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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

October 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...

Hurricane Harvey Disaster-Related Topics

Filing Extension Requests

The Comptroller’s office is granting businesses located in the federally declared disaster area in Texas that are not required to report (file) electronically an automatic 30-day extension to complete the following sales and use tax reports:

  • August monthly reports due Sept. 20
  • Quarterly reports due Oct. 20

Taxpayers are not required to report electronically if they paid less than $50,000 in sales and use tax in the preceding state fiscal year (Sept. 1 to Aug. 31). Taxpayers located in the federally declared disaster area in Texas who are not required but choose to report electronically will also receive the automatic extension.

Taxpayers required to electronically report sales and use tax and taxpayers reporting other tax types may request a 30-day extension of time to file if located in the federally declared disaster area by calling the Comptroller's Taxpayer Services line at 800-252-5555 or emailing ExtensionRequests@cpa.texas.gov. In the email request or on the phone, please provide the following information:

  • taxpayer name;
  • taxpayer number;
  • name of person making request;
  • phone number or email of person making request;
  • tax type(s) for which extension is requested; and
  • affected filing period(s).

These types of extension requests are handled on a case-by-case basis. Please refer to our Frequently Asked Questions on the disaster information webpage for the most up-to-date information on disaster-related filing extensions.

Hotel Occupancy Tax

Hotel Tax Waiver

The collection of Texas state and local hotel occupancy tax, including venue project hotel tax, is temporarily suspended for disaster relief workers and people displaced by Hurricane Harvey. The hotel tax waiver is for a period beginning Aug. 23, 2017, and ending Oct. 23, 2017.

To Claim the Exemption

Hurricane Harvey victims and relief workers should complete a Form 12-302, Texas Hotel Occupancy Tax Exemption Certificate (PDF). Hotel managers should mark the “Exempt by Other Federal or State Law” box and write “Hurricane Harvey” anywhere on the form.

Tax Waiver Not Requested

If a person or organization that qualifies for the tax waiver does not request the exemption and purposefully pays tax to the hotel, the hotel should collect the tax. The hotel must report the room receipts as taxable room receipts and remit the tax to the state.

Refund Requests

For Hurricane Harvey victims and relief workers who paid hotel tax, refund requests should be made to the hotel that collected the tax. After refunding the tax, the hotel can adjust taxable receipts on a current return to take credit for the refund. The hotel can also complete Form 00-985, Assignment of Right to Refund (PDF), which is for state hotel tax only.

Sales Tax

Purchases Made With FEMA, Red Cross or Salvation Army Debit Cards

Except as noted below, items and services you buy with a FEMA, Red Cross or Salvation Army debit card or voucher are exempt from sales and use tax. Tax is due on any amount of the purchase that is paid with cash, personal credit/debit card or other personal funds, even if the funds were given by one of these organizations.

Ready-to-eat food is also exempt when purchased with a FEMA, Red Cross or Salvation Army debit card or voucher.

For information about sellers’ responsibilities when accepting these cards or vouchers, see the Sales Tax Frequently Asked Questions on our disaster relief webpage.

This exemption does not apply to purchases of motor vehicles, alcohol products and tobacco products made with a FEMA, Red Cross or Salvation Army debit card or voucher.

Repairing Property Damage

You can claim exemption from sales tax on the following labor charges by giving the seller an exemption certificate (PDF). The certificate must give the reason for claiming the exemption; for example, "Repair of damaged tree due to a declared natural disaster in Panola County."

