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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 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...

Reminders

Fireworks Sales

Fireworks Sales – June 24-July 4

Retailers can legally sell fireworks from June 24 through July 4 in counties where the county commissioner’s court has approved fireworks sales. Fireworks retailers must have a sales tax permit and must collect applicable state and local sales and use taxes on their sales.

Sales Tax Holiday (Back to School)

Time for Back-to-School Savings - Aug. 10-12

Get ready for back-to-school savings during the annual tax-free weekend, Aug. 10–12, 2018. During this time, shoppers won’t pay tax on certain school supplies, clothing, footwear and backpacks priced under $100.

As always, textbooks, computers and software are not exempt during this tax-free weekend.

For details on what can be purchased tax free, see Sales Tax Holiday/Tax-Free Weekend.

More Information
Volunteer Fire Department Assistance Fund Assessment Billing Due Aug. 1

The Comptroller’s office mailed the billings for the Volunteer Fire Department Assistance Fund Assessment at the end of May, and the assessment is due Aug. 1, 2018. See the Volunteer Fire Department Assistance Fund Assessment webpage 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.

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.

The Texas Tax Amnesty Program

The Texas Tax Amnesty Program Continues Through June 29, 2018

The Texas Tax Amnesty Program provides, under certain circumstances, delinquent taxpayers with relief from penalty and interest on tax due. Tax amnesty applies to periods before Jan. 1, 2018, and only includes penalty and interest on liabilities that have not been previously reported to the Comptroller’s office. If a taxpayer has been notified that a period or periods are scheduled for an audit review or if they are already under audit review, then those periods are not eligible for amnesty. Additionally, the amnesty does not apply to IFTA taxes, PUC gross receipts assessments, local motor vehicle tax, and unclaimed property payments.

The Texas Tax Amnesty Program began on May 1, 2018, and lasts through June 29, 2018. For more information, including frequently asked questions about the program, please visit the Tax Amnesty webpage.

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.

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.

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 tax 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 second quarter 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 (available in July)
  • PTAs and PTOs (available in Aug.)
  • Booster Clubs (available in Sept.)

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. The webinar recording will be available soon on our Tax Training and Resources webpage.

Sales for Resale – A Field Guide for Texas Sellers

Part 4 – Sales for Resale of Aircraft, Batteries, Boats and Boat Motors

In this month’s issue, we introduce the fourth of a five-part guide about sales for resale transactions as they apply to aircraft, batteries, boats and boat motors. Refer to the March 2018, April 2018 and May 2018 Tax Policy News for the first three parts of this series.

Aircraft

Aircraft are tangible personal property (TPP) subject to limited sales and use tax, but there are special rules for sales for resale of aircraft that do not apply to reselling other TPP.

Guidelines

A “sale for resale” of an aircraft is the sale, lease or rental of an aircraft to a person who acquires it for:

  • leasing, renting or reselling to another person; or
  • transferring operational control of the aircraft to one or more persons under one or more written lease agreements in exchange for a fixed, variable or periodic consideration.

An aircraft purchased for lease or rental qualifies as a sale for resale if the following conditions are met for one year, starting on the day of purchase:

  • the aircraft is leased under a written agreement(s) for consideration;
  • more than half of its departures are made by someone (lessee) other than the buyer; and
  • the aircraft’s lessee has operational control of the aircraft.
Documentation

You can sell, lease or rent an aircraft, aircraft engine or component part tax free to a customer who gives you a resale certificate (PDF) that you accept in good faith.

The person providing the resale certificate must:

  • have a valid Texas sales and use tax permit at the time of the transaction; and
  • not intend to exclusively lease the aircraft with a crew or pilot.
Notes
  • Sales and use tax is not due on the divergent use of an aircraft that is purchased for resale.
  • Sales and use tax is due on the divergent use of an aircraft engine or component part sold, leased or rented for resale.

To learn more, see Rule 3.280, Aircraft.

Lead-Acid Batteries

All batteries are TPP subject to limited sales and use tax. Lead-acid batteries are subject to both limited sales and use tax and the battery sales fee.

A lead-acid battery is any battery that contains lead and sulfuric acid in liquid or gel form.

Guidelines

Sales for resale of most batteries work the same way as sales for resale of other TPP.

Sales for resale of lead-acid batteries are exempt from limited sales and use tax and the battery sales fee, but the exemption works a little differently than it does for batteries that are not subject to the fee.

  • A sale for resale of a lead-acid battery is a sale of a lead-acid battery to someone who will resell it as a separate item.
  • A sale of a lead-acid battery that is attached to or becomes an integral part of a vehicle, boat or other equipment is not a sale for resale.
Documentation

To purchase a lead-acid battery tax free for resale, the buyer must give you a Form 01-339, Texas Sales and Use Tax Resale Certificate (PDF).

To learn more, see Rule 3.711, Collection and Reporting Requirements.

Boats and Boat Motors

Depending on the type, boats and boat motors are subject to either limited sales and use tax or boat and boat motor sales and use tax, but never both.

  • Boats subject to the boat and boat motor sales and use tax include any watercraft, other than a seaplane on water, not more than 65 feet in length. This includes federally documented boats, motorboats, sailboats, jet skis and boats designed to accommodate an outboard motor.
  • Boat motors subject to the boat and boat motor sales and use tax include any self-contained internal combustion propulsion system of any horsepower, excluding fuel supply, used to propel a watercraft that is detachable from the boat.
Guidelines

Sales for resale of boats and boat motors that are subject to limited sales and use tax, such as kayaks and canoes, work the same way as sales for resale of other TPP.

Only boat dealers and manufacturers can purchase for resale a boat or boat motor subject to boat and boat motor sales and use tax.

Documentation

To purchase tax free for resale a boat or boat motor subject to limited sales and use tax, the customer must give the seller a Form 01-339, Texas Sales and Use Tax Resale Certificate (PDF).

To purchase tax free for resale a boat or boat motor subject to boat and boat motor sales and use tax, the seller must maintain evidence of the exemption in their records for four years. There is not a resale certificate for boat and boat motor sales and use tax.

Notes:
  • Electric boat motors are subject to limited sales and use tax.
  • The lease or rental of all boats is subject to limited sales tax.

To learn more, see Rule 3.741, Imposition and Collection of Tax.

Ruthie’s Story (continued from Part 3)

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 hired a janitorial company to clean her café facilities and parking lot. This month, Ruthie is celebrating her business success.

To help promote her café and a new food truck, Ruthie decides to host a customer appreciation event. For the event, she reserves a 40-foot party boat (without a captain or crew) on Lake Travis from a commercial marina and invites a group of her most loyal customers to join her and her staff for a night of food, refreshments, dancing and swimming. When the commercial marina charges Ruthie for the party boat, Ruthie must pay limited sales and use tax on the rental.

Commercial marina buys party boat from boat dealer. Before Ruthie can reserve the party boat, the commercial marina must purchase it from a boat dealer. Since the party boat is subject to boat and boat motor sales and use tax and the commercial marina is not a boat manufacturer or dealer, the commercial marina cannot claim a sale for resale exemption and must pay the boat and boat motor tax on their purchase.

Because the commercial marina purchased a party boat subject to boat and boat motor tax, the already-installed lead-acid battery used to power the boat is not subject to the battery sales fee.

Boat dealer buys party boat from boat manufacturer. Before the boat dealer can sell the party boat to the commercial marina, they must buy it from a boat manufacturer. The boat dealer can buy the party boat tax free for resale from the boat manufacturer.

The party boat manufacturer must pay the battery sales fee when they purchase the battery from their supplier to use as an integral part of the manufactured party boat.

During the event, Ruthie’s guests can also rent paddleboats from the commercial marina. When the commercial marina charges Ruthie’s guests to use a paddleboat, the guest must pay limited sales and use tax on their rentals.

Commercial Marina buys paddleboats from boat dealer. Before Ruthie’s guests can rent the paddleboats, the commercial marina had to buy them from a boat dealer. Since paddleboats are subject to limited sales and use tax, the commercial marina can claim a sale for resale exemption when buying the boats.

Ruthie also hires a pilot who will fly a plane with a banner that states, “You are the best! Thank you for making Ruthie’s Café such a success!” over the party boat during the event.

Pilot buys airplane from aircraft dealer. Before Ruthie can hire the pilot, the pilot must purchase an airplane from an aircraft dealer to perform the service. Since the pilot is not reselling, leasing, renting or transferring operational control of the aircraft, the pilot must pay limited sales and use tax on the aircraft purchase. This transaction does not qualify as a sale for resale.
Aircraft dealer buys airplane from aircraft manufacturer. Before the aircraft dealer can sell the airplane to the pilot, they must purchase it from an aircraft manufacturer. Since the aircraft dealer will resell the plane to the pilot, the aircraft dealer can purchase the plane tax free for resale.

After the event, the commercial marina discovers that the party boat’s lead-acid battery is defective and needs to be replaced. The commercial marina buys a new lead-acid battery from the boat dealer, who charges the commercial marina the battery sales fee and limited sales and use tax.

Boat dealer buys lead-acid battery from battery supplier. Before the commercial marina can buy the lead-acid battery from the boat dealer, the boat dealer must buy it from their battery supplier. Since the boat dealer will resell the battery to the commercial marina, the boat dealer can buy the lead-acid battery tax free by issuing a resale certificate for limited sales and use tax and the battery sales fee to the battery supplier.

Looking Ahead

In Part 5, we will discuss sales for resale of cigarettes, tobacco products, mixed beverages and manufactured housing.

Sales Tax

Interior Design and Decorating Services

Interior designers provide various services; some are subject to sales tax while others are not.

The services an interior designer or decorator performs and the type of contract determine the designer’s sales and use tax responsibilities for the design services.

Selling Taxable Items

If a designer sells taxable items and taxable services, the designer:

  • must have a Texas sales tax permit;
  • can give suppliers a properly completed resale certificate (PDF), instead of paying Texas sales tax when buying inventory or taxable services for resale; and
  • must collect, report and remit Texas sales tax on the sales price of the items sold to customers, including any mark-up and delivery charges.

If the design contract states the designer is “acting as an agent” for a client, the designer must:

  • pay tax on the sales price of the items when buying on the client’s behalf, and then have the client reimburse the designer “dollar-for-dollar” for the cost of the items; or
  • have the vendor bill the client directly for the items purchased.

See Private Letter Ruling 201604754L for information on agent relationships.

Design Consulting Services

Separately stated charges (i.e., commissions) for design consulting services, which are the expert or professional opinions of the designer, are not taxable if the consulting services are unrelated to sales of taxable items or taxable services.

The designer’s consulting services are “unrelated” if:

  • the consulting services are provided on a stand-alone basis and are not required with the purchase of a taxable item;
  • a taxable item’s price is not affected if the designer’s customer buys design consulting services from a different vendor; and
  • the designer:
    • offers design consulting services independent of the sale of taxable items; and
    • performs stand-alone design consulting services.

Consulting services related to the sale of taxable items are part of the sales price and are subject to sales tax.

Examples of nontaxable and taxable fees for design consulting services:

  • A separately stated hourly or a flat rate fee for consulting or design services is not taxable.
  • A consulting or design fee based on the percentage of sales to the client (i.e., 10 percent of the furniture and accessories sold to the client) is taxable as part of the total sales price of the furniture and accessories billed to the customer.

Decorating Only

The designer’s customers do not owe tax for the designer’s time or labor when:

  • the designer charges to decorate a customer’s home or office; and
  • the customer provides the materials used.

Interior Designers Performing New Construction/Residential Repair and Remodeling/Nonresidential Repair and Remodeling Contracts

If an interior designer performs contracts for new construction and/or residential repair and remodeling of real property, the type of contract determines who owes sales tax.

If the designer bills a single charge for incorporated materials and labor to the customer (lump-sum contract), the designer acts as a contractor. The designer is the consumer of the incorporated materials and owes Texas sales tax to the suppliers, including any subcontractors. The designer’s client does not owe tax for the new construction and residential repair and remodeling “lump-sum” charge.

If the designer itemizes time and materials cost to the customer (separated contract), the designer acts as a retailer selling the materials incorporated into the realty. The designer must collect, report and remit the collected sales tax on the separately stated charges for incorporated materials paid by the customer. The designer’s customer does not owe tax for the separately stated labor charge.

When an interior designer performs nonresidential real property repair and remodeling services, the designer gives a resale certificate (PDF) to all suppliers and collects sales tax from the customer on the entire amount billed for the contract. The type of contract does not affect the customer’s tax responsibility.

More Information

Private Letter Rulings

Sales and Use Tax

Taxability of Fees for Using an Electronic Bridge
Jan. 19, 2018

The Tax Policy Division determined that the fee a taxpayer was charged for an electronic bridge connecting mortgage originators (lenders and mortgage brokers) to the taxpayer’s online tool for mortgage pricing is a taxable telecommunications service. The Division also clarified that the taxpayer can purchase the taxable telecommunications service tax free for resale when the telecommunications service is integral to performing its taxable data processing service.

Taxpayer provides an online tool for mortgage product eligibility and pricing for mortgage originators, which is a taxable data processing service.

In order for the taxpayer’s online tool to work, it must communicate with the mortgage originator’s loan origination system (LOS) through a proprietary electronic bridge. The electronic bridge facilitates transmitting loan information between the taxpayer’s online tool and a mortgage originator’s LOS. The company that owns the electronic bridge charges taxpayer a fee each time a mortgage originator uses it. The electronic transmission of data facilitated by the electronic bridge is a telecommunications service and the fee is taxable.

Since the electronic bridge is integral to performing taxable data processing sold by the taxpayer, the taxpayer can claim the sale for resale exemption when purchasing the telecommunications service.

See State Tax Automated Research (STAR) System letter 201801012L.

Public Notice

A Message from the Texas Workforce Commission – Service Animals and Their Access to Public Places

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

The federal Americans with Disabilities Act (ADA) and Texas law guarantee the right of a person who is blind or has other disabilities, including post-traumatic stress disorder, to be accompanied by a trained service animal in all public places. These places of public accommodation 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 rule for public comment through the Texas Register:

State and Local Sales and Use Taxes

Rule 3.336 – Currency, Certain Coins, and Gold, Silver, and Platinum Bullion
Publication date – May 18, 2018
Comment period ends – June 17, 2018

Adopted

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

State and Local Sales and Use Taxes

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

State Tax Automated Research System

STAR Watch

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

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: