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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

July 2018

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...

Wayfair

Comptroller Glenn Hegar’s Initial Guidance on Supreme Court Decision

In a June 27, 2018, press release, Texas Comptroller Glenn Hegar provided initial guidance on the implications of the recent U.S. Supreme Court decision in Wayfair v. South Dakota, commonly referred to as Wayfair. As the Comptroller explained in that guidance, “We’re going to make sure we do this carefully, deliberately and with ample input from the public, the Legislature and the business community.” Comptroller Hegar also stressed there would be no retroactive application of the new law to remote sellers that have no physical presence in Texas. We will add that, until further notice, we will continue to follow the physical presence nexus standard and all related guidance we have issued.

“We’re looking forward to working with those affected businesses to ensure this is a smooth transition and a successful partnership,” Hegar said in the press release. In addition, we have prepared a memorandum summarizing the decision and outlining what future actions we anticipate undertaking in response to Wayfair.

Under our existing rulemaking authority, we have started reviewing rules that may need updating. For example, we expect to amend the relevant sales tax rules to establish an economic nexus standard for remote sellers based on sales, and possibly on the number of transactions, in order to avoid imposing an undue burden on interstate commerce. This newly established economic nexus standard will relieve some out-of-state sellers from collection responsibilities.

Early 2019 is the target effective date for rule amendments; however, that could change pending issues that arise during the rulemaking process. It is highly likely that the target effective dates for collection requirements by remote sellers will be later in 2019. We intend to meet regularly to solicit input from interested parties, including retailers, remote sellers, trade associations and the Comptroller’s Taxpayer Advisory Group and Business Advisory Group. We also will consult with local taxing entities on potential impacts to local collections and allocations.

We also expect the Texas Legislature to play an important role in addressing key issues when they return in January 2019. For example, we will suggest the Legislature review and amend Tax Code Sections 151.059 and 151.107(c) to trigger the application of these provisions, which provide for the imposition and collection of a fee in lieu of local sales and use taxes by remote sellers. This would greatly simplify the collection of local taxes for remote sellers.

The agency anticipates that the state and local governments will see tax collections increase, but the amount depends on the implementation and resolution of several significant issues raised by the Supreme Court’s ruling. Gains from the ruling are likely to be lower than previous estimates of taxes uncollected by remote sellers. In the past year, for example, some remote sellers have volunteered to collect in anticipation of the Wayfair decision or for other reasons. Wayfair, the named plaintiff in this case, already collects Texas sales and use taxes. More specific estimates will be available as the implementation and legislative process continues.

Western States Association of Tax Administrators (WSATA)

Join Us for the 2018 WSATA Conference in Austin

As a member of the Western States Association of Tax Administrators, Texas is proud to host the annual WSATA conference in Austin, Sept. 23-26, 2018, at the Sheraton Austin at the Capitol.

Visit the WSATA Conference website for more information about the conference and to register to attend.

Tax Training Resources

Podcasts and Webinars

The Comptroller’s office offers several training resources that provide in-depth information on tax topics that affect your business today. These include live and on-demand training sessions, as well as tax seminars.

Podcasts

Our office offers both quarterly podcasts as well as “Spotlight Podcasts.” Our quarterly podcasts are broken into in-depth segments that are specific to a single tax topic. Our shorter “Spotlight Podcasts” are single podcasts that highlight current tax happenings, such as upcoming holidays and due dates.

Our first quarter podcast, which covered reporting and paying sales tax, is available on our Tax Training Resources page under Podcast Archive.

We are in the process of producing our next quarterly podcasts, which will cover the following:

  • Introduction to Exempt Organizations
  • Educational Organizations
  • Religious Organizations
  • Charitable Organizations
  • Exemption Application and Processes

We are in the process of producing “Spotlight Podcasts” for the following topics:

  • Sales Tax Holiday (released in July)
  • PTAs and PTOs (released in August)
  • Booster Clubs (released in September)

Check our Tax Training Resources webpage for up to date podcast information.

Videos

Stay tuned for a contractor video series currently in production. The series will cover the basics for understanding terminology, and contractor’s and taxable service provider’s tax responsibilities.

Webinars

Our most recent webinar, “Motor Vehicle Taxes and Your Organization’s Responsibilities,” covered responsibilities of businesses, nonprofit organizations, associations and other legal entities when buying, selling, giving away or transferring ownership of a motor vehicle.

Visit our Tax Training Resources page to listen to the podcasts, to register for webinars and to view the Podcast and Webinar Archive sections for previous recordings.

