through Monday, April 29, 2024.

Energy Star and Water-Efficient Products
Saturday, May 25, through Monday, May 27, 2024 (Memorial Day).

Clothing, Footwear, Backpacks and School Supplies
Friday, Aug. 9, through Sunday, Aug. 11, 2024.

Know the Exemptions and Holidays

While each exemption and holiday exempts different items from sales tax, there are common aspects and steps to take to be prepared.

Know the Details of Each Holiday

Retailers and customers should know the items that are exempt. They should also understand how changing the sales price of an item can make the item either eligible or ineligible for the exemption. For example, rebates, discounts, coupons, delivery charges and other elements of the transaction can change the taxability of an item if a maximum sales price is set in the law. Learn other details of the holidays, like how to handle exchanges and returns after a tax-free sale is made, by reviewing our Administrative Rules and Publications for each holiday.

Plan Ahead

Retailers should program sales tax software to adjust for these exemptions and temporary sales tax holidays. It would be helpful to alert and train in-store and online staff so they will be prepared to assist customers during each sales tax holiday. One option is to make our Rules, Publications and other relevant Comptroller resources available to staff and customers for reference.

Keep Accurate Records

When it is time to report sales for the reporting period, do not include tax-free sales with “Taxable Sales” on your sales tax return. Include tax-free sales only in “Total Texas Sales” on the return.

In most cases, a customer does not need to provide a resale or exemption certificate (PDF) for the tax-free purchase, but there are exceptions. For example, retailers must get an exemption certificate from a customer that uses a business account to buy school supplies during the clothing, footwear, backpacks and school supplies sales tax holiday.

Report or Refund Tax Collected in Error

Retailers must report and remit any sales tax collected, even if they collected the tax in error.

If sales tax is collected and remitted in error on an exempt item and a customer asks for a refund, retailers have two options: 1) refund the tax to the customer and then either request a refund from our office or take a credit on the next sales tax return; or 2) give the customer Form 00-985, Assignment of Right to Refund (PDF) for them to request the refund directly from the Comptroller’s office. Visit our Sales Tax Refunds webpage for details.

Stay Updated

Sign up for our electronic GovDelivery service to be informed with alerts about all upcoming sales tax holidays as well as other helpful updates from the Comptroller’s office. Be sure to also visit our website for up-to-date Comptroller information.

More Information

• Sales Tax Rule 3.353 – Sales Tax Holiday – Certain Emergency Preparation Supplies
• Sales Tax Rule 3.369 – Sales Tax Holiday – Certain Energy Star Products, Certain Water-Conserving Products, and WaterSense Products
• Sales Tax Rule 3.365 – Sales Tax Holiday – Clothing, Shoes and School Supplies

Effective for reports originally due on or after Jan. 1, 2024, Senate Bill (SB) 3, 88th Legislature, Second Called Session, increases the no tax due threshold to $2.47 million and prohibits the Comptroller’s office from requiring taxable entities whose annualized total revenue is less than or equal to the no tax due threshold to file a No Tax Due Report. The bill also repealed the requirement that a new veteran-owned business file a No Tax Due Report during its initial five-year period. Read on to learn how we are implementing these changes.

No Tax Due Report (Form 05-163)

Because taxable entities whose annualized total revenue is less than or equal to the no tax due threshold and qualifying new veteran-owned businesses are no longer required to file a No Tax Due Report, we are discontinuing the No Tax Due Report for the 2024 report year and beyond. The form will not be available for any new reporting periods. The following are the five types of entities that could file a No Tax Due Report prior to 2024, and how each entity will now report (beginning with the 2024 report):

• Taxable entities whose annualized total revenue was less than or equal to the no tax due threshold do not owe any tax and are not required to file a franchise tax report. They are, however, still required to file a Public Information Report (PIR) or Ownership Information Report (OIR);
• Qualifying new veteran-owned businesses are not required to file a franchise tax report for the initial five-year period that they qualify as a new veteran-owned business. For new veteran-owned businesses, no PIR or OIR is required during this initial five-year period;
• Entities that qualify as passive entities must file either the long form or the EZ Computation form. Both forms are updated with a circle to darken, which is in the taxpayer information section at the top of the form. Other than signing the report, passive entities need not provide information in any other section of the report and no PIR or OIR is required;
• Qualifying real estate investment trusts (REITs) also must file either a long form or EZ Computation form and darken the appropriate circle in the taxpayer information section at the top of the form. Other than signing the report, REITs need not provide information in any other section of the report. REITs must continue to file a PIR or OIR; and
• Taxable entities with zero Texas gross receipts must file either a long form or EZ Computation form and complete specific line items on the form to compute the entity’s total revenue and report zero on the Texas gross receipts line. Entities with zero Texas gross receipts must continue to file a PIR or OIR.

The long form, EZ Computation form, PIR, OIR and instructions for each tax year are available at Texas Franchise Tax Forms.

Combined Groups

A combined group must include all taxable entities in the combined group report even if any member, on a separate entity basis, has annualized total revenue less than or equal to the no tax due threshold. If a combined group’s annualized total revenue is less than or equal to the no tax due threshold, the combined group is not required to file a franchise tax report, an Affiliate Schedule (Form 05-166), or a Common Owner Information Report (Form 05-177) for that report year. Each individual member of the combined group that is organized in Texas or has nexus in Texas must file a PIR or OIR.

The Comptroller’s office has recently determined that the tax credit provided by Insurance Code Section 221.006 (Credit for Fees Paid) applies to examination expenses paid under Labor Code Section 414.004 (Performance Review of Insurance Carriers).

If you paid examination expenses under Labor Code Section 414.004, you are entitled to a tax credit against the Property and Casualty Insurance Premium Tax imposed by Insurance Code Chapter 221. The Texas Department of Insurance has provided the Comptroller’s office a list of affected taxpayers and amounts, and we will automatically issue refunds for tax years 2019 through 2022 (reports due 2020 through 2023). No action is required for you to receive the refund for these tax years.

This publication provides information on the taxability of items commonly sold by grocery and convenience stores. For example, food products such as flour, sugar, bread, milk, eggs, meat, fruits, and vegetables are not subject to Texas sales and use tax. Tax is due, however, on many items such as paper plates and napkins, pet food, beauty products, candy, and soft drinks.

Effective Sept. 1, 2023, the 88th Legislature passed Senate Bill 379, which created sales tax exemptions for wound care dressings, adult or children’s diapers, baby wipes, feminine hygiene products, maternity clothing, breast milk pumping products, and baby bottles. Tax Policy Division updated Publication 96-280 to include these items in the list of nontaxable items sold by grocery and convenience stores.

The Earned Income Tax Credit (EITC) is a federal program for working people with low to moderate income, even if they do not owe tax or are not required to file a tax return. The credit reduces the amount of tax owed and could provide a refund.

Information about the credit for 2024 is now available in both English and Spanish on our Earned Income Tax Credit (EITC) webpages. We also provide printable EITC posters for employers to share with their employees.

Be aware that the Internal Revenue Service (IRS) recently revised their maximum adjusted gross income. Information on the Comptroller's Earned EITC webpages is current as of January 2024.

The Comptroller’s office filed the following rules for adoption with the Secretary of State. You may view the effective rules on the Texas Administrative Code webpage.

Sales and Use Tax

Rule 3.334 – Local Sales and Use Taxes

Publication date – Jan. 5, 2024
Effective date – Jan. 9, 2024

Summary: The Texas Comptroller of Public Accounts adopts an amendment to Texas Administrative Code, Title 34, Rule 3.334, concerning local sales and use tax. The amendment adds language regarding the location where an order is received for purposes of sourcing local sales and use taxes. The text of the amendment is taken from the Streamlined Sales and Use Tax Agreement.

Cigarette, E-Cigarette, and Tobacco Products Regulation

Rule 3.1208 – Prohibited E-Cigarette Products

Publication date – Jan. 26, 2024
Effective date – Jan. 31, 2024

Summary: The Comptroller adopts new Rule 3.1208 to implement House Bill 4758, 88th Legislature, 2023, which prohibits e-cigarette products to be sold in certain containers. The Texas Legislature identified concerns that electronic cigarette ("e-cigarette") manufacturers have begun marketing their products to attract youth. As a result, the Legislature enacted Health and Safety Code, Section 161.0876, to reduce youth consumption of e-cigarettes by prohibiting the marketing, advertising, or sale of e-cigarette products in containers designed to appeal to minors. The new rule adds definitions, provides the conditions under which a retailer commits an offense, and refers to Rule 3.1204: Administrative Remedies for Violations of Health and Safety Code, Chapter 161, Subchapter H or K, for disciplinary actions.

STAR Doc. No. 202312013L

A taxpayer requested a private letter ruling regarding the taxability of items used to construct a container terminal operated by a municipality’s port authority.

The port authority is a navigation district promoting maritime commerce and economic development and is exempt from sales and use taxes as a governmental entity. The taxpayer entered into a lease agreement with the port authority to develop a container terminal. The agreement requires the taxpayer to construct and operate port facilities at the terminal. The port authority owns the land under the terminal and the improvements made to the facility. Plans and specifications for the improvements are subject to the port authority’s approval.

Taxable items incorporated into or used for the improvement of realty under an exempt contract are exempt from Texas sales and use tax. An example of an exempt contract is a contract with a nonexempt entity to improve real property for the primary use and benefit of an exempt governmental entity.

The agency determined the lease agreement to construct the terminal is an exempt contract. The port authority owns the land under the terminal, clearly listed approved and prohibited uses of the terminal, retained control over security and access to the site, and retains ownership of the improvements. The agreement for the construction of the terminal is therefore for the primary use and benefit of the port authority and the taxpayer may provide an exemption certificate to its contractor for taxable items incorporated into the terminal.

STAR Doc. No. 202312010L

Tax Policy Division previously issued a memo to Audit Division providing guidance on the taxability of flowback services. That memo, STAR Accession No. 202009002L (Sept. 1, 2020), stated that charges for flowback were taxable as the rental of equipment without an operator.

On Aug. 1, 2023, the agency held an industry round table to discuss flowback and water transfer operations. Tax Policy issued a new memo based on the information provided during that meeting that supersedes STAR Accession No. 202009002L.

The new memo states that when flowback and water transfer personnel continuously regulate or control the operation of (not just monitor, maintain, repair, or activate and deactivate) the equipment, the service providers maintain operational control over the equipment and the service provider does not transfer possession of the equipment to its customer. These transactions are nontaxable services and not taxable rentals. A provider of a nontaxable service owes sales tax on all equipment and materials used to provide the nontaxable service. The sale-for-resale exemption does not apply to the service provider’s purchase of equipment.

The following STAR documents have been superseded:

• STAR Accession No. 202302014H – Comptroller Decision No. 118,208 (2023)
• STAR Accession No. 202110021H – Comptroller Decision No. 115,760 (2021)
• STAR Accession No. 202008019H – Comptroller Decision No. 115,376 (2020)
• STAR Accession No. 202009002L (Sept. 21, 2020)

STAR Doc. No. 202309040L

Tax Policy Division issued a private letter ruling regarding the taxability of a biometric identification service. The taxpayer performs identity verification so that travelers may pass through airport security checkpoints more quickly.

Customers pay an annual enrollment fee and upload personal identifying information, including fingerprints, iris scans, biographical information, and/or passport information to the taxpayer’s platform. To check in at an airport using the taxpayer’s service, customers verify their identity at a kiosk using either their fingerprints or iris scans. The taxpayer’s employees also scan a customer’s boarding pass and confirm relevant information including airport, airline, name, date, etc. Once the customer’s identity and travel information has been verified, the customer is escorted to the taxpayer’s designated lanes at Transportation Security Administration (TSA) checkpoints for expedited screening.

