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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

August 2017

This issue of Tax Policy News summarizes Texas tax law changes resulting from bills passed by the 85th Legislature (Regular Session) and lists the statutes affected by the changes. It also explains our agency’s participation in the Multistate Tax Commission (MTC) Online Marketplace Seller Voluntary Disclosure Initiative.

Previous issues are available through the Tax Policy News Index.

In This Issue...

2017 Legislative Update - 85th Legislature

A Note from Glenn Hegar

As Texas Comptroller, I am focused on the core constitutional duties of the office. One of the most important of those duties – if not always the most popular – is my role as Texas’ tax collector. Day in and day out I work with hundreds of dedicated Comptroller employees across multiple divisions within the agency to ensure we administer taxes fairly, treat taxpayers with respect and accurately collect the proper tax due to the state – and not a penny more!

To achieve these goals, it’s crucial for us to educate taxpayers and regularly update them on changes to tax law. This is particularly important after a busy legislative session. The Legislature recently made important modifications to clarify and update Texas’ tax code. In this issue we’ll be discussing in detail the various adjustments lawmakers put into place. Many changes provided much needed tax relief, some granted additional time for taxpayers to make key decisions, and others created administrative efficiencies for the agency and clarification of the application process for our customers.

I will continue to emphasize the importance of excellent customer service and will work to simplify and streamline the process of paying taxes, which includes providing our customers with useful guidance and pertinent information, so I hope you find this legislative roundup helpful. As Texas’ chief financial officer, I will continue to monitor our economy and do my part to ensure the Lone Star State continues to thrive.

General

Tax Amnesty
Senate Bill 1
Effective Sept. 1, 2017

SB 1 requires the Comptroller of Public Accounts to establish a tax amnesty program to encourage voluntary reporting by:

  • delinquent taxpayers who do not have a Texas Sales and Use Tax Permit, or are not registered for a tax or fee administered by the Comptroller’s office; and
  • taxpayers who have a permit, but may have underreported or owe additional taxes or fees.

The amnesty program provides a waiver of penalty or interest (or both), but does not apply to an established tax liability or to taxpayers currently under audit. The amnesty program will be for a limited duration and will include tax due on purchases. We will provide additional information once dates and program details are established.

Tax Redeterminations and Refund Claims
Senate Bill 1095
Effective Sept. 1, 2017

SB 1095 extends the time from 30 days to 60 days for a taxpayer to:

  • file a petition for redetermination of a tax deficiency; or
  • request a hearing after denial of a refund.

The extension applies to determination notices and refund denials issued on or after Sept. 1, 2017.

The bill also ties the date that a decision in a redetermination or refund hearing becomes final and the time a claimant has to request a rehearing to that of a contested case under Chapter 2001, Government Code.

Amends Tax Code Sections 111.009 and 111.105

Cigarette and Tobacco Taxes

Exemption for Research Cigarettes, Due Date and Fee Rate Changes
Senate Bill 1390
Effective Sept. 1, 2017

SB 1390:

  • exempts cigarettes purchased exclusively for research purposes from cigarette tax and stamping requirements;
  • changes the due date from the last day of the month to the 25th day of the month for:
    • monthly cigarette distributor reports; and
    • monthly tobacco product distributor reports;
  • sets the Non-Settling Manufacturer fee rate to begin Feb. 1 and remain in effect through Jan. 31 of the following year; and
  • removes language that ties the additional stamping allowance to participation in the Cigarette Tax Recovery Trust Fund.

Amends Tax Code Sections 154.210, 154.502, 154.503, 154.515, and 155.111

Adds Tax Code Section 154.026

Amends Health and Safety Code Sections 161.604 and 161.605

Franchise Tax

Eligible Costs and Expenses for Certified Rehabilitation of Certified Historic Structures
House Bill 1003
Effective June 14, 2017

HB 1003 adds expenses incurred by certain public institutions of higher education and university systems to eligible costs and expenses for the certified rehabilitation of certified historic structures, if the other provisions of Internal Revenue Code Section 47(c)(2) are met.

The provision applies to authorized investments of public funds made on or after June 14, 2017.

This provision is effective until Jan. 1, 2022.

Amends Tax Code Section 171.901

Prepaid Phone Calling Cards
House Bill 2126
Effective Jan. 1, 2018

HB 2126 provides that the sale of prepaid phone calling cards is not the provision of telecommunications services for purposes of qualifying for the reduced tax rate for entities primarily engaged in retail or wholesale trade.

