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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

May 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

Franchise Tax

Franchise Tax Annual Report – Due May 15

Your business's annual franchise tax report is due May 15, 2017. You must file a report, even if no tax is due.

If you need more time to file, submit a franchise tax extension request on or before May 15. Generally, for an extension to be valid, 100 percent of the tax paid in the previous year, or 90 percent of the tax that will be due with the current year's report, must be paid on or before the original due date of the report.

We have changed our policy on extension payment requirements for combined groups. Combined groups can now use the 100 percent tax due extension option regardless of any changes to the combined group including adding a new member.

If you do not file your report or an extension request on or before May 15, you will owe a $50 late filing penalty.

You need the Webfile number assigned to your business to file your report electronically. This number was included in the notice our office mailed in January and February. If you cannot find your Webfile number, you can contact us at 800-442-3453 24 hours a day, seven days a week. This automated system provides a Webfile number once you provide confidential information from a previously filed report.

In addition to Webfile, you can use an approved third-party software provider listed on our website to file your franchise tax report.

If you prefer to file by mail, send your report to:

Texas Comptroller of Public Accounts
P.O. Box 149348
Austin, TX 78714-9348
Insurance Tax

Annual Independently Procured Insurance Premium Report - Due May 15

The Comptroller's office mailed the 2016 independently procured insurance report forms the first week of April. The annual independently procured insurance premium tax report (PDF) and supplement (PDF) are due May 15.

To qualify as independently procured insurance, the insured must obtain a policy of insurance directly from a non-admitted insurer and must not use the services of an agent or broker in the procurement of coverage.

If a Texas licensed surplus lines agent is involved in the placement of the insurance, then the policy is surplus lines insurance, and the agent must collect the premium tax from the insured when Texas is the home state. The annual surplus lines premium tax report (PDF) was due on March 1.

If the policy is not independently procured insurance or surplus lines insurance, then it may be unauthorized insurance. The annual unauthorized insurance premium tax report (PDF) and supplement (PDF) were due on March 1.

Motor Vehicle Sales and Use Tax

Taxable Value in a Private-Party Sale

When someone buys a used motor vehicle from a private-party, they owe motor vehicle sales and use tax on their purchase.

A "used motor vehicle" is any motor vehicle that has been sold at least once; a "private-party" is someone who is not a motor vehicle dealer.

Buyers owe motor vehicle sales tax when both the buyer and the private-party seller are in Texas. Buyers owe motor vehicle use tax when they are in Texas, but the private-party seller is located out of state. The tax rate for both motor vehicle sales and use tax is 6.25 percent of the taxable value of the vehicle.

Texas county tax assessor-collectors collect tax on a used motor vehicle's taxable value in a private-party sale when the buyer titles and registers the vehicle.

Use the guidelines below to determine the taxable value of a used motor vehicle involved in a private-party transaction.

Used motor vehicles less than 25 years old

The taxable value for the motor vehicle is the greater of:

  • the amount the buyer paid for the vehicle (also called the sales price); or
  • 80 percent of the standard presumptive value (SPV) for the motor vehicle.

If the buyer provides a certified appraisal for the motor vehicle, the taxable value is the greater of:

  • the sales price; or
  • the certified appraised value.

The appraisal must be completed by a motor vehicle dealer or insurance adjuster and certified using Form 14-128, Texas Used Motor Vehicle Certified Appraisal Form.

Used motor vehicles 25 years old or older

For a used motor vehicle that is more than 25 years old, tax is based on the sales price. If the sales price is unknown, its taxable value must be established.

The taxable value can be established by having the motor vehicle appraised by someone who has knowledge of the motor vehicle, such as a motor vehicle dealer or insurance adjuster. The appraisal is not required to be certified on Form 14-128.

For more information, see Publication 96-254, Motor Vehicle Tax Guidebook (PDF).

Sales Tax

Two Sales Tax Holidays During Memorial Day Weekend

The annual ENERGY STAR and Water-Efficient Sales Tax Holidays both begin Saturday, May 27 and run through Monday, May 29 (Memorial Day weekend).

ENERGY STAR Sales Tax Holiday

During this sales tax holiday only the following energy-efficient products with the ENERGY STAR logo can be purchased tax free.

