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Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts

taxes

Tax Policy News

November 2016

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

In This Issue...

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Franchise Tax

Terminating Your Business

To terminate a taxable entity's existence in Texas with the Texas Secretary of State (SOS), you must obtain Form 05-305, Certificate of Account Status to Terminate Texas Registration, from the Comptroller's office and include it with the termination documents.

Before the Comptroller's office can issue the Certificate of Account Status, you must satisfy filing requirements for all taxes administered under Title 2 of the Texas Tax Code, and all accounts for these taxes must be closed. This includes filing a final franchise tax return that covers the entity's activity through the last day of its existence, and paying any amounts due.

If we estimated your franchise tax liability because you failed to file a report, you must still file that report. Paying the estimate does not resolve the delinquency. Once you have filed and paid all applicable taxes, you can use Webfile to print the certificate. Or, you can mail in Form 05-359, Request for Certificate of Account Status to Terminate a Taxable Entity's Existence in Texas (PDF).

You must submit your request by mail if any of the following apply:

  • you are part of a combined group
  • you have an active audit with the Comptroller's office
  • you have been active for franchise tax for less than one year.

Tips to Remember

  • A printout of the Franchise Tax Account Status page from the Comptroller's website is not sufficient for SOS filings.
  • The Certificate of Account Status must be valid through the effective date of the termination.
  • If you plan to terminate in 2016, the SOS must receive your documents by the last business day of the year, Friday, Dec. 30, 2016. Postmarks are not accepted.
  • The SOS Direct system provides electronic filing of terminations.
  • The Comptroller's office will provide you the Certificate of Account Status in pdf format when you submit your request through Webfile or you select the pdf option on the form you mail in.

Hotel Occupancy Tax

Hotel Conferences – What's Taxable

Hosting a conference at a hotel is more than renting meeting rooms and sleeping rooms. Conferences often include meals, banquets and cocktail parties.

The following table lists some sales and services provided by hotels and which taxes apply.

For more information on hotel sales, services and purchases, see our Quick Reference Guide for Hotels.

Meeting Room Rentals
Description Tax Due
Meeting room rental – same building as sleeping rooms State Hotel Occupancy Tax
(Local Hotel Occupancy Tax is not due.)
Meeting room rental – separate building from sleeping rooms No tax is due
Meals and Meeting Room Rentals
Description Tax Due
Meals and meeting room – separately charged
Meals and meeting room – one price charged; meeting room is in the same building as sleeping rooms Meals and meeting room – State Hotel Occupancy Tax
(Local Hotel Occupancy Tax is not due.)
Meals and meeting room – one price charged; meeting room is in a separate building from sleeping rooms Meals and meeting room – Sales and Use Tax
Alcohol Sales (Hotel has a Mixed Beverage or Private Club Permit)
Description Tax Due
Alcoholic beverages sold with meal and meeting room – separately charged
Alcoholic beverages sold with meal and meeting room – one price charged; meeting room is in the same building as sleeping rooms
Alcoholic beverages sold with meal and meeting room – one price charged; meeting room is in a separate building from sleeping rooms

*Mixed Beverage Sales Tax and Mixed Beverage Gross Receipts Tax

Alcohol Sales (Hotel has a Wine and Beer Retailer's Permit or Retail Dealer's On-Premises License)
Description Tax Due
Beer or wine sold with meal and meeting room – separately charged
Beer or wine sold with meal and meeting room – one price charged; meeting room is in the same building as sleeping rooms Beer, wine, meals and meeting room charged together – State Hotel Occupancy Tax (Local Hotel Occupancy Tax is not due.)
Beer or wine sold with meal and meeting room – one price charged; meeting room is in a separate building from sleeping rooms Beer, wine, meals and meeting room charged together – Sales and Use Tax

Sales and Use Tax

Decking Your Halls with Holiday Decorations!

When buying holiday decorations, you owe tax unless you buy them from a tax-exempt organization (PDF) during one of its tax-free fundraisers.

Examples of holiday decorations include:

  • holiday lights (interior and exterior)
  • candles
  • holiday trees and garlands
  • mistletoe and holly
  • poinsettias and wreaths
  • ornaments

Hiring a Decorator

You do not owe tax when your decorator:

  • uses your decorations; and
  • charges only for their time to trim your tree, hang your lights and otherwise decorate your home or business. Any charges for removing the decorations are also not taxable.

You do owe tax when your decorator:

  • sells or rents decorations to you; and
  • charges for their time to trim your tree, hang your lights and otherwise decorate your home or business. Any charges for removing the decorations are also taxable.

Decorating Windows

Business windows – If you hire someone to paint holiday images on the windows at your business you owe tax on the total amount charged. Any charges for removing the images are also taxable.

