taxes

Tax Policy News

July 2015

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...

2015 Legislative Preview

House and Senate Bills Effective Before Sept. 1, 2015

The deadline for filing extended Franchise Tax reports is Nov. 16. Nov. 15, the statutory due date, is a Sunday so the next business day becomes the due date.

The August 2015 Tax Policy News will feature all tax-related bills passed during the recent legislative session.

See the Texas Legislature's website to read bills of interest to you.

GENERAL BILLS

TexAmericas Center

Senate Bill 1563

Effective June 16, 2015

SB 1563 exempts the property, revenue and income of each nonprofit corporation created by TexAmericas Center from all taxes, including franchise tax, imposed by the state and political subdivisions of Texas. The bill adds Section 3503.111, Special District Local Laws Code and amends 3503.154, Special District Local Laws Code.

HOTEL OCCUPANCY TAX

El Paso, Frisco and Nacogdoches Qualify as Eligible Central Municipalities

House Bill 1964

Effective May 29, 2015

HB 1964 amends the municipal hotel tax law to add the cities of El Paso, Frisco and Nacogdoches as eligible central municipalities.

An eligible central municipality is entitled, upon request, to receive a rebate of certain tax proceeds that are paid or collected by a qualified hotel project and businesses located at the hotel project. Included are state and local sales and hotel occupancy taxes, ad valorem tax and local mixed beverage taxes. The cities can receive the tax rebates for 10 years after the hotel initially opens.

The bill also authorizes the cities of Odessa, Round Rock and Tyler to receive the same tax rebates that an eligible central municipality can receive for a qualified hotel project. The rebated taxes may be pledged as payment for obligations issued for the hotel project.

The percentage of the revenue that one of these cities can use for a hotel project is restricted, except for Nacogdoches.

The bill also deletes language that included a hotel in El Paso from the definition of a qualified hotel project and language that had restricted El Paso from receiving rebates of state sales and state hotel tax revenue generated at a qualified hotel project. The bill amends Government Code Section 2303.003 and Texas Tax Code Sections 151.429, 351.001 and 351.102.

MIXED BEVERAGE SALES TAX

Exemption for Volunteer Fire Departments and Emergency Services Organizations

Senate Bill 31

Effective May 28, 2015

SB 31 allows volunteer firefighter and emergency services organizations that qualify for a sales tax exemption under Texas Tax Code Section 151.310(a)(4) to hold 10 tax-free sales or auctions during a calendar year.

The organizations do not have to collect mixed beverage sales tax on sales of alcoholic beverages during these sales or auctions, but must have a temporary mixed beverage permit from the Texas Alcoholic Beverage Commission. The exemption applies to mixed beverage sales tax, but not to mixed beverage gross receipts tax.

No tax-free sale or auction can last more than 72 hours. The bill amends Texas Tax Code Section 151.310.

MOTOR VEHICLE SALES AND USE TAX

Autocycle Defined

Senate Bill 449

Effective May 22, 2015

SB 449 defines an "autocycle" as a motor vehicle, other than a tractor, that is:

  • designed to have, when propelled, not more than three wheels on the ground;
  • equipped with a steering wheel;
  • equipped with seating that does not require the operator to straddle or sit astride the seat; and
  • manufactured and certified to comply with federal safety requirements for a motorcycle.

For purposes of issuing a title, an autocycle is considered to be a motorcycle. The sale of an autocycle is subject to motor vehicle sales and use tax as the sale of a street-legal motorcycle. The bill adds Transportation Code Section 501.008.

Transportation Company Exemption

Senate Bill 724

Effective June 17, 2015

SB 724 exempts from motor vehicle sales tax the purchase of a motor vehicle operated with exempt license plates issued under Section 502.451, Transportation Code, and used by a commercial transportation company to provide transportation services under a contract with one of the following:

  • a board of county school trustees or school district board of trustees under Section 34.008, Education Code; or
  • the governing body of an open-enrollment charter school.

The bill amends Texas Tax Code Section 152.082.

SALES AND USE TAX

Disasters or Emergencies Exemption

House Bill 2358

Effective June 16, 2015

HB 2358 exempts out-of-state businesses from Texas licensing and registration requirements when their business in Texas is limited to performing disaster- or emergency-related work during a disaster response period.

An out-of-state entity will not be considered engaged in business in Texas if the entity's physical presence in Texas is solely for performing disaster- or emergency-related work during a disaster response period.

The bill does not provide an exemption for taxable items sold by an out-of-state business described by the bill. Purchasers are still responsible for tax on any taxable items purchased from an out-of-state entity. The bill adds Texas Tax Code Section 151.0241.

Qualifying Large Data Center – Tangible Personal Property Temporary Exemption

House Bill 2712

Effective June 10, 2015

HB 2712 exempts certain items necessary for operating a qualifying large data center project from state and local sales and use tax.

An owner, operator or occupant of a data center being specifically constructed or refurbished in Texas to be used by a single occupant to house servers and related equipment for processing, storing and distributing data can apply to the Comptroller for certification as a qualifying large data center project.

