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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

December 2017

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.

Previous issues are available through the Tax Policy News Index.

In This Issue...

Sales and Use Tax

Fundraising

Many organizations rely on fundraising to pay for their services and to help their members or people in need. No matter how the money from a fundraiser is used, it is important to know that fundraising and fundraiser events may include both taxable and nontaxable sales. The taxability depends on who is selling the items and which items are sold.

Taxable Sales

Generally, anyone who sells taxable items must have a Texas Sales and Use Tax Permit and:

  • collect sales tax on their taxable sales; and
  • report their sales and pay the collected sales tax to the Comptroller’s office.

When buying taxable items to resell to customers, an entity with a Texas Sales and Use Tax Permit can give the retailer a properly completed Form 01-339, Texas Sales and Use Tax Resale Certificate (PDF) instead of paying tax.

Sales by an Individual

Sales of taxable items by individuals, or by an informal group of individuals, are generally taxable.

For example, tax is due when an individual, or an informal group of individuals, sells tickets to a meal or has special t-shirts made to raise funds to donate to a charity or to support a cause, such as helping someone with medical expenses.

Sales by a Nonprofit Organization

On most sales of taxable items, a nonprofit organization must obtain a sales tax permit and collect sales tax on those sales. There are, however, some specific exceptions (PDF).

Here are some examples of activities for which sales are not taxable:

  • Up to two (per year) one-day, tax-free sales days held by a religious, charitable, educational or Internal Revenue Code Section (IRC) 501(c)(3), (4), (8), (10) or (19) organization.
  • Amusement services provided by nonprofit organizations, except for IRC 501(c)(7) organizations.
  • Exempt writings published and distributed by religious, philanthropic, charitable, historical, scientific or other similar nonprofit organizations, including IRC 501(c)(3), but not by educational organizations.
  • Annual food sales or banquets held by any nonprofit volunteer organizations.

Sales through a Fundraising Company Engaged by a Nonprofit Organization

When a nonprofit organization engages a professional fundraising company to sell items to raise funds, the fundraising company is the seller.

School groups and youth organizations often raise funds through catalog and brochure sales by using a fundraising company that offers items such as candy, candles, giftwrap and jewelry for sale. The nonprofit organization receives compensation, such as a share or percentage of the proceeds, for taking orders for the fundraising company to process. The fundraising company provides catalogs, brochures, sales forms, marketing materials, sales incentives and guidance.

Because the fundraising company is the seller, customers who purchase taxable items must pay sales tax. The two one-day, tax-free sales exemption for certain nonprofit organizations does not apply.

Sales by a Direct Sales Organization; Sales Benefiting a Nonprofit Organization

A direct sales organization (DSO) typically sells taxable items directly to purchasers through independent salespersons, representatives or consultants. Generally, the items are sold person-to-person through in-home product demonstrations, parties, catalogs and one-on-one selling. These sales commonly include items such as housewares, cosmetics, candles and jewelry.

The DSO sales representative is responsible for collecting and remitting the proper amount of sales tax on the item’s full sales price, even if part of the proceeds benefit a nonprofit organization in exchange for hosting a sales event.

Sales by a Restaurant, Department Store or Other Business; Sales Benefiting a Nonprofit Organization

When a business sells taxable items and donates a portion of its proceeds to further a charitable purpose, the sales are still taxable.

For example, a restaurant may designate a special night when it will donate a portion of the proceeds from its food sales to a specific nonprofit group or charitable cause. The business is responsible for collecting and remitting the proper amount of sales tax on the item’s full sales price.

More Information

Private Letter Rulings

Sales and Use Tax

Text and Messaging Service Offered Through a Cloud-Based Software System and Printer Usage Fees
May 30, 2017

The Tax Policy Division ruled that a cloud-based software texting service is subject to limited sales and use tax as a data processing service. The division also ruled that a separately stated charge for renting a specialized printer is subject to limited to sales and use tax as the rental of a taxable item.

Cloud-Based Software Texting Service

The facts presented in this request are that the software – through its archiving and reporting functions – stores a customer’s messages and information about the messages for later retrieval. It also receives and processes data for subscribers. Additionally, the software translates incoming messages into an accessible format and creates analytic reports for the subscriber’s use.

The software’s dashboard service is software as a service (SaaS). SaaS is commonly defined as: “a software application delivery model where a software vendor develops a web-native software application and hosts and operates (either independently or through a third party) the application for use by its customers over the internet. Customers do not pay for owning the software itself but rather for using it.” SaaS is a taxable data processing service.

Renting a Specialized Printer

Renting tangible personal property in Texas is subject to Texas sales tax, while tangible personal property purchased, leased or rented outside of Texas and used here is subject to Texas use tax.

In this request, the specialized printers are tangible personal property. A separately stated charge for the rental of a specialized printer (i.e., the usage fee) is subject to Texas sales and use tax as the rental of tangible personal property.

See State Tax Automated Research (STAR) System letter 201705045L.

Taxability of Services to Install, Repair, Replace, and Abandon in Place Natural Gas Pipelines
June 26, 2017

The Tax Policy Division ruled on the sales tax treatment of different pipeline construction and remodeling services.

Taxpayer is a seller/distributor of natural gas, who owns and operates underground natural gas pipelines. The taxpayer monitors its pipelines’ condition and engages contractors to make necessary improvements. The taxpayer typically buys pipe from a pipe supply company and then hires contractors to perform the construction and related services.

The taxpayer asked about the tax treatment for different construction scenarios and services. The taxpayer identified a portion of an existing underground natural gas pipeline that is no longer operational. The contracts between the taxpayer and its contractors separate the labor charges from the incorporated material charges, if any.

For construction services, installing a new pipeline in a new trench adjacent to the existing, nonoperational pipeline is new construction, and the labor is not taxable. Additionally, removing an existing, nonoperational pipeline and installing new pipeline at a lower depth is new construction and is not taxable if the pipeline’s depth changes substantially (the new pipeline’s depth must be at least one-third greater than the existing pipeline’s depth). This also applies when a contractor installs a new pipeline in a new trench that is substantially shallower than an existing pipeline. In all instances, connecting the new pipeline to existing pipeline is nonresidential real property repair or remodeling, and the labor is taxable.

Replacing the existing pipeline with a new pipeline at the same depth is nonresidential real property repair or remodeling, and the labor is taxable.

For abandoning the pipeline, filling an existing pipeline with concrete is not taxable because it constitutes complete pipeline demolition. If, however, the contractor caps the ends of an existing pipeline in order to abandon the pipeline in place, the labor is taxable nonresidential real property repair or remodeling.

See State Tax Automated Research (STAR) System letter 201706007L.

State Tax Automated Research System

STAR Watch

The State Tax Automated Research (STAR) System is a comprehensive tax policy research system that allows users to access more than 30,000 Comptroller tax policy documents. Users can access these documents by using word and filter searches or by a subject matter index.

STAR contains a list of new documents loaded on the system each month. To view the list, choose “New Documents” from the “Search Form” menu. From there, searches can be filtered by month/year and tax type.

Comptroller Decisions

All Comptroller Decisions are added to STAR. Decisions that are not added to the subject matter index are labeled “INDEXED BY TAX TYPE ONLY.” See STAR document 201504151H as an example.

Proposal for Decision

Final Comptroller Decisions incorporate the Proposal for Decision (PFD) as drafted by the Administrative Law Judges and clearly identify changes to any PFD in a “strike-through” format. See STAR document 201708036H as an example.

Look for the new “STAR Watch” section in future Tax Policy News articles for a link to new documents, as well as valuable STAR tips and tricks.

Please contact us if you have any questions about the STAR system.

Rules

Proposed

The Comptroller's office proposed the following rule repeal for public comment through the Texas Register:

Franchise Tax

Rule 3.595 – REPEAL Margin: Transition
Publication date – Nov. 17, 2017
Comment period ends – Dec. 17, 2017

The Comptroller's office proposed the following rules for public comment through the Texas Register:

Manufactured Housing Sales and Use Tax

Rule 3.481 – Imposition and Collection of Manufactured Housing Tax
Publication date – Dec. 15, 2017
Comment period ends – Jan. 14, 2017

Motor Vehicle Sales Tax

Rule 3.83 – Sales and Use of Motor Vehicles Purchased
Publication date – Dec. 15, 2017
Comment period ends – Jan. 14, 2017

Adopted

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

Motor Vehicle Sales Tax

Rule 3.72 – Trailers, Farm Machines, and Timber Machines
Publication date – Nov. 24, 2017
Effective date – Dec. 3, 2017

More Information

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