  • Nonresidential real property with separately stated labor charge: Purchasers can claim a sales tax exemption from separately stated labor charges to repair or restore nonresidential real property damaged by the disaster. (Labor to repair residential real property is not taxable.)
  • Nonresidential real property billed lump-sum (one charge): If the service provider charges a lump-sum charge, the charge is presumed to be taxable. However, the service provider can overcome this presumption (even after the service is completed) by accepting an exemption certificate and then separately stating the charge for labor from the charge for incorporated materials so that the service provider can refund the sales tax collected on the charge for labor.
  • Personal property: Purchasers can claim an exemption from sales tax on charges for labor to repair or restore items damaged by a declared natural disaster, including furniture and other items of tangible personal property. The exemption can also be claimed on costs to launder or dry clean damaged clothing or other items.
  • Trees: Purchasers can claim an exemption from sales tax on labor charges for cutting down damaged branches or cutting up a damaged tree. Charges for hauling away branches, limbs or trees are taxable waste removal services. Charges for nontaxable services should be separately stated from charges for taxable services. A lump-sum charge for taxable and nontaxable services will be presumed taxable if the taxable portion is greater than 5 percent of the total bill.

Franchise Tax

New Veteran-Owned Businesses

Are you a veteran who has recently formed a Texas business or is thinking about starting one? Your new business may not have to pay franchise tax for its first five years. Instead, you just file Form 05-163, Texas Franchise Tax No Tax Due Report for each of those years.

How to Qualify

To qualify, your business must:

  • be an entity formed or organized in Texas on or after Jan. 1, 2016, and before Jan. 1, 2020;
  • be 100 percent owned by a natural person or persons, with each owner being an honorably discharged veteran from a branch of the U. S. Armed Services;
  • for each owner, obtain a Letter of Verification of Veteran’s Honorable Discharge issued by the Texas Veterans Commission (TVC); and
  • submit to the Secretary of State or the Comptroller’s office the required paperwork as shown on our New Veteran-Owned Businesses and Texas Franchise Tax webpage.

What Happens if Your Business No Longer Qualifies

If, at any time during the first five years, your business no longer meets all the requirements:

  • you must notify the Comptroller’s office; and
  • your business becomes subject to franchise tax.

More Information

Motor Vehicle Sales and Use Tax

Selling a Motor Vehicle – Changes to the Signature Requirement for the Texas Title and/or Registration Application

Filling out all the required forms can seem like a daunting task when you’re trying to sell your vehicle, but thanks to recent law changes, many sellers will have one less thing to worry about when completing Form 130-U, Application for Texas Title and/or Registration.

Meeting the No-Signature Conditions

Starting Sept. 1, 2017, the seller of a motor vehicle is not required to sign the title/registration application if both of the following conditions are met:

  1. The seller cannot be a motor vehicle dealer who has a general distinguishing number issued by the Texas Department of Motor Vehicles (TxDMV). Dealers will continue to sign the application on all motor vehicle sales.
  2. On the motor vehicle’s certificate of title, the current owner (seller) must sign and print their name in the space provided, and the seller must disclose the motor vehicle’s odometer reading at the time of sale, unless the vehicle is exempt from the odometer disclosure requirement.

More Information

Sales And Use Tax

Sales of Alcoholic Beverages on Passenger Buses

We updated the Legislative Update to clarify sales of alcoholic beverages on passenger buses.

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.

House Bill 3101, passed by the 85th Legislature:

  • 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.

Policy Memos

Franchise Tax

Policy Change – Treatment of Net Losses from the Sale of Investments and Capital Assets in Apportionment

We have revised the policy regarding the treatment of net losses from the sale of investments and capital assets in calculating gross receipts for apportionment purposes.

Under the revised policy, a net loss from the sale of all investments and capital assets is not included in gross receipts everywhere, and a net loss from the sale of all Texas investments and Texas capital assets is not included in Texas receipts. An overall apportionment factor of greater than one is not allowed.

To calculate gross receipts everywhere, all gains and losses from all sales of investments and capital assets within the accounting period are added together to determine the net gain or net loss. If the combination results in a net loss, the entity’s gross receipts everywhere for the sale of investments and capital assets is zero. If the combination results in a net gain, the entity’s gross receipts everywhere for the sale of investments and capital assets is the net gain.

