Tax Policy News

September 2012

The Comptroller's office publishes this online newsletter to keep you informed about Texas taxes and what is happening in the Tax Policy Division. Tax Policy News provides general information and is not a substitute for legal or other professional advice.

In This Issue...

Coin-Operated Amusement Machine Tax

Renewal Applications Due by November 30

The Comptroller's office will mail renewal applications for a 2013 coin-operated amusement machine General Business License, Registration Certificate, Import License and Repair License the first week of October.

The applications are due by Nov. 30, 2012. The Coin-Operated Machines Law provides that renewal applications, inventory forms and payments postmarked by Nov. 30 will be timely filed. Renewal applications mailed after this date must include a $50 late fee.

In addition to the renewal fee, the law requires payment of a $60 Occupation Tax for each coin-operated amusement machine that is "exhibited or displayed on location." An Occupation Tax Permit sticker (decal) must be affixed to each machine in use.

For information on license and registration fees and tax permits, including a fee schedule, see the Coin-Operated Machines Tax section of our website.

Coin-operated amusement machine operators who have not received renewal packets by Oct. 31 should contact our office at 1-800-252-1385.

Insurance Tax

Maintenance Taxes on Health Maintenance Organizations

The Texas Department of Insurance (TDI) sets maintenance tax rates each year. Maintenance taxes are used to fund the TDI, including the Division of Workers' Compensation and the Workers' Compensation Research and Evaluation Group. The maintenance taxes also fund the Office of Injured Employee Counsel, another state agency that is attached administratively to the TDI and is funded by that agency's operating account. The Comptroller's office collects the maintenance tax on the Texas Annual Insurance Maintenance, Assessment and Retaliatory Report (Form 25-102).

For a Health Maintenance Organization (HMO), the maintenance tax is a per capita amount for each enrollee of a plan, including both the certificate holder and each covered dependent. Separate rates are charged for basic, single and limited health care services, defined by the type of license applied for and issued to the HMO by the TDI.

The average number of enrollees for the tax report year can be computed using the "Exhibit of Premiums, Enrollment and Utilization" from the Annual Statement of the National Association of Insurance Commissioners (NAIC). That table shows the number of enrollees at the end of each quarter.

To calculate the tax, the company must first determine each quarter's net number of enrollees by subtracting enrollees for non-taxable revenues (as reported on Form 25-205) from each quarterly total. The net total for each quarter should then be added together and divided by four to determine the average for the year. The average should be entered in Column A of the Texas Annual Insurance Maintenance, Assessment and Retaliatory Report (Form 25-102) as appropriate on line 13, 14 or 15, depending upon whether the business represents the basic, single or limited health care service. Multiply the number in Column A by the rate in Column B to arrive at the maintenance tax due.

Maintenance taxes are due March 1 of the year following the initial issuance or renewal of coverage, which is the same due date as for premium taxes.

Sales Tax

AirCheckTexas Program

The AirCheckTexas program, administered by participating counties and Councils of Governments, provides vehicle replacement grants and vehicle repair assistance to low-income individuals with polluting vehicles. The program is codified in Health and Safety Code Chapter 382, Clean Air Act.

Vehicle Replacement Program

The maximum grant amount is $3,500. The law excludes the amount of the grant from total consideration paid for a motor vehicle. This means the grant amount is not subject to motor vehicle sales tax.

Vehicle Repair Assistance Program

Sales tax is due on parts used to repair qualifying motor vehicles, even under the AirCheckTexas program.

But, if the counties participating in this program pay the service provider directly for repair parts, no sales tax is due on the parts paid for with county funds.

Payments received from the county should be applied to taxable parts first. Tax is due on taxable repair parts above the amount of the county payment. For example, a car repair bill totals $1250. The taxable parts on the separated bill total $750 and the non-taxable labor totals $500. The county pays $600 directly to the service provider who applies the payment to taxable parts first, reducing the balance due on the parts portion of the bill to $150. The vehicle owner will owe tax on the remaining $150 for taxable parts when settling the account in addition to the labor cost. Exemption certificates are not required.

Questions concerning the program should be directed to the Texas Commission on Environment Quality.

Destination Texas: Tax-Free Purchases by Out-of-State Schools

Sales Tax

Government entities from other states are not exempt from Texas sales and use tax.

But, out-of-state public universities, colleges, junior colleges, community colleges, school districts and their respective schools can qualify for exemption from sales tax as educational organizations. Out-of-state nonprofit private schools can also qualify for sales tax exemption.

An out-of-state educational organization can establish the exemption by completing an educational application. We will notify the organization in writing of our determination. If the exemption is granted, we will assign the organization a taxpayer identification number and include it on the Comptroller's exempt organizations database.

An out-of-state educational organization may make tax-free purchases of goods and services that further its exempt purpose. The organization must give the seller a properly completed exemption certificate to document the exempt sale. The exemption certificate does not require a number to be valid.

Authorized agents should complete the exemption certificate showing the organization as the purchaser, and the reason for exemption as that the person is acting as an agent for the named exempt educational organization. An authorized agent is an employee or other person authorized by the organization to make purchases on behalf of the organization. The agent should sign the exemption certificate. Payment by an authorized agent can either be paid through an instrument issued by the organization (such as a purchase order, check drawn on the organization's account or a debit or credit card issued to the organization), or made with cash, personal debit card, personal credit card or personal check in the name of the authorized agent.

An authorized agent cannot claim an exemption from sales tax when purchasing taxable items of a personal nature even if the agent receives an allowance or reimbursement from the organization. Additionally, a person who travels on official business for the organization must pay sales tax on taxable purchases whether reimbursed on a per diem basis or reimbursed for actual expenses incurred. See Rule 3.322(g)(5) and (6).

A seller is not required to accept an exemption certificate and may choose to collect the tax. If a seller chooses not to honor an exemption certificate, the exempt organization or authorized agent can ask the seller for an Assignment of Right to Refund, so the organization can request a refund of the tax directly from the Comptroller.

Hotel Occupancy Tax

Independent school districts, public and nonprofit private elementary and secondary schools from other states and nations who qualify for exemption from Texas sales and use tax as educational organizations also qualify for exemption from Texas hotel occupancy tax. Public and private colleges, universities, junior colleges and community colleges from other states and nations do not, however, qualify for the exemption.

Motor Vehicle Rental

With the exception of Texas public schools, there is no motor vehicle rental tax exemption for educational organizations. Only Texas public universities, colleges, junior colleges, community colleges, independent school districts and public elementary and secondary schools can rent a motor vehicle tax free in Texas.

When making an exempt rental, the Texas public entity must complete the motor vehicle rental exemption certificate to claim the exemption. The certificate must be signed by an authorized representative of the entity renting the vehicle.

Schools from other states, whether public or private, must pay tax on the Texas rental of motor vehicles.

Please note that some Texas cities and counties have created sports and community venue districts that may also impose a tax on the short-term rental of motor vehicles. Any such taxes are administered locally and, generally, the same exemptions apply.


There is no exemption for motor fuel taxes for out-of-state public or private educational organizations.

More Information

For more information, see Exempt Organizations: Sales and Purchases (Pub. 96-122), Guidelines to Texas Tax Exemptions (Pub.96-1045) and the August 2012 Tax Policy News.