For certification, a qualifying owner, operator or occupant (independently or jointly) must agree to:

  • make a capital investment of $500 million or more over a five-year period from the date of certification;
  • create at least 40 permanent, full-time qualifying jobs in the county where the data center is located that are unrelated to moving jobs from another Texas county; and
  • contract for at least 20 megawatts of transmission capacity for operating the large data center project.

A "qualifying job" must pay at least 120 percent of the county average weekly wage in the county where the job is based.

Owners, occupants and operators of certified data centers can claim an exemption on qualified purchases made for 20 years following the date of certification. A large data center's certification can be revoked if the owner, operator or occupant (individually or jointly) fails to make the amount of capital investment or create the number of jobs required within the initial five-year time frame. If the certification is revoked, tax will be due on tax-free purchases made before the revocation.

Data centers with agreements to limit the appraised value of property for property tax under Tax Code Chapter 313 do not qualify for this exemption. The bill amends Texas Tax Code Section 151.317 and adds Texas Tax Code Section 151.3595.

Exemption for Volunteer Fire Departments and Emergency Services Organizations

Senate Bill 31

Effective May 28, 2015

SB 31 allows volunteer firefighter and emergency services organizations that qualify for a sales tax exemption under Texas Tax Code Section 151.310(a)(4) to hold 10 tax-free sales or auctions during a calendar year. Each tax-free sale or auction cannot last more than 72 hours. The bill amends Texas Tax Code Section 151.310.

Computer Program Sales

Senate Bill 755

Effective June 10, 2015

SB 755 adds the sale of a computer program to a provider of Internet hosting who acquires the program from an unrelated vendor for the purpose of selling the right to use the program to an unrelated user of the provider's Internet hosting services to the definition of a sale for resale. The bill amends Texas Tax Code Section 151.006.

Electronic Filing Satisfies Signature Requirement on Sales Tax Permit Application

Senate Bill 853

Effective June 1, 2015

SB 853 provides that an electronically filed sales tax permit application complies with the signature requirement under Texas Tax Code Section 151.202. The bill amends Texas Tax Code Section 151.202.

Roundtable Discussion Coming Soon

Bad Debt and Sales Tax

On Aug. 5 at 2 p.m., the Comptroller is hosting a roundtable to discuss comments made about revisions to Sales and Use Tax Rule 3.302, Accounting Methods, Credits Sales, Bad Debts Deductions, Repossessions, Interest on Sales Tax, and Trade-Ins.

Registration is open now through July 17.

To keep attendance at a level that provides for fruitful discussion, we will limit attendance to a maximum of 25 participants. We will notify selected participants via email by July 21.

DATE: Wednesday, Aug. 5, 2015

TIME: 2 p.m. – 4 p.m.

LOCATION: Room 114, Lyndon B. Johnson State Office Building, 111 East 17th Street, Austin, Texas

A roundtable discussion is planned for September to discuss Rule 3.334, Local Sales and Use Tax. We will announce registration information in the August Tax Policy News.

Hearings

Process After an Administrative Hearing is Settled

The Comptroller has recently changed the procedure used to finalize administrative hearings when the Comptroller and taxpayer reach agreement to settle the case. Previously, proposals to settle cases on specific terms were made by the parties in a Joint Motion to Dismiss, which required approval by a Comptroller's Decision before the case could go final. Because that process could sometimes be subject to unnecessary delay that could frustrate a taxpayer's desire to quickly resolve a case, a hearing is now settled through the use of a Compromise and Settlement Agreement (CSA). The CSA is signed by the taxpayer (or its representative), and by the Deputy General Counsel for the Administrative Hearings Section under a delegation of authority from the Deputy Comptroller. The CSA states the specific terms agreed to by the parties, and constitutes an agreement to cancel the hearing and to dismiss the contested case. Unlike the former Joint Motion to Dismiss procedure, no Comptroller's Decision will issue after the CSA is executed; instead, the CSA is directly sent for processing and the calculation of final figures.

Upon execution of the CSA, the hearing request will be dismissed and no further action is required by the taxpayer. The Comptroller will then adjust the taxpayer's account to reflect the terms of the CSA, and after the adjustments are completed the taxpayer will receive a letter acknowledging the final resolution of the contested case, a statement of account listing the remaining unpaid liability or refund due, and a copy of the executed CSA. If the taxpayer is due a refund, the refund is mailed in a separate mailing.

If you have any questions about CSAs or the hearings settlement process, please contact the Administrative Hearings Section at 512-463-3830.

Reminders

Sales Tax

Annual Sales Tax Holiday is August 7, 8 and 9

This year's annual sales tax holiday begins at 12:01 a.m. on Friday, Aug. 7 and ends at midnight on Sunday, Aug. 9. During this three-day period, Texas shoppers get a break from state and local sales taxes on purchases of school supplies, clothing and most backpacks priced under $100.

Disaster Areas

Businesses affected by the recent severe weather in counties declared disaster areas can postpone filing and paying state taxes. Businesses needing additional time to file or pay can call our office at 1-800-252-5555 to request a 90-day extension.