If the entity has Texas and out-of-state sales of investments and capital assets, a separate calculation is made to determine Texas receipts by adding together Texas gains and losses. If the combination of Texas gains and losses results in a net loss, the entity’s Texas receipts for the sale of investments and capital assets is zero. If the combination of Texas gains and losses results in a net gain, the Texas net gain is reported as Texas receipts.

For a combined group, all gains and losses from the sale of investments and capital assets for all members of the combined group are added together to determine the net gain or net loss.

The revised policy is effective for all open periods within the statute of limitations. Rule 3.591, Margin: Apportionment, and any other Comptroller’s office guidance will be amended to reflect this revised policy.

See State Tax Automated Research (STAR) System letter 201707002L.

Policy Changes – Temporary Credit for Business Loss Carryforwards

We revised two policies related to the temporary credit for business loss carryforwards (the credit).

Previous Policy 1

The election to claim the credit must be made annually on a timely filed report. The credit is lost and cannot be carried over to a subsequent year if the report on which the election is made is not timely filed.

Revised Policy 1

Under the revised policy, once a taxable entity has preserved the credit and taken the credit on a timely filed report, the taxable entity can claim the credit on any subsequent report, even if the subsequent report is not timely filed.

Accordingly, for report years after the credit is taken on a timely filed report, a taxable entity can amend these reports to take a credit that was not previously claimed or allowed on a late-filed report, if the report year is within the statute of limitations. If the report year is beyond the statute of limitations, a taxable entity can carry over the credit that was not previously claimed or allowed on a late-filed report.

Credits for report years before the report year in which the taxpayer claimed the credit on a timely filed report are lost.

If a taxable entity files an EZ report, the credit is still lost and no carryover is allowed for that report year – this has not changed.

Previous Policy 2

When a member entity leaves a combined group, the combined group cannot claim any of the entity’s credit on the report that is based upon the accounting period in which the entity leaves.

Revised Policy 2

If a member entity leaves a combined group during the accounting period on which a report is based, the combined group can claim, subject to credit limitations, the departing member’s entire amount of credit and the member’s entire available credit carryover for that report year.

For subsequent reports, the departed member’s credit is no longer available to the combined group, and the combined group’s credit carryover must be adjusted to remove the portion of carryover related to the departed member.

A combined group can file an amended franchise tax report to claim the credit of a member entity that left the combined group, within the statute of limitations.

Rule 3.594, Margin: Temporary Credit for Business Loss Carryforwards, and any other Comptroller’s office guidance will be amended to reflect these revised policies. Comptroller’s Decision No. 109,446 (2015) will be superseded.

See State Tax Automated Research (STAR) System letter 201706006L.

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.

The MTC is accepting applications for this program 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 contacts 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.

Rules

Proposed

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

Franchise Tax

Rule 3.588 – Margin: Cost of Goods Sold
Publication date – Sept. 29, 2017
Comment period ends – Oct. 29, 2017

Motor Vehicle Sales and Use Tax

Rule 3.72 – Trailers, Farm Machines, and Timber Machines
Publication date – Oct. 6, 2017
Comment period ends – Nov. 5, 2017

Adopted

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

Franchise Tax

Rule 3.585 – Margin: Annual Report Extension
Publication date – Oct. 6, 2017
Effective date – Oct. 11, 2017

More Information

Our website is the main source of information about Texas taxes for everyone. The links below take you to specific webpages to help individuals, businesses and practitioners take care of business, from updating contact information to how to report tax. Help is just a click away!

Taxes

The Taxes webpage has links to:

  • all Texas taxes and fees
  • resources for taxpayers
  • filing and paying taxes
  • tax laws and rules
Practitioners’ Corner

The Practitioners’ Corner is a one-stop resource for information about filing and paying taxes, links to tax research sources and searchable databases.

Taxpayer Seminars and Videos

We host free taxpayer seminars across the state about the tax responsibilities of buyers, sellers and service providers.

Our Webfile How-To Videos show you step-by-step how to file and pay taxes online.

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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