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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

March 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...

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 association and hotel information. We welcome your support and ideas.

The Texas Tax Amnesty Program

The Texas Tax Amnesty Program Will Run From May 1, 2018, Through June 29, 2018

The Texas Tax Amnesty Program, under certain circumstances, provides 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.

Stay tuned to the Tax Amnesty webpage for details.

Tax Training Resources

Podcasts and Webinars

In the January issue of Tax Policy News, the Comptroller’s office introduced new live and on-demand training sessions. We invite taxpayers and practitioners to listen to and participate in quarterly podcasts and webinars that provide in-depth information on tax topics that affect businesses today.

Our first quarter podcast, which covered reporting and paying sales tax, is available on our Tax Training Resources page. We have a “Spotlight Podcast” in production that will cover the 2018 Emergency Preparation Supplies Sales Tax Holiday. The “Spotlight Podcast” will be released March 27, 2018.

Our first webinar, “Mixed Transactions," covers transactions between contractors and subcontractors.

Visit our Tax Training Resources page to listen to the podcasts and to register for the current webinar.

New Houston Enforcement Offices

Two New Houston Enforcement Offices Available to Serve Taxpayers

In addition to serving taxpayers at our established Houston Northwest location, 1919 North Loop West, we are pleased to announce two new Texas Comptroller field offices (PDF) in the Houston metropolitan area.

Please visit us at our new Houston Southeast location in the Bay Area or at our recently relocated Houston Southwest location off Highway 6 South.

For a list of all our offices, see Locations and Hours.

Sales Tax

Sales for Resale – A Field Guide for Texas Sellers

In this month’s issue, we are introducing the first of a five-part guide to sales for resale in Texas. For sales and use tax, a “sale for resale” is a type of exempt transaction. When you sell a taxable item to someone who states they will resell the item to their customer, you are making a “sale for resale.”

Guidelines for the type of items that can be purchased tax free for resale, who qualifies to buy items for resale and how to document these sales, depends on the type of tax imposed on the transaction. Each part of the guide will discuss how to handle sales for resale for a variety of goods and services.

  • Part 1: Sales for Resale of Tangible Personal Property
  • Part 2: Sales for Resale of Taxable Services
  • Part 3: Sales for Resale of Off-Road, Heavy-Duty Diesel Equipment; Motor Vehicles; Motor Fuel and Automotive Oil.
  • Part 4: Sales for Resale of Aircraft; Batteries; and Boats and Boat Motors
  • Part 5: Sales for Resale of Cigarettes and Tobacco Products; Mixed Beverages; and Manufactured Housing

Part 1: Sales for Resale of Tangible Personal Property – Limited Sales and Use Tax

What is Tangible Personal Property?

Tangible personal property” includes personal property that you can see, feel, weigh, measure, touch or perceive. Most consumer products, as well as computer programs and prepaid telephone calling cards, are tangible personal property.

All sales of tangible personal property are presumed to be subject to limited sales and use tax. As a Texas seller with a sales and use tax permit, you can buy items you will resell tax free by giving resale certificates to your vendors. You can also accept resale certificates from your customers who will resell tangible personal property they buy from you.

Guidelines

The following table illustrates some transactions that can qualify as sales for resale of tangible personal property (TPP).

Transaction (during regular course of business) Additional requirements/information
Resell, lease or rent the TPP in the United States or Mexico. The TPP must be resold in the form it was purchased, or attached or integrated into other TPP.
Transfer the TPP to the purchaser as an integral part of a taxable service. Care, custody and control of TPP sold as an integral part of a taxable service must transfer to the purchaser of the taxable service.*
Transfer the telecommunications device as an integral part of the sale of a taxable communications service. Purchasing the telecommunications service must be a condition of receiving the device.

*Care, custody and control is transferred when the purchaser has primary possession of the TPP.

Documentation

As a Texas seller, you must keep records that support any tax-free sales for resale you make. The resale certificate is evidence of why you did not collect sales tax on that transaction. You must keep any resale certificates in your records for four years.

You are not liable for unpaid sales tax when you accept a resale certificate in good faith. You accept a resale certificate in good faith if:

  • you accept the certificate at or before the time of the transaction;
  • you do not know, or have a reason to believe, that the sale is not a sale for resale; and
  • the certificate is legible and contains all of the following information:
    • the buyer’s and seller’s names and addresses;
    • the buyer’s sales tax permit number or a written statement that a permit application is pending with the Comptroller’s office. If your customer’s application is pending, the certificate is valid for 60 days. After 60 days, the certificate must be renewed and show the permit number;
    • a description of the taxable items generally sold, leased, or rented by the purchaser in the regular course of business and a description of the taxable items to be purchased tax free by use of the certificate; and
    • the buyer’s signature.
Blanket resale certificates

You can accept “blanket” resale certificates. For example, if your customer purchases taxable items from you exclusively for resale, you can accept a blanket resale certificate that covers all of the customer’s purchases for resale. You may rely on the blanket certificate until your customer revokes it in writing.

Good faith acceptance

You should always note the general character of the customer’s business. If the purchased items or the purchaser’s type of business isn’t one where the items would normally be resold, you should question the use of the certificate. For example: If a customer is purchasing tables and chairs, you should not accept a resale certificate describing the business as a service station, since these or other such items are not regularly sold by service stations.

Retailers outside Texas

You can accept a valid resale certificate from a retailer located in another state who purchases items from you for resale in the United States or Mexico.

The valid certificate must show:

  • the customer’s signature and address;
  • the date of the sale;
  • the state where the customer will resell the items;
  • the type of business engaged in by the purchaser and the type items sold in the regular course of business; and
  • the sales tax permit number or the registration number assigned to the customer by the state where the items will be resold or a statement that the customer is not required to have a permit (Mexican retailers must show their Federal Taxpayer Registry identification number and give you a copy of their Mexican Registration Form).

For your convenience, the Comptroller’s office publishes Form 01-339, Texas Sales and Use Tax Resale Certificate (PDF).

Removing Tangible Personal Property From Tax-free Inventory

If you buy tangible personal property tax free for resale and remove it from your tax-free inventory for any purpose other than retention, demonstration, or display while holding it for sale, you owe tax on your original purchase price or on the fair market rental value of the taxable item for the period of time used. You must report and pay tax on these “taxable purchases” when you file your regular sales and use tax return.

Ruthie’s Story

Ruthie runs a café in her hometown where she sells food, drinks and gift items, such as hats and t-shirts, with her café’s logo on them.

When Ruthie needs to restock hats and t-shirts, she must give her vendor a resale certificate to buy them tax free for resale. The reason for this is hats and t-shirts are taxable tangible personal property, and Ruthie plans to resell them at her café.

As a promotion, Ruthie decides to give a free t-shirt to anyone who dines in the café on a certain day. Ruthie uses t-shirts from her tax-free inventory for the promotion. Since Ruthie originally bought the t-shirts tax free for resale, she must pay tax on her original purchase price of every t-shirt she gives away. Ruthie reports the cost of these items as “taxable purchases” and pays the tax when she files her next sales and use tax return.

Notes

  • Selling tangible personal property that will be resold to someone else in any country other than the United States or Mexico is an export and does not qualify as a tax-free sale for resale.
  • Tax is due on tangible personal property purchased tax free for resale if it is used as a trade-in on the purchase of another taxable item.
  • Tax is not due when tangible personal property originally purchased tax free for resale is:
    • donated to an exempt organization;
    • used outside Texas; or
    • properly documented as lost, destroyed or stolen.
  • Additional guidelines can apply. See, Rule 3.285, Resale Certificate; Sales for Resale.

Looking Ahead

In Part 2, we will take a closer look at sales for resale of taxable services. Taxable services include 17 broad categories of services such as landscaping, amusement services and data processing services.

Private Letter Rulings

Sales Tax – Taxability of Spinal Implant Deployment Systems Used in the Treatment of Spinal Fractures and Diseases

Taxability of Spinal Implant Deployment Systems Used in the Treatment of Spinal Fractures and Diseases
Oct. 19, 2017

A taxpayer asked if spinal implant deployment systems and corresponding accessory kits are prosthetic devices and qualify for tax exemption.

The Taxpayer designed the spinal implant deployment system and accessory kit to facilitate a step in one of Taxpayer’s patented procedures to correct spinal fractures and degenerative disc disease. Spinal implants are preloaded into the deployment system and cannot be separated from the deployment system until they are surgically implanted. The single use deployment system cannot be reused with another implant, or used on another patient. The kit is disposed of after each procedure.

The Tax Policy Division ruled that the spinal implant deployment system and corresponding accessory kit used in the treatment of spinal fractures and diseases are exempt orthopedic appliances.

Rule 3.284(a)(12) defines orthopedic appliance.

See State Tax Automated Research (STAR) System letter 201710015L.

Sales Tax – Cold Storage of Exempt Food Products

Cold Storage of Exempt Food Products
Oct. 19, 2017

A taxpayer asked whether there is a distinction between storing exempt food products and taxable food products as it relates to the purchase of natural gas and electricity.

The Taxpayer stores food, including raw meat, dairy and produce. The food products Taxpayer stores are exempt from sales tax under Texas Tax Code Section 151.314