Sales and Use Tax

Back-to-School Sales Tax Holiday – Tips for Sellers

Even if it seems as though school just let out for summer vacation, the annual sales tax holiday is right around the corner. Since 1999, Texas shoppers have saved money during the sales tax holiday in August. This year’s holiday begins Friday, Aug. 10, and goes through Sunday, Aug. 12.

Here we explain which items are exempt during this weekend, and instruct sellers on how to handle special situations, such as rain checks, advertising and tax reporting.

Qualifying Items

During this weekend, certain items priced under $100 are exempt from local and state sales tax, including school supplies, clothing, shoes and student backpacks. Your customers can also put items on layaway or use a rain check to take advantage of the savings.

Customers do not have to give you an exemption certificate, unless they buy school supplies using a business account or if the customer buys more than 10 backpacks as explained below.

These lists identify which items are exempt during the sales tax holiday:

Non-Qualifying Items

The following items do not qualify for exemption during the sales tax holiday:

  • textbooks
  • computers
  • software
  • clothing and footwear used primarily for athletic activities or for protective wear such as basketball uniforms, baseball cleats, football pads
  • clothing or footwear rentals
  • dry cleaning or laundry services
  • alterations (including embroidery)
  • items used to make or repair clothing, such as fabric, thread, yarn, buttons, snaps, hooks and zippers
  • jewelry, handbags, purses, briefcases, luggage, umbrellas, wallets, watches and other accessories

Backpacks

If you sell student backpacks (including backpacks with wheels and messenger bags), you can sell the ones priced under $100 without collecting tax.

You can sell up to 10 backpacks tax free at one time without requiring an exemption certificate (PDF) from the customer.

The following bags do not qualify for the exemption:

  • framed backpacks
  • luggage
  • briefcases
  • athletic, duffle or gym bags
  • computer bags
  • purses

School Supplies

Only specific school supplies you sell for less than $100 qualify for the exemption.

For kits of school supplies that contain both exempt and taxable items, the taxability of the kit depends on the cost of the exempt and taxable items in it. There is no limit on the number of school supplies in a kit, but if the cost of the exempt items is more than the taxable ones, the kit is exempt. If the cost of the taxable items is more than the exempt ones, the kit is taxable.

School Supplies Bought Using a Business Account – Exemption Certificate Required

If a customer buys qualifying school supplies from you using their business account, the customer must give you a properly completed exemption certificate (PDF).

“Under a business account” means the customer is:

  • using a business credit card or business check and not a personal credit card or personal check;
  • being billed under a business account you maintain; or
  • using a business membership, if you are a membership-based retailer.

Layaways and Rain Checks

During the tax holiday, your customers do not have to pay tax on qualifying items when they:

  • put qualifying items on layaway; or
  • make the final payment on something already on layaway.

Qualifying items that customers buy during the holiday weekend with a rain check are exempt regardless of when they received the rain check. If, however, a customer gives you a rain check during the holiday weekend, but pays for the qualifying item after the holiday, that item is not eligible for the exemption.

Advertising Non-Qualifying Items

During the holiday weekend, if you offer your own sales at the same time so shoppers can get the biggest bang for their buck, keep these guidelines in mind.

If you sell items that do not qualify for the sales tax holiday exemption, you cannot advertise that you will pay the sales tax for your customers or that you will not collect sale tax on non-qualifying items.

You can, however, advertise that tax is included in the sales price of the taxable items you sell.

Reporting Tax

When you report sales for the qualifying items you sold tax-free during the sales tax holiday, only include the amount in the Total Sales of your sales tax return. Do not include your tax-free sales in Taxable Sales.

If you sold qualifying exempt items and collected sales tax during the holiday, then you must remit it to our office.

More Information

Restaurants - Gift Cards, Coupons and Discounted and Complimentary Meals and Beverages

Selling and Redeeming Gift Cards

In Texas, when gift cards are sold or given away, the tax responsibilities of a gift card seller or donor are straightforward and simple. No taxes are due when a gift card is sold or given away because the card represents the gift card’s purchaser or receiver an intangible “right” to a future purchase.

When a cardholder redeems the card and uses it to pay for taxable goods or services, the seller of the goods or services (restaurant, bar, store, etc.):

  • collects the taxes due on the total amount charged for the taxable goods or services; and
  • reports and pays the collected taxes to the Comptroller’s office.

A gift card does not reduce the taxable sales price of the purchased goods or services.