Amends Tax Code Section 171.002

Exemption for Farmer Cooperatives
House Bill 3992
Effective June 15, 2017

HB 3992 allows a franchise tax exemption for certain cooperatives whose single member is a farmers’ cooperative described in Section 521(b)(1) of the IRS Code and has at least 500 farmer-fruit grower members.

Amends Tax Code Section 171.071

Definition of Production for Cost of Goods Sold
House Bill 4002
Effective Sept. 1, 2017

HB 4002 removes the term “installation” from the definition of production used in determining the cost of goods sold deduction.

Amends Tax Code Section 171.1012

Tax Credits for Certified Rehabilitation of Certified Historic Structures
Senate Bill 550
Effective May 4, 2017

SB 550 allows entities subject to certain insurance premium taxes, which are sold or assigned a credit for the certified rehabilitation of certified historic structures, to claim all or part of the credit against their premium tax liability.

The provisions related to the credit apply to these insurers to the same extent they apply to entities subject to franchise tax.

Amends Tax Code Section 171.908

Hotel Occupancy Tax

Convention Centers and Venue Projects
House Bill 1896
Effective Sept. 1, 2017

HB 1896:

  • adds that a facility financed wholly or partly with municipal hotel tax revenue cannot be primarily used for events attended only by residents of the community;
  • provides that a related improvement to a venue financed wholly or partly with the city’s hotel tax revenue (such as a civic center hotel, theater, opera house, music hall, rehearsal hall, park, zoological park, museum, aquarium or plaza facility) must be located in the vicinity of the convention center;
  • defines “meetings” as “gatherings of people that enhance and promote tourism and the convention and hotel industry;” and
  • provides that the imposition of a hotel tax, or an increase in the hotel tax rate, does not apply to contracts in place before the imposition or rate increase, unless the contract provides for those changes.

Combines the amendments to Tax Code Section 351.101 made by Chapters 666 (HB 3772) and 979 (HB 3615) of the 84th Legislature (2015) and renumbers accordingly

Amends Local Government Code Section 334.001

Amends Tax Code Sections 351.001, 351.007, 351.101 and 351.0031

Hotel Projects and Tax Revenues
House Bill 2445
Effective June 15, 2017

House Bill 2445 adds the following cities to the list of cities that can pledge bonds for a hotel project or a hotel and convention center project:

Abilene
Cedar Hill
Denton
Katy
Kemah
League City
Lewisville
Lubbock
Midland
Port Aransas
Prosper
Roanoke
Rowlett
Sugar Land

These municipalities can receive a rebate of certain taxes that are paid or collected by a hotel project and businesses ancillary to the hotel project that are located within 1,000 feet of a convention center facility owned by the municipality or the hotel.

Eligible municipalities:

  • cannot receive tax rebates unless they have pledged hotel tax revenue from the project to pay bonds and other obligations issued or incurred for the hotel project; and
  • must enter into a development agreement for a hotel project before Sept. 1, 2019, in order to pledge revenue or receive rebates.

The city of Laredo can receive tax rebates for a hotel and convention center project that is:

  • an existing hotel owned by Laredo or another person;
  • a convention center facility owned by or located on land owned by Laredo; and
  • located within 1,000 feet of the hotel

The following locations can use their hotel tax revenue for sports facilities and fields, with some restrictions:

  • the cities of Brownfield, Buda, Denton; and
  • a municipality with a population of less than 1,500 located in Bowie County

Cooke County can:

  • impose a hotel tax not to exceed 2 percent of the price paid for a room; and
  • use the tax revenue for any purpose a municipality may use under Section 351.101(a).

The bill also allows a county with no municipalities that owns an airport to use its hotel tax revenue for repairs and improvements to the airport for ten years, with restrictions.

Amends Local Government Code Sections 334.001, 334.1015 and 334.2515

Amends Tax Code Sections 351.005, 351.101, 351.1012, 351.102, 351.10711, 351.1076, 351.1078, 352.002, 352.103, and 352.113

Location of Hotel Project for Certain Cities
Senate Bill 345
Effective May 22, 2017

SB 345 authorizes a city with a population of 173,000 or more, located within two or more counties, to pledge its municipal hotel tax revenue to pay bonds for a hotel project that is:

  • located on land owned by the federal government; and
  • located within 1,000 feet of a convention center facility owned by the municipality.

Before this amendment, cities had to either own the hotel project or own the land on which the hotel project is located.

Amends Tax Code Section 351.102

Hotel Receipts Available by Request
Senate Bill 1086
Effective May 18, 2017

SB 1086 prohibits a state agency from publishing the receipts of an individual hotel on a public internet website.

Persons can still request hotel data by submitting an open records request to the Comptroller’s office.