  • air conditioners (with a sales price of $6,000 or less)
  • refrigerators (with a sales price of $2,000 or less)
  • ceiling fans
  • incandescent and fluorescent light bulbs
  • clothes washers
  • dishwashers
  • dehumidifiers
  • programmable thermostats

Additional charges, such as delivery, shipping and handling fees, are considered a part of the sales price.

For example, if you buy a refrigerator for $1,950 with a delivery fee of $200, the total sales price is $2,150 (over the $2000 limit), and this item no longer qualifies for exemption.

For more information, see Publication 96-1331, Energy STAR Sales Tax Holiday, Rule 3.369, Sales Tax Holiday--Certain Energy Star Products and Texas Tax Code Section 151.333, Energy Efficient Products.

Water-Efficient Products Sales Tax Holiday

During this sales tax holiday, you can buy certain water-efficient and water-conserving products tax-free.

The exemption includes:

WaterSense products that display a label or logo, such as:

  • sink faucets
  • high-efficiency toilets
  • showerheads

Water-conserving products when purchased for residential use to:

  • conserve or retain ground water;
  • recharge water tables; or
  • decrease ambient air temperature (limiting water evaporation).

Examples of water-conserving products include:

  • soaker or drip-irrigation hoses
  • moisture controls for a sprinkler or irrigation system
  • mulch
  • rain barrels
  • permeable ground cover surfaces that allows water to reach underground basins, aquifers or water collection points
  • plants, trees and grasses
  • water-saving surfactants
  • soil and compost

WaterSense products can be purchased for business purposes and residential use. Therefore, contractors, landscapers and other service providers can buy WaterSense products tax free to keep in inventory.

Water-conserving products can only be bought for personal residential use. Since the exemption does not apply to water-conserving products used for business, lump-sum contractors cannot buy water-conserving products tax free to keep in inventory until ready for use in new or existing residential property or in new commercial property. Lump-sum contractors must continue to pay tax on these items.

Service providers repairing and remodeling commercial property, and all separated contractors, must give a resale certificate to the seller for water-conserving products bought during the holiday period.

For more information, see Publication 98-1018, Water-Efficient Products Sales Tax Holiday, Rule 3.369, Sales Tax Holiday – Certain Water-Conserving Products, and WaterSense Products and Texas Tax Code Section 151.3335, Water-Efficient Products, Sales Tax.

Year-Round Water-Related Exemptions

Water is essential for all life and plays a critical role in the world's economy. In 2014, Texans used an estimated 13.70 million acre-feet (1 acre-foot = 325,851 gallons) of water for irrigation, manufacturing, power, livestock, mining, drinking and more. Conservation is the easiest way to make sure Texas has enough water in the future, and is an essential part of Texas' State Water Plan.

In addition to the Water-Efficient Products Sales Tax Holiday, other water-related exemptions are available year-round for certain equipment, supplies and services used for water conservation. To qualify for exemption, items can only be used to save water and, in some cases, the person buying the items must meet certain requirements. When selecting water-saving equipment and supplies, keep in mind that items can only qualify for the year-round water-related exemptions when they are used solely for water conservation (such as a water dam for a toilet). In most cases, items that may conserve or enhance water availability but also perform some other function (such as a low-flush toilet) do not qualify.

Both individuals and businesses can take advantage of these water-related exemptions, but they must give sellers Form 01-339 (Back), Texas Sales and Use Tax Exemption Certification (PDF) when buying qualified items.

Below is a closer look at the water-related exemptions that are available year-round for equipment, supplies and services used for water conservation.

Brush Control Services

Brush control services is the selective controlling, removing or reducing of noxious mesquite, prickly pear, salt cedar or other deep-rooted woody plants from watershed rangelands to enhance water availability. A brush control service that increases the availability of water is not a taxable service.

Equipment and supplies can be bought tax free with an exemption certificate when they will be used solely for brush control that increase water availability. Services to repair qualifying equipment are also exempt.

Examples of equipment and supplies that can qualify include:

  • aerial sprayers
  • batteries for qualifying equipment
  • bulldozers
  • chains
  • crawler tractors
  • grass seed
  • herbicides
  • hydro axes
  • oil for qualifying equipment
  • roller choppers
  • root plows
  • sling blades

Desalination

Desalination is the process of removing salts from undrinkable or brackish surface or groundwater to obtain useable fresh water or high-quality drinking water. Equipment, services or supplies used solely for desalination qualify for exemption.