Our office also provides a variety of resources to help affected persons recover from man-made and natural disasters.

Franchise Tax

Second Extension Request

The deadline for filing a second extension request for mandatory electronic payers is Aug. 17, 2015. Entities must electronically submit payment using the appropriate electronic payment method or file the Extension Request Form.

If payment is due with the extension, the payment should be made electronically and should equal the balance of the amount of tax that will be reported as due on Nov. 16. Be sure to select the extension payment option. No Extension Request form is needed.

If all of the tax due was paid with the entity's first extension, use franchise tax Webfile or submit the Extension Request, Form 05-164, to request a second extension.

Franchise Tax – Texas Notice of Intent to Forfeit Right to Transact Business

On July 24, the Comptroller will mail the "Texas Notice of Intent to Forfeit Right to Transact Business" form to taxable entities that failed to file the 2015 Franchise Tax report that was due May 15, 2015, if an extension of time to file was not granted. The Comptroller will also send this notice to companies that failed to file a complete report or to pay the full amount due.

By law, the right to transact business cannot be forfeited before 45 days from the date the Comptroller mails the notice. During this period, when the company has received the notice of intent to forfeit, but the forfeiture has not yet occurred, the company's status on the Comptroller's Taxable Entity Search will remain as "active."

Hotel Occupancy Tax

State Cost-Recovery Fees

Some hotels charge a state cost-recovery fee to recover their franchise tax expense.

Like other business expenses (such as payroll, utilities and insurance), it is part of the hotel's overhead costs.

A fee to recover these expenses is a charge directly related to room occupancy. State hotel occupancy tax is due on the fee.

Insurance Tax

Premium Tax Prepayments

Licensed insurance companies, licensed captive insurers and miscellaneous organizations with a net tax liability for the previous calendar year in excess of $1,000 must prepay premium tax semi-annually.

The second semi-annual prepayment must be made on or before Aug. 1.

For more information concerning prepayments, see Form 25-101.

Automobile Burglary and Theft Prevention Authority Payment

The first semi-annual payment of the Automobile Burglary and Theft Prevention Authority assessment is due on or before Aug. 1. For more information concerning this payment, see Form 25-107.

Publications

Mixed Beverage Taxes

The Comptroller has created Mixed Beverage Taxes: What You Can Expect for mixed beverage permit holders to help them understand their mixed beverage taxes and recordkeeping responsibilities.

For more information about mixed beverage taxes, see Mixed Beverage Gross Receipts Tax and Mixed Beverage Sales Tax.

Public Outreach

Presentations by the Tax Policy Division

Members of the Tax Policy Division often receive requests to discuss taxability issues with interested organizations about tax issues. Representatives recently presented information about motor vehicle sales and use tax at the Tax Assessor-Collectors Association Annual Conference in Lubbock.

A representative also provided information at a recent meeting of the Texas Agricultural Cooperative Council concerning the taxation of dyed diesel fuel, off-road fuel exemptions and frequently asked questions on fuels tax from farmers and ranchers.

Taxpayer Seminars

Did you know the Comptroller's office routinely offers free taxpayer seminars across the state? The seminars provide a sales and use tax overview for buyers, sellers and service providers and an opportunity for attendees to get answers to specific questions. For details on an upcoming seminar near you, check out our calendar.

State Tax Automated Research (STAR) System

Monthly Updates

Starting in June, all Comptroller Decisions are being placed on the STAR system. Our staff is working hard to also add past decisions to the system. Currently, all Comptroller Decisions from 2008 are now on STAR, and we estimate to have all available past decisions from 2008 forward on the STAR system within six months.

To see the latest items added to STAR, use the Monthly Updates Search Form link on the STAR home page in the right-hand column.

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.

Rules

Proposed Rules

Information about proposed rules is available from the Texas Secretary of State.

Franchise Tax

The Comptroller proposed a new rule for public comment through the Texas Register on June 1, 2015. The comment period ended July 12, 2015.

Rule 3.598 – Margin: Tax Credit for Certified Rehabilitation of Certified Historical Structures

State and Local Sales and Use Taxes

The Comptroller proposed amendments to the following rule for public comment through the Texas Register on June 8, 2015. The comment period ends July 19, 2015.

Rule 3.334 – Local Sales and Use Taxes

Adopted Rules

General Rules

The following rule adoption was filed with the Secretary of State on June 30, 2015. The rule will become effective on July 20, 2015.

Rule 3.313 – Postmarks, Timely Filing of Reports, and Timely Payment of Taxes and Fees

Effective Rules

Franchise Tax

The repeal of Rule 3.597, Margin: Business Tax Advisory Committee, became effective June 25, 2015.

Motor Fuel Tax

Rule 3.430, Records Required, Information Required, became effective June 2, 2015.

State and Local Sales and Use Taxes

Rule 3.286, Seller's and Purchaser's Responsibilities, including Nexus, Permits, Returns and Reporting Periods, and Collection and Exemption Rules, became effective June 3, 2015.

Rule 3.333, Security Services, became effective June 25, 2015.