Home windows – If you hire someone to paint holiday images on the windows at your home and you provide the paint, you do not owe tax on the charge for the time to paint the windows.

If the painter provides the paint and the painter charges you:

  • one charge for the job, you do not owe tax; the painter pays tax on the paint when they buy it.
  • separately for time and paint, then you owe tax on the charge for the paint.

If the decorator removes the painted images for you, and separately charges for that service, then you owe tax on the charge for removing the images. If the decorator charges one amount for painting the image and later removing it, the charge is not taxable as long as the amount charged for removing the image is not more than five percent of the total charge.

Holiday Shopping Online

Will you shop online for the holidays? Remember that your purchases are taxable if your items are shipped to a Texas location. But, if you buy a taxable item online and have it shipped to an out-of-state address, Texas tax is not due.

Just as in stores, sellers engaged in business in Texas must collect Texas sales and use tax for online sales to customers in Texas. If the seller doesn't collect tax from you on your taxable online purchases, you owe Texas use tax to the Comptroller's office. If you have a Texas sales and use tax permit, report the purchase on your next regular sales tax return as a taxable purchase. Otherwise, use Form 01-156, Texas Use Tax Return (PDF), to file and pay the tax.

Use tax rates are the same as sales tax rates. Enter your address in our Sales Tax Rate Locator to find your use tax rate.

Policy Memo

Franchise Tax

Vendor-Funded Incentives (VFIs) for Franchise Tax

Vendors provide various allowances, credits and rebates to retailers through different programs and arrangements to support the merchandise bought for resale. These programs are collectively referred to as Vendor-Funded Incentives (VFIs).

The Texas statutes and rules do not specifically address treatment of VFIs for franchise tax purposes; however, the computation of cost of goods sold (COGS) under Texas Tax Code Section 171.1012 excludes from COGS selling costs and advertising costs. See Texas Tax Code Section 171.1012(e)(2) and (4).

Some retailers believe that VFIs should not be reported as a reduction (contra-expense) to the franchise tax COGS computation because VFIs relate to the sale of goods (i.e., selling costs) rather than the purchase of goods for resale.

The Comptroller has determined that contra-expense accounts for VFIs related to certain advertising or selling activities are excluded from the COGS calculation; and that volume and sales-based VFIs (if not reported as revenue) are included in the COGS calculation as a contra-expense.

See State Tax Automated Research (STAR) System Document 201608950L for more information.

Private Letter Rulings

Franchise Tax

Apportionment of Receipts from the Sale of Assets

Private Letter Ruling No. 152320291 addresses the proper apportionment of gross receipts from the sale of an entity's assets.

The issues covered include the following:

  • the sourcing of receipts from the sale of tangible personal property located in foreign jurisdictions;
  • whether legal and contractual rights are intangible assets;
  • whether certain intangible assets are capital assets or investments; and
  • the correct allocation of sales price to specific assets.
Sales and Use Tax

Authentication and Resolution Services

Private Letter Ruling No. 152600379 relates to authentication and resolution services involving digital certificates used to authenticate the identity of users attempting to log onto internet websites.

The Comptroller's office determined the services are not taxable.

Rules

Proposed for Repeal

The Comptroller's office proposed the repeal of the following rules in the Texas Register:

Controlled Substances Tax

Rule 3.682 – Tax Payment Certificates
Rule 3.683 – Jeopardy Determinations
Publication date – Oct. 28, 2016
Public comment period end date – Nov. 27, 2016

Proposed

The Comptroller's office proposed the following rules in the Texas Register:

Franchise Tax

Rule 3.574 – Margin: New Veteran-Owned Businesses
Publication date – Oct. 21, 2016
Public comment period end date – Nov. 20, 2016

Sexually Oriented Business Fee

Rule 3.722 – Sexually Oriented Business Fee
Publication date – Oct. 28, 2016
Public comment period end date – Nov. 27, 2016

Adopted

The Comptroller's office filed the following rules for adoption with the Secretary of State:

Franchise Tax

Rule 3.598 – Margin: Tax Credit for Certified Rehabilitation of Certified Historic Structures
Publication date – Nov. 18, 2016
Effective date – Nov. 22, 2016

State and Locals Sales and Use Taxes

Rule 3.369 – Sales Tax Holiday--Certain Energy Star Products, Certain Water-Conserving Products, and WaterSense Products
Publication date – Nov. 11, 2016
Effective date – Nov. 20, 2016

HB855 Browser Statement

In 2015, the Texas Legislature passed House Bill 855, which requires state agencies to publish a list of the three most commonly used Web browsers on their websites. The Texas Comptroller’s most commonly used Web browsers are Google Chrome, Microsoft Internet Explorer and Apple Safari.

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