Examples of equipment and supplies that can qualify include:

  • cleaning and pickling valves
  • filters
  • high-pressure control valves
  • membranes
  • pre-filter pumps
  • product flow meters
  • reverse osmosis systems
  • salinity meters

Precipitation Enhancement

Precipitation enhancement is a group of activities that artificially induce rain clouds to produce rain, such as cloud seeding.

Purchases of equipment, services and supplies used solely for precipitation enhancement are exempt from sales tax.

Examples of equipment and supplies that can qualify include:

  • acetone solution wing-tip generators
  • calibration equipment
  • end-burning cloud-base flares
  • pressure transducers
  • spectrometer probes

Reducing or Eliminating Water Use

Items used solely to reduce or eliminate water use qualify for exemption. As with each exemption discussed in this article, items must be used only for a qualifying activity in order to qualify. Items that are or that can be used for anything else do not qualify for exemption.

Examples of equipment and supplies that can qualify include:

  • aerators for faucets
  • faucet sensors that shut off water flow
  • rain sensors for sprinkler systems
  • timers attached to sprinkler systems
  • water dams for toilets
  • water displacement devices for toilet tanks

The following examples do not qualify for this exemption and are taxable. Although the items can help save water, they are not used solely to reduce or eliminate water use:

  • artificial turf
  • drip irrigation systems
  • drought-resistant plants
  • landscaping tools and materials
  • low-flow shower heads
  • low-flush toilets
  • pool covers
  • timers/control panels for sprinkler systems
  • water and soaker hoses
  • xeriscaping

Rainwater Harvesting

Certain items used only for capturing and storing rainwater are exempt from sales tax.

Rainwater collection, filtration and purification equipment and supplies qualify for the exemption. Sprinkler systems and piping or plumbing used to distribute water inside a structure are not considered rainwater harvesting equipment and are not exempt from sales tax.

Examples of equipment and supplies that qualify for this exemption include:

  • a collection surface area (water catchment area) that is not used as a roof of a structure or storage area, unless the structure or storage area is also used solely for rainwater harvesting
  • filtration and water purification equipment and supplies used to treat rainwater for use
  • gutters and downspouts used solely to route the water into rain barrels or rainwater collection systems tanks and cisterns
  • rain barrels
  • roof washers/flush diverter used in a harvesting systems
  • screens and filters for the gutters, barrels, tanks, cisterns and roof washers

The following examples do not qualify for this exemption and are taxable. Although the items can help harvest rainwater, they are not used solely to capture and store rainwater:

  • construction supplies for stands or slabs used for barrels, tanks or cisterns
  • piping, plumbing and sprinkler systems used for water distribution
  • pressure tanks
  • pumps

Water Recycling and Reusing – Graywater Systems

Systems that recycle and reuse water from bathroom sinks, showers, bathtubs and clothes washers are often referred to as "graywater" systems. Graywater systems are typically used to recycle water for reuse in certain non-potable outdoor activities.

Pipes, pumps or other equipment or supplies (such as chemicals, tanks and cisterns) and recycling systems used solely for water recycling qualify for this exemption.

Water or Wastewater System

Equipment, services and supplies used to construct or operate a water or wastewater system certified as a regional system by the Texas Commission on Environmental Quality (TCEQ) qualify for the exemption. The exemption also covers a water supply or wastewater system by a private entity as a public-private partnership. The partnership must be certified by the political subdivision that is a party to the project.

See Sales Tax Rule 3.318, Water-Related Exemptions and Publication 94-123, Water and Wastewater Systems (PDF).

Policy Memos

Sales and Use Tax

Sale of Home Warranty Service Contracts and Repairs under the Contracts

An internal audit memo issued in January 2017, discusses the taxability of the sale of home warranty service contracts and repairs performed under the warranty contracts.

The memo discusses warranty contracts that:

  • cover tangible personal property such as washers, dryers and refrigerators;
  • cover real property, appliances permanently affixed to the home, such as a central air conditioner; and
  • cover both real and tangible personal property.

The memo also discusses lump-sum and separated contracts when the warranty involves real property or a combination of real and tangible personal property.

Nonresidential real property warranty contracts are not addressed in this memo.

Warranty contracts covering only tangible personal property

The charge for a warranty contract covering only tangible personal property is taxable.

The seller of an original warranty contract (i.e., prepaid services) covering only tangible personal property must collect sales tax from the purchaser at the time of sale. The seller must also collect tax on any subsequent fees the purchaser is required to pay under the contract, including diagnostic fees, service fees and trip charges.