Adds Tax Code Section 156.155

Cities to File Annual Report
Senate Bill 1221
Effective June 1, 2017

SB 1221 requires cities that impose a hotel tax and if applicable, a sports or community venue hotel tax, to report to the Comptroller’s office its:

  • tax rate; and
  • amount of tax collected the preceding fiscal year.

The report is due Feb. 20 each year and includes the amount and percentage allocated to the following authorized expenditures:

  • convention center or visitor information center;
  • facilities, personnel and materials to register convention delegates;
  • advertising and promotional programs to attract tourists and convention delegates;
  • promotion of the arts;
  • historical restoration and preservation projects; and
  • signage directing the public to sites and attractions.

Cities must submit the information on a report provided by the Comptroller’s office or by giving the Comptroller’s office a link or description where to find the information on its website.

Adds Tax Code Section 351.009

Insurance Tax

Regulation of Captive Insurance Companies
House Bill 1944
Effective June 15, 2017

HB 1944 authorizes captive insurance companies to organize as captive exchanges subject to insurance premium taxes in the same manner as other captive insurance companies.

Amends Insurance Code Sections 964.001, 964.051-964.053, 964.055-964.063, 964.065 and 964.070

Adds Insurance Code Section 964.073 and Subchapter C, Captive Exchanges

Temporary Health Insurance Risk Pool
Senate Bill 2087
Effective June 12, 2017

SB 2087 creates a health insurance risk pool to provide low-cost insurance to the public, if federal funds become available.

If the risk pool does operate, it will be exempt from all Texas state taxes.

Adds Insurance Code Chapter 1510 Temporary Health Insurance Risk Pool

Domestic Surplus Lines Insurers
House Bill 2492
Effective Jan. 1, 2018

HB 2492 allows insurance companies to apply for designation as a domestic surplus lines insurer. The policies issued by these companies are subject to surplus lines premium tax.

The domestic surplus lines insurer is subject to maintenance tax.

Amends Insurance Code Sections 981.002, 981.004, 981.006 and 981.210

Adds Insurance Code Subchapter B-1, Domestic Surplus Lines Insurer

Farm Mutual Insurance Companies
House Bill 3496
Effective Sept. 1, 2017

HB 3496:

  • exempts certain farm mutual insurance companies from the insurance premium tax; and
  • makes farm mutual insurance companies exempt from maintenance tax and the Texas Windstorm Insurance Association Guaranty Association assessments.

Farm mutual companies are exempt, unless they are a “fronting insurer.”

An insurer is a “fronting insurer” if it:

  • cedes 85 percent or more of its direct written premium to one or more nonaffiliated insurers; or
  • issues a policy that is the result of:
    • marketing by a nonaffiliated insurer;
    • an application submitted by a consumer to a nonaffiliated insurer; or
    • agreement with another insurer solely for the purpose of being regulated under Chapter 911.

Amends Insurance Code Sections 221.001, 252.005, 911.065 and 2210.006

Tax Credits for the Certified Rehabilitation of Certified Historic Structures
Senate Bill 550
Effective May 4, 2017

SB 550 allows entities subject to certain insurance premium taxes, which are sold or assigned a credit for the certified rehabilitation of certified historic structures, to claim all or part of the credit against their premium tax liability.

The provisions related to the credit apply to these insurers to the same extent they apply to entities subject to franchise tax.

Amends Tax Code Section 171.908

Miscellaneous Gross Receipts Tax

Miscellaneous Gross Receipts Tax on Utility Companies
Senate Bill 559
Effective May 23, 2017

SB 559 clarifies that the Miscellaneous Gross Receipts Tax is imposed on utility companies based on the location of their customers, rather than the location of the utility company.

Amends Tax Code Sections 182.021 and 182.022

Motor Fuels Tax

Tax Prohibited on Compressed Natural Gas and Liquefied Natural Gas
Senate Bill 1120
Effective May 10, 2017

SB 1120 adds Compressed Natural Gas and Liquefied Natural Gas to the motor fuels that are exempt from local or county excise or occupation taxes.

Amends Tax Code Section 162.014

Sales of Fuel Sold Tax Free for Export and Changes to the Petroleum Products Delivery Fee
Senate Bill 1557
Effective Jan. 1, 2018

Tax-free fuel sold to an unlicensed purchaser:

  • imposes motor fuel tax on the sale of tax-free fuel sold to an unlicensed purchaser; and
  • provides that the person who sold the fuel to an unlicensed purchaser must collect and remit the tax to the Comptroller’s office.

Fuel purchased tax free for export and subsequently sold in Texas prior to export:

  • creates an additional reporting requirement for gasoline or diesel fuel purchased tax free for export that is subsequently sold in Texas before export;
  • provides penalties for persons claiming an export exemption who do not report the subsequent sale or who redirects the delivery within Texas:
    • a person who claims an export exemption and fails to report the subsequent sale of tax-free fuel in Texas will be assessed a $200 penalty for each sale, unless the person files an amended report that includes the subsequent sale no later than the 180th day after the due date of the original report; and
    • a person who fails to export the fuel loses the export exemption by redirecting the delivery of motor fuel within Texas before export and will be assessed a penalty of the greater of $2,000 or five times the amount of tax due.

Petroleum Product Delivery Fee:

  • provides that suppliers must collect and remit the Petroleum Product Delivery Fee (PPDF) instead of the bulk facility operator;
  • defines “supplier” as it relates to the PPDF;
  • stipulates that the person who directed the delivery of the product will pay the PPDF when:
    • a petroleum product ceases to be in continuous movement to a destination outside of Texas; and
    • the same petroleum product is delivered to a destination in Texas.

Amends Tax Code Sections 162.012, 162, 101, 162.104, 162.115, 162.201, 162.204 162.216 and 162.401

Adds Sections 162.1155 and 162.2165

Repeals Subsections 162.104(c) and (e) and 162.204(c) and (e)

Amends Water Code Section 26.3574

Motor Vehicle Sales and Use Tax

Open-Enrollment Charter Schools and Motor Vehicle Used for Religious Purposes
House Bill 897
Effective Sept. 1, 2017

HB 897:

  • adds an open-enrollment charter school to the definition of “public agency” so that they can now purchase a motor vehicle tax free when operated with an exempt license plate issued by Texas Department of Motor Vehicles;
  • adds a trailer used primarily by a church or religious society to the definition of “motor vehicle used for religious purposes; and
  • removes the requirement that a motor vehicle used for religious purposes be used only to provide transportation to and from church or religious services or meetings so that church and religious societies can now purchase a trailer tax free and have expanded-use vehicles.

Amends Tax Code Section 152.001

Finance Companies
House Bill 2067
Effective May 29, 2017

HB 2067:

  • provides for a one-time registration for related finance companies (RFCs); and
  • removes the annual registration requirement and fee for RFCs.

The registration of an RFC remains in effect until canceled.

Amends Tax Code Section 152.0475

Signature Requirements and House Trailer/Travel Trailer Dimensions
Senate Bill 2076
Effective Sept. 1, 2017

SB 2076:

  • removes the requirement of a private-party seller signature on the Tax Statement section of the Application for Texas Title and/or Registration (Form 130-U); licensed motor vehicle dealers are still required to sign and complete Form 130-U; and
  • increases the maximum dimensions in defining house trailers and travel trailers. The Tax Code relies on the Transportation Code for the definitions.

Amends Tax Code Section 152.062

Amends Transportation Code Sections 501.002 and 541.201

Oil and Gas Production Taxes

Tax Reductions and Refunds for High-Cost Gas Wells
House Bill 2277
Effective Sept. 1, 2017

HB 2277:

  • sets March 1 as the deadline for amendments to drilling and completion costs following the calculation of the median drilling and completion costs for all high-cost gas wells;
  • replaces references to “credit” with “refund;”
  • provides that refunds will be issued for approved tax credits of a high-cost gas well; and
  • omits obsolete references and the reference to gas produced under an approved co-production project.

Amends Tax Code Section 201.057

Automatic Waiver of Penalties
House Bill 3232
Effective Jan. 1, 2018

HB 3232 provides an automatic waiver of late payment penalties on tax paid with amended reports if:

  • the delinquent tax results from the filing of an amended report for an original report that was timely filed;
  • the amount of additional tax due as a result of all amended reports for the original report does not exceed 25 percent of the tax due;
  • the person:
    • timely paid the full amount of tax due as indicated on the original return;
    • resolves all errors identified by the Comptroller’s office on the amended or original report that could affect the amount of tax due on the report by the 60th day after the amended or original report is filed; and
    • files the amended report no later than the 730th day after the date on which the original report was due and remits the full amount of the additional tax due with the amended report.

Amends Tax Code Sections 201.351 and 202.301

Sales and Use Tax

Sale of Alcoholic Beverages on Passenger Buses
House Bill 3101
Effective May 29, 2017

NOTE: Updated on Sept. 15, 2017, for clarification of bill.

HB 3101:

  • allows the sale of alcoholic beverages on certain passenger buses; and
  • provides that preparation and sales of the alcoholic beverages by the holder of a passenger bus beverage permit are exempt from:
    • taxes imposed under the Alcoholic Beverage Code; and
    • sales and use taxes imposed under Tax Code Chapter 151;

A wholesaler’s permit holder can sell liquor to a qualifying passenger bus company tax free as a sale for resale and is not required to obtain a resale certificate.

Amends Alcoholic Beverage Code Sections 11.38 and 101.46

Creates Alcoholic Beverage Code Chapter 48A

Qualifying Data Center
House Bill 4038
Effective June 1, 2017

HB 4038 expands the definition of “qualifying job” for purposes of certification as a qualifying data center to include a new employment position staffed by a third-party employer if there is a written contract between the third-party employer and a qualifying owner, qualifying operator or qualifying occupant stating the employment position is permanently assigned to an associated qualifying data center.

The amended definition applies to a data center certified as a qualifying data center regardless of whether the certification occurred before June 1, 2017, the effective date of this bill.

Amends Tax Code Section 151.359

Alcohol Beverage Temporary Auction Permit
House Bill 4042
Effective Sept. 1, 2017

HB 4042:

  • removes the term “charitable” in reference to temporary auction permits issued by the Texas Alcoholic Beverage Commission (TABC);
  • provides that the TABC may not impose a surcharge for a temporary auction permit;
  • allows holders of a temporary auction permit to have more than one auction each calendar year; and
  • includes a person or group of persons who are subject to recordkeeping requirements under Election Code Chapter 254 to be issued a temporary auction permit.

Amends Alcoholic Beverage Code Chapter 53

Amends Tax Code Section 151.461

Bakery Items
House Bill 4054
Effective Sept. 1, 2017

HB 4054:

  • defines “bakery” as a retail location that primarily sells bakery items from a display case or counter, predominantly for eating off the premises;
  • exempts all bakery items sold by a bakery, even if the bakery heats the items for the customer or serves the items with plates or other eating utensils; and
  • exempts bakery items sold by a retailer (other than a bakery) when the retailer does not provide plates or other eating utensils with the bakery items and does not heat the bakery items.

Amends Tax Code Section 151.314

Services by Employees
Senate Bill 745
Effective Sept. 1, 2017

SB 745:

  • transfers the exclusion from tax for services performed by employees to an exemption; and
  • specifies when services performed by an employee of a temporary employment service for a host employer are exempt from sales and use tax.

To qualify for the exemption, the host employer:

  • must provide all the equipment and supplies, except for certain personal protection equipment, necessary to perform the service;
  • cannot rent, lease, purchase, acquire or use the equipment and supplies from the temporary employment service or a related entity that is a member of the service provider’s affiliated group, as that term is defined for franchise tax; and
  • must have the sole right to supervise, direct and control the work performed by the temporary employee as necessary to conduct the host employee’s business.

Transfers Tax Code Section 151.057 to Tax Code Section 151.3503 and amends that new section

Insurance Services
Senate Bill 1083
Effective Jan. 1, 2018

SB 1083 excludes from taxable insurance services:

  • services performed by a certified public accountancy (CPA) firm from the definition of insurance services, if less than 1 percent of the firm’s total revenue in the previous calendar year is from insurance services provided in Texas; and
  • services performed on behalf of a CPA firm by an owner of the firm or a member of the firm’s affiliated group, if less than 1 percent of the owner’s or member’s total revenue in the previous calendar year is from insurance services provided in Texas.

Amends Tax Code Section 151.0039

Other News

Multistate Tax Commission Online Marketplace Seller Voluntary Disclosure Initiative

We are participating in the Multistate Tax Commission (MTC) Online Marketplace Seller Voluntary Disclosure Initiative, which is designed to bring into compliance out-of-state taxpayers who sell products in Texas and other states through online marketplaces.

This program is open Aug. 17 – Oct. 17, 2017. Taxpayers must make their requests for agreements through the MTC, and those who qualify must be registered and start collecting tax as of Dec. 1, 2017. The program covers Texas sales and use and franchise taxes.

Agreements are available to taxpayers who represent they do not have any nexus-creating contracts in Texas except for having inventory in an online marketplace provider’s fulfillment centers or having other nexus-creating activities through a marketplace provider on behalf of a marketplace seller, such as handling customer service calls. Taxpayers with nexus for any other reason are not eligible for agreements.

In addition, taxpayers who have already been contacted by our agency about their tax responsibilities, including contact about a routine audit, will not qualify. The agreements also do not waive any taxes collected but not remitted.

More information about applying for the program is available at Multistate Tax Commission (MTC) Online Marketplace Seller Voluntary Disclosure Initiative. You can also contact Rusty Johnson, Manager of our Business Activity Research Team, at rusty.johnson@cpa.texas.gov or 512-463-2501.

More Information

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