The agency determined the taxpayer’s service is not taxable. The service allows for expedited passenger screening through an airport’s security checkpoints. The taxpayer does perform activities that meet the definition of taxable data processing. For example, the taxpayer gathers and stores customers’ electronic information including fingerprints and iris scans. The taxpayer also retrieves and verifies this information when a customer checks in at a kiosk. However, these activities are performed to facilitate a service to verify a customer’s identity based on biometric information and allow for expedited access at TSA checkpoints. Therefore, the agency determined the biometric identification service is not one of the enumerated taxable services listed in Section 151.0101 and is not subject to Texas sales and use tax.

STAR Doc. No. 202310013L

A taxpayer requested a private letter ruling related to whether a facilities management company is considered a property management company. The taxpayer also requested a ruling on whether its cleaning, landscaping, mechanical and electrical maintenance, and security are subject to Texas sales and use tax.

A property management company is an entity that operates and manages all the activities at a property held by the owner for purposes of rental and whose responsibilities include securing tenants, hiring and supervising employees for operation or upkeep of the property, receiving and applying revenues, and incurring and paying expenses derived from the operation of the property as directed by the owner.

The taxpayer does not operate and manage all the activities at its clients’ properties and does not secure tenants or receive and apply revenue for its clients. The agency therefore determined the taxpayer does not meet the definition of a property management company.

The taxpayer’s services include cleaning, landscaping, mechanical and electrical maintenance, and security. The agency found the taxpayer provides taxable real property services, real property repair and remodeling, and security services.

STAR Doc. No. 202310014L

A taxpayer requested a private letter ruling related to whether qualifying jobs for a new certified large data center project can be physically located at an affiliated data center in the same county during construction of the new data center.

The qualifying owner, operator, and occupant of a large data center project may claim a sales tax exemption on certain equipment necessary and essential for the operation of the project including computer hardware and software, cooling systems, server racks and cabinets, and electricity.

The qualifying owner, qualifying operator, and qualifying occupant must certify that independently or jointly they will:

• create at least 40 qualifying jobs in the county in which the project is located;
• make at least $500 million of capital investment in the project in the five-year period following the date of certification; and
• agree to contract for at least 20 megawatts of transmission capacity for operation of the large data center project.

A “qualifying job” is a full-time, permanent job that pays at least 120 percent of the county average weekly wage in the county in which the job is based. A permanent job is an employment position that will exist for at least five years after the date the job is created.

A qualifying job must be located in the same county in Texas in which the associated qualifying large data center project is located, provide at least 1,820 hours of employment a year to a single employee, must not be transferred from one county in Texas to another county in Texas, and must not be created to replace a qualifying job that was previously held by another employee.

The agency determined that jobs assigned to the new data center but physically located at the existing data center during construction of the new data center will be qualifying jobs if they are hired on or after the date of certification for the new data center and otherwise meet the requirements for qualifying jobs in a large data center project.

STAR Doc. No. 202310005L

Tax Policy Division issued a memo to Audit Division regarding benefits allowed for the compensation subtraction. This memo supersedes STAR Doc. No. 201305009L (May 14, 2013), which provided guidance in response to the District Court's decision in Winstead PC v. Combs. The Winstead case involved the question of whether certain expenses were includable in the compensation subtraction as benefits. We recently determined that STAR Document No. 201305009L incorrectly interpreted the decision in Winstead and superseded the STAR document.

The proper standard, based on Winstead, is that for the cost of an item to be included in benefits for the compensation subtraction, an item must:

• be similar to the items listed in Section 171.1013(b)(2) in that the item provides value to the employee in his or her personal capacity;
• be deductible for federal income tax purposes;
• not already included in wages and cash compensation; and
• meet all the other requirements of Rule 3.589(e).

We then apply this analysis to common expense categories that we see included as benefits in the compensation subtraction.

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.

The Comptroller’s office offers video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

Our office also offers virtual Sales and Use Tax Seminars conducted via Webex Events. New taxpayers are especially encouraged to attend these overviews of tax responsibilities for buyers, sellers, and service providers. 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.

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