taxes

Tax Policy News

September 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...

Reminders

Coin-Operated Amusement Machines Tax

2017 Renewal Applications due by Nov. 30, 2016

Coin-operated amusement machine owners and operators must file renewal applications for their 2017 General Business License, Registration Certificate, Import License or Repair License by Nov. 30. A $60 occupation tax permit for each coin-operated amusement machine that is exhibited or displayed in this state is also due by Nov. 30. An occupation tax permit decal must be affixed to each machine in use.

The Comptroller's office mails renewal application packets in September. Coin-operated amusement machine owners and operators who have not received renewal packets by Oct. 31 should contact our office.

Website Update

Hotel Occupancy Tax

New Quick Reference Guide for Hotels

We have a new Quick Reference Guide for Hotels that shows the taxability of various hotel sales, services and purchases.

The reference guide has information about:

  • room revenue
  • room exemptions
  • food and beverage revenue
  • food and beverage exemptions
  • other room charges
  • miscellaneous revenue
  • purchases
  • miscellaneous fees and information

A link to the guide is under "Resources" on our Hotel Occupancy Tax web page.

Policy Memos

Franchise Tax

Cost of Goods Sold for Electricity Transmission and Distribution

This memo addresses if an integrated utility company can include the following items in its Cost of Goods Sold (COGS):

  • transmission and distribution costs;
  • franchise fees paid for the use of government-owned rights of way; and
  • property taxes and insurance on transmission and distribution assets.

The memo also addresses if retail electricity providers (REPs) in deregulated markets can include transmission and distribution costs in their COGS deductions.

See State Tax Automated Research (STAR) document 201603710L for more information.

Policy Change Based on Titan

With the Titan case now final, we have revised the policy for payments eligible for exclusion as flow-through funds under Texas Tax Code Section 171.1011(g). Section 171.1011(g) provides a revenue exclusion for funds mandated by contract to be distributed to other entities for sales commissions to nonemployees; the tax basis of securities underwritten; and subcontracting payments for services, labor or materials in connection with a real property improvement project.

Under the revised policy, a payment is mandated by contract to be distributed to other entities if the taxable entity has a contract with its customer providing that a subcontractor may be used and requiring payment to the subcontractor, or by a written contract between the taxable entity and the subcontractor where the payment is based on the funds paid to the taxable entity by the taxable entity's customers.

See State Tax Automated Research (STAR) document 201606856L for more information.

Motor Vehicle Sales and Use Tax

Policy Change for Registration and Renewal Requirements of Related Finance Companies

We have changed our policy for registration and renewal requirements of Related Finance Companies (RFCs). Effective Jan. 1, 2016, RFCs are no longer required to renew their registrations each year. The new policy requires a one-time registration, with no renewals and no fees.

See State Tax Automated Research (STAR) document 201603742L for more information.

Private Letter Rulings

Sales and Use Tax

Asset Management Service – Remote Equipment Monitoring Service

Private Letter Ruling No. 151540710 relates to an asset management service that compiles and stores information related to oil and gas equipment. The Comptroller's office determined the service to be a taxable data processing service according to Texas Tax Code Section 151.0035 and Rule 3.330.

Natural Gas and Electricity Used to Power Cotton Gins

Private Letter Ruling No. 150560138 addresses the taxability of natural gas and electricity used to power cotton gins. The Comptroller's office determined the utility provider could accept an exemption certificate for electricity used to power cotton gins based on an industry-wide predominant use study. The electricity is exempt based on its use to power exempt property used in manufacturing.

A Note from the Internal Revenue Service

Taxpayers Using Franchise Tax Vendor Software

The Internal Revenue Service provided the following information about a phishing email scam:

Some tax professional software companies have become aware of phishing emails targeting tax preparers through emails that appear to be from a legitimate tax software company. The emails instruct the user to download updates to the tax software.

If the recipient of the email clicks on the link to install the update, they are directed to a website prompting them to download a file SOFTWARECOMPANYUPDATE.exc where SOFTWARECOMPANY is the name of the tax software company the email recipient is using. By following the email instructions, the email recipient is unwittingly downloading a key-logger malware designed to steal their passwords, or essentially any key stroke information.

Always ensure you are working from the tax software company's official site when downloading any updates to the tax software, rather than clicking on links in emails that could put your information at risk.

Rules

Proposed

The Comptroller’s office proposed the following rule for public comment through the Texas Register.

Cigarette and Tobacco Products Regulation

Rule 3.1202 – Warning Notice Signs
Publication date – Aug. 26, 2016
Comment period end date – Sept. 25, 2016

Adopted

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

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
Publication date – Aug. 5, 2016
Effective date – Aug. 14, 2016

Rule 3.364 – Professional Employer Services
Publication date – Aug. 19, 2016
Effective date – Aug. 28, 2016