If the taxable items sold are:

Note: The seller also owes the mixed beverage gross receipts tax on the sale of alcoholic drinks and their mixers.

Coupons and Discounted Meals and Beverages

When sellers issue coupons or give cash discounts on their prices for meals, soft drinks and mixed beverages, the seller of the taxable goods or services collects tax on the sales price after the coupon or discount has been subtracted.

This means the seller:

  • collects the taxes due on the item’s selling price, not its published retail price;
  • divides the collected taxes between the types of items sold:
  • reports and pays the collected taxes to the Comptroller’s office.

Complimentary Meals and Beverages

Complimentary (“comped”) meals and drinks (both soft drinks and mixed beverages) are not taxable to a customer receiving the comped item.

Because a comped item is not resold, the seller that is giving away the comped item owes and must report use tax on the cost of:

  • taxable ingredients used in preparing the comped food and drinks; and
  • other taxable items given away with a comped meal or drink.

This means a restaurant or bar comping a meal or drink does not owe use tax for the nontaxable food or food ingredients used in preparing a complimentary meal or drink, such as:

  • raw meat
  • vegetables
  • milk
  • fruit
  • fruit juice
  • water
  • other food items

Use tax is due on the cost of taxable ingredients and items used to prepare the comped drink or meal that were initially bought tax free under a manufacturing or resale exemption, such as:

  • soft drinks
  • liquor, beer and wine
  • ice
  • non-reusable items including:
    • eating utensils
    • napkins
    • drink umbrellas
    • straws and
    • take out containers

To correctly document complimentary meals and drinks, including any comped mixed beverages, the seller must be able to clearly identify through their books and source records (cash register tapes and service checks or tickets) which transactions are complimentary and which are taxable.

The seller should document all comped:

  • meals and other taxable items on its cash register tape as a nontaxable charge.
  • alcoholic drinks on its service checks the same as for a normal sale, but should mark them as complimentary.

When completing tax forms to report the tax, the seller must enter the:

  • actual cost of its taxable ingredients and items used to prepare the comped meal and or drink on its Texas Sales and Use Tax Return (PDF) in Item 3, “Taxable Purchases” to self-assess use tax, unless sales tax was paid to the supplier at the time of purchase; and
  • retail or normal (equivalent) “selling price” of its comped alcoholic drinks and mixers on its Texas Mixed Beverage Gross Receipts Tax Report (PDF) in Item 1, “Dollar amount (retail selling price) of complimentary drinks for this location.”

Note: While a seller reports its comped mixed beverages, including both its alcoholic drinks and mixers, on its Texas Mixed Beverage Gross Receipts Tax Report in Item 1, the comped drinks are subject to use tax, not the mixed beverage taxes. The amount reported on the Texas Mixed Beverage Gross Receipts Tax Report in Item 1 is reported for informational purposes only.

To correctly report the use tax for comped mixed beverages, the seller reports these as taxable purchases in Item 3 on its Texas Sales and Use Tax Report. The comped items are reported at the seller’s purchase price for the complimentary mixed beverages and non-reusable items given with the comped mixed beverages, including the cost of:

  • Bottled beer: This cost is calculated by multiplying the cost of the bottled beer by the number of bottles given away.
  • Complimentary draft beers: This cost is calculated by dividing the price of the keg by the number of servings in the keg, then multiplying by the number of draft beers given away.
  • Wine or liquor: This cost is calculated by dividing the number of servings per bottle into the price of the bottle and multiplying by the number of complimentary wines or mixed drinks.
  • Mixers (soft drinks, club soda, tonic water):This cost is calculated by dividing the amount used per drink into the price of the container and multiplying by the number of complimentary drinks.

For example, for a comped "rum and coke on ice" served with a napkin and straw, a restaurant or bar reports the cost of the:

  • rum
  • cola
  • ice
  • napkin
  • straw

More Information

Sales for Resale – A Field Guide for Texas Sellers

Part 5 – Reselling Cigarettes, Cigars and Tobacco Products; Alcohol for Mixed Beverages; and Manufactured Housing

In this month’s issue, we are introducing sale for resale transactions for cigarette, cigar and tobacco products; alcohol for mixed beverages; and manufactured housing. This is the last of our five-part series. Refer to the March 2018, April 2018, May 2018 and June 2018 Tax Policy News for the first four parts of this series.

Cigarettes, Cigars and Tobacco Products

Cigarettes, cigars and tobacco products are tangible personal property subject to tobacco taxes and fees and sales tax.

