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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

June 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.

In This Issue...

Reminders

Insurance Tax

Volunteer Fire Department Assistance Fund Assessment due Aug. 1

The Comptroller's office mailed the Volunteer Fire Department Assistance Fund Assessment notices and paper reports at the end of May, and the assessment is due Aug. 1, 2017. A paper report is the only available reporting method. See the Volunteer Fire Department Assistance Fund Assessment page for more information.

This assessment applies to property and casualty insurers writing homeowners insurance, fire insurance, farm and ranch owners insurance, private passenger auto physical damage insurance, commercial auto physical damage insurance and commercial multi-peril insurance.

Boat and Boat Motor Taxes

Know Your Tax Responsibilities Before Buying a Boat

When you buy, lease or rent a boat (including jet skis, sailboats and other personal watercraft) and the trailer to transport them, you owe various taxes.

Because different taxes apply to boats and boat trailers, be sure you receive an invoice that itemizes the price of the boat separately from the price of the trailer.

Sales and Use Tax

You owe state sales tax at 6.25 percent plus up to an additional 2 percent local sales tax depending on your location, when you:

  • buy, lease or rent a boat that is:
    • more than 65 feet long measured from the tip of the bow in a straight line to the stern; or
    • designed to be propelled by paddle, oar or pole, such as canoes, paddleboats, kayaks, punts and inflatable boats and rafts.
    • lease or rent a powered boat that is 65 feet or shorter in length measured from the tip of the bow in a straight line to the stern.
    • buy separately electric motors and accessories, such as life jackets or ladders.

This tax is based on the boat's sales price, less any allowance for the trade-in of another boat.

If the seller does not collect the tax from you, you must pay the tax to the Comptroller's office using Form 01-156, Texas Use Tax Return (PDF). If you have a Texas sales and use tax permit, you can pay the tax due when you file your next sales and use tax return.

Boat and Boat Motor Tax ("Boat Tax")

You owe boat tax at 6.25 percent when you:

  • buy a powered boat that is 65 feet or shorter in length measured from the tip of the bow in a straight line to the stern including:
    • motorboats
    • sailboats
    • jet skis and
    • other motorized personal watercraft; and
  • buy a boat motor including:
    • outboard motors (gasoline or diesel); and
    • electric motors (such as trolling motors) attached to the boat and sold with the boat for one price.

This tax is based on the boat or boat motor's sales price, less any allowance for the trade-in of another boat or boat motor.

If the seller does not collect the tax, you must pay the tax when you title and register your boat with the Texas Parks and Wildlife Department (TPWD) or participating county tax assessor-collector's (CTAC) office.

Motor Vehicle Sales and Use Tax and Motor Vehicle Gross Rental Receipts Tax ("Motor Vehicle Tax")

You owe motor vehicle tax at 6.25 percent when you buy a boat trailer and register it with your CTAC office.

You owe motor vehicle gross rental receipts tax at 10 percent when you rent a boat trailer for 30 days or less.

Out-of-State Purchases and New Resident Tax

Based on the information above, you know whether your purchase is subject to sales tax, boat tax or motor vehicle tax. If you are a Texas resident who buys a boat in another state and brings it to Texas within one year of purchase, you owe the complementary use tax.

This is either:

  • state use tax at 6.25 percent plus up to an additional 2 percent local use tax, depending on your location; or
  • boat use tax at 6.25 percent.

You must report and pay the use tax you owe to the Comptroller's office using Form 01-156, Texas Use Tax Return (PDF). If you have a Texas Sales and Use Tax Permit, you can pay the tax on your next sales and use tax return. If you have paid tax to another state, you can receive credit for the tax paid. See Rule 3.338, Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers, for information about applying the credit and determining the use tax.

If you are a new Texas resident and you bring a boat or boat motor into Texas that you had registered in the other state, you owe the new resident's $15 boat use tax instead of the 6.25 percent boat use tax. You pay this when you title and register your boat with the TPWD or participating CTAC's Office.

Sales and Use Tax

Back-to-School Savings During the Annual Sales Tax Holiday (Clothing, Shoes and School Supplies) - Aug. 11-13, 2017

Since 1999, Texas shoppers have saved money during the annual sales tax holiday. This year's holiday begins Friday, Aug. 11, and goes through Sunday, Aug. 13.

During this weekend, you don't have to pay sales tax on certain school supplies, clothing, shoes, and backpacks priced under $100. You can also put items on layaway to take advantage of the savings.

As always, textbooks, computers and software are not exempt during this sales tax holiday weekend.

For more information, see Publication 98-490, Sales Tax Holiday/Tax-Free Weekend and Rule 3.365, Sales Tax Holiday – Clothing, Shoes and School Supplies.

Mobile Food Vendors

Food sold by mobile food vendors is generally taxable. A "mobile food vendor" is anyone who sells food from a motor vehicle, pushcart or any other type of vehicle. Other examples are taco wagons, snow-cone stands, hotdog carts and ice cream trucks. Even a simple tent set up at a craft fair to sell food is a mobile food vendor.

Food that is ready-to-eat, heated or sold with utensils is taxable. This includes many mobile favorites such as tacos, hamburgers, hot dogs and pizza. Soft drinks, candy and individual size snack items are also taxable.

Other taxable food items include food sold on a stick or in a bag such as:

  • kabobs
  • sausage on a stick
  • candy apples
  • corn dogs
  • popcorn
  • fried potatoes
  • nuts
  • ice cream
  • popsicles

Tax is also due on "exotic" state fair food items such as:

  • chicken-fried bacon
  • fried macaroni and cheese
  • fried cookie dough
  • fried Jell-O
  • fried butter
  • fried candy bars

Collecting Tax

Mobile food vendors must have a sales tax permit and must collect and remit the state and appropriate local sales and use taxes when operating in Texas. Mobile food vendors can either charge a "tax included" price or separately state the tax on each customer receipt, as long as the customer is aware how the tax is being handled.

If tax is included in the price, the mobile food vendor must post a sign stating that the price includes sales tax. The tax rate is 6.25percent up to 8.25 percent depending on the location. For more information, see Publication 94-105, Local Sales and Use Tax Collection – A Guide for Sellers (PDF).

Policy Memos

Franchise Tax Rate for Natural Gas Resellers

Under Texas Tax Code Section 171.002(c)(3), a taxable entity does not qualify for the reduced franchise tax rate if the taxable entity provides retail or wholesale utilities. The Comptroller's office has outlined the criteria for determining when a taxable entity does not provide retail or wholesale utilities for natural gas.

A taxable entity does not provide retail or wholesale utilities for natural gas if the entity:

  • buys and sells gas as a natural resource commodity;
  • is not a local distribution company; and
  • only sells utilities to industrial end users for raw input or fuel in the manufacturing process.

If a natural gas reseller does not provide retail or wholesale utilities, it may be eligible for the reduced franchise tax rate if it otherwise meets the criteria as primarily engaged in retail or wholesale trade.

See State Tax Automated Research (STAR) System letter 201608961L.

Private Letter Rulings

Sales and Use Tax

Taxability of Insurance Coverage Tracking Services
Jan. 31, 2017

A company has a contract with a loan underwriting company to provide insurance coverage tracking services. The service requires monitoring "Acceptable Insurance" (as defined within their Agreements) and processing insurance documents to determine whether borrowers have and maintain Acceptable Insurance that meets the loan company's standards and federal requirements.

The company requested guidance on the taxability of the insurance coverage tracking services.

The Comptroller's office found that the tracking/monitoring service does not fall within the definition of taxable data processing or insurance services and therefore is not taxable.

See State Tax Automated Research (STAR) System letter 201701013L.

Taxability of Equipment, Supplies and Services Used in Desalinating Water
Feb. 10, 2017

A water desalination company has a contract with a water utility company to construct and operate a water treatment facility to provide water treatment services and return potable water. The service removes salt and minerals from water streamed through a water treatment plant, a process called "desalination." The desalination company recovers salts and other minerals as byproducts of the desalination process and sells the byproducts without further processing.

The company asked if their purchases of equipment, services and supplies involved in the desalination process are exempt from Texas sales and use tax under the current water-related exemptions provided in Texas Tax Code Section 151.355(2).

The Comptroller's office found, because the desalination process removes the salts and other minerals from concentrate and brine water and returns the potable water without processing any byproducts during or after the process, this satisfies the "sole use" policy and the purchases of equipment, services and supplies are exempt under Texas Tax Code Section 151.355(2).

See State Tax Automated Research (STAR) System letter 201702008L.

Rules

Adopted

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

State and Local Sales and Use Tax

Rule 3.280 – Aircraft
Publication date – June 16, 2017
Effective date – June 19, 2017

Rule 3.292 – Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property
Publication date – June 16, 2017
Effective date – June 19, 2017

Rule 3.297 – Carriers, Commercial Vessels, Locomotives and Rolling Stock, and Motor Vehicles
Publication date – June 16, 2017
Effective date – June 19, 2017

Effective

State and Local Sales and Use Tax

Rule 3.293 – Food; Food Products; Meals; Food Service
Publication date – June 2, 2017
Effective date – June 5, 2017

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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