When the seller of a warranty contract covering only tangible personal property subcontracts with a third party (repairperson) to perform services, the repairperson is selling taxable services. The seller of the warranty contract can give a resale certificate to the repairperson instead of paying tax because tax was paid on the warranty contract.

Warranty contracts covering only residential real property

The charge for a warranty contract covering only residential real property repair is not taxable.

The seller of a warranty contract covering residential real property should not collect tax on the sales price of the warranty contract or on any subsequent fees the purchaser must pay under the warranty contract, including diagnostic fees, service fees and trip charges.

Whether the seller of a warranty contract covering residential real property owes tax on the purchase of residential real property repairs depends on the type of contract between the seller and the third-party contractor. A lump-sum charge for the residential real property repair is not taxable. Although the seller of the warranty contract does not owe any tax, the contractor owes tax on all the taxable items purchased or rented to complete the job, including incorporated materials.

If the contract separately states amounts for repair labor and incorporated materials, then the seller of the warranty contract owes tax on the separate charge for incorporated materials. In that case, the contractor can purchase the incorporated materials tax free by giving a resale certificate to vendors.

Warranty contracts covering real property and tangible personal property

A lump-sum charge for a warranty contract covering both residential real property and tangible personal property repair is not taxable.

The seller of a warranty contract covering both residential real and tangible personal property for a lump-sum charge should not collect tax on the sales price of the warranty contract at the time of sale or on any subsequent fees the purchaser is required to pay under the warranty contract, including diagnostic fees, service fees or trip charges.

When tangible personal property covered under a lump-sum warranty contract for real and tangible personal property is repaired, the seller of the warranty contract must pay tax on the repair services and cannot use a resale certificate instead of paying tax.

If a warranty contract has separate charges for the coverage of residential tangible personal property and real property, then treat the charge for the coverage and repairs under the contract of the:

  • tangible personal property as explained above under "Warranty contracts covering only tangible personal property" and
  • real property as explained above under " Warranty contracts covering only residential real property."

See State Tax Automated Research (STAR) System letter 201701001L.

Public Notice

Service Animals and Their Access to Public Places

As a public service to Texas businesses, the Comptroller's office is helping spread the word about trained service animals used by people with disabilities and their right to access public places.

Texas law and the federal Americans with Disabilities Act (ADA) guarantee the right of a disabled person, including a person with post-traumatic stress disorder (PTSD), to be accompanied by a trained service animal in all public places.

These public places are businesses that are generally open to the public and that fall into one of 12 categories listed in the ADA, such as restaurants, movie theaters, schools, day care facilities, recreation facilities and doctors' offices.

For a complete description, see Information about Service Animals and Their Access to Public Places on the Texas Workforce Commission website.

Rules

Proposed

The Comptroller's office proposed the following rules for public comment in the April 21, 2017 Texas Register. The comment period ends May 21, 2017.

General Provisions, Chapter 1, Subchapter A, Division 1

Chapter 1, Subchapter A, Division 1

Rule 1.18 – Filing Documents
Rule 1.28 – Comptroller's Decisions and Orders
Rule 1.29 – Motion for Rehearing
Rule 1.31 – Computation of Time
Rule 1.32 – Service of Documents on Parties
Rule 1.39 – Dismissal of Case
Rule 1.4 – Representation and Participation
Rule 1.41 – Ex Parte Communications
Rule 1.8 – Resolution Agreements

Repeals

Rule 1.18 – Filing of Documents
Rule 1.28 – Comptroller's Decision
Rule 1.29 – Motion of Rehearing
Rule 1.31 – Computation of Time
Rule 1.32 – Service
Rule 1.39 – Dismissal of Case
Rule 1.41 – Ex Parte Communication

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

Franchise Tax

Rule 3.585 – Margin: Annual Report Extension
Publication date – May 5, 2017
Comment period ends – June 4, 2017

Insurance Tax

Rule 3.834 – Volunteer Fire Department Assistance Fund Assessment
Publication date – May 12, 2017
Comment period ends – June 11, 2017

State and Local Sales and Use Taxes

Rule 3.285 – Resale Certificates; Sales for Resale
Publication date – May 12, 2017
Comment period ends – June 11, 2017

Adopted

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

Motor Vehicle Sales Tax

Rule 3.74 – Seller Responsibility
Publication date – May 12, 2017
Effective date – May 18, 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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