Tobacco taxes and fees are:

Guidelines

A permitted distributor who receives cigarettes, cigars and tobacco products for making a first sale in Texas must pay any applicable tobacco taxes and fees. Sales for resale of cigarettes, cigars and tobacco products are not exempt from tobacco taxes. Sales for resale of cigarettes, cigars and tobacco products are, however, exempt from sales tax.

Documentation

A permitted seller can claim the sale for resale exemption from sales tax when buying cigarettes, cigars and tobacco products by giving a resale certificate (PDF) to the seller.

Mixed Beverage Sales

A mixed beverage is any alcoholic beverage (beer, wine, ale or distilled spirits), or part of an alcoholic beverage, that someone with a Texas Alcoholic Beverage Commission (TABC) mixed beverage permit sells or serves to be consumed on their premises. An alcoholic beverage is any beverage containing more than one-half of 1 percent of alcohol by volume.

Guidelines

A mixed beverage is prepared for immediate consumption. As such, you cannot resell a mixed beverage. Since you cannot resell a mixed beverage, there is no sale for resale exemption from mixed beverage taxes.

Sales and use tax is due on alcoholic beverages that are purchased for resale from a grocery store, package store or other seller (not for immediate consumption).

Documentation

A TABC permitted seller can claim the sale for resale exemption from sales tax when buying alcoholic beverages that you will resell as-is or use in a mixed beverage by giving a resale certificate (PDF) to the seller.

To learn more, see Rule 3.1002, Mixed Beverage Sales Tax.

Manufactured Housing Sales

When a new manufactured home is sold, shipped or consigned in Texas, manufactured housing sales and use tax is due.

Guidelines

There is no sale for resale exemption from manufactured housing sales and use tax, even when the buyer intends to resell it.

The sale of repair parts or accessories for manufactured homes are subject to sales tax when sold separately.

Documentation

If you have a sales tax permit, you can give the seller a resale certificate (PDF) to purchase separately sold repair parts or accessories for a manufactured home.

To learn more, see Rule 3.481, Imposition and Collection of Manufactured Housing Tax.

Ruthie’s Story (continued from Part 4)

You may remember that Ruthie runs a café in her hometown where she sells food, drinks and gift items, such as hats and t-shirts. Last month, Ruthie had a customer appreciation event to celebrate her business success.

After several customers requested alcoholic beverages with their meals, Ruthie decided to obtain a mixed beverage permit from the TABC so that she can purchase and sell alcoholic beverages for consumption in her café. She visits the local liquor distributor (package store) to purchase alcoholic beverages for resale. Ruthie does not have to provide a resale certificate to the package store because sales of alcoholic beverages from package stores are presumed to be for resale. See Rule 3.289 - Alcoholic Beverage Exemptions.

We thank you for reading Ruthie’s Story and would like to end this story with a round of applause for Ruthie’s success! Her business continues to thrive and she maintains tax compliance for all tax responsibilities.

Rules

Proposed

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

General Rules

Rule 3.15 – Penalty for Fraud, Intent to Evade Tax or the Alteration, Destruction, or Concealment of Records
Publication date – July 13, 2018
Comment period end date – Aug. 12, 2018

Adopted

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

Franchise Tax

Rule 3.598 – Margin: Tax Credit for Certified Rehabilitation of Certified Historic Structures
Publication date – June 29, 2018
Effective date – July 2, 2018

State and Local Sales and Use Taxes

Rule 3.336 – Currency, Certain Coins, and Gold, Silver, and Platinum Bullion
Publication date – July 6, 2018
Effective date – July 12, 2018

Rule 3.364 – Services by Employees
Publication date – June 29, 2018
Effective date – July 3, 2018

STAR Watch

Monthly Updates

To see the latest items added to our State Tax Automated Research (STAR) system, use the “New Documents” link on the STAR home page in the right-hand column. This will access the Monthly Updates Search Form.

The Monthly Updates Search Form defaults to the current month and “All Taxes.” Use the pull-down menu to choose a different month or a particular tax. Selecting “All Taxes” brings up the documents organized by tax type.

More Information

Help is just a click away! Use our website to take care of business.

Taxes

The Taxes webpage has links to:

  • all Texas taxes and fees
  • resources for taxpayers
  • filing and paying taxes
  • tax laws and rules
Taxpayer Seminars and Videos

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

Our Video Library has online tutorials on tax-related topics as well as information about our office.

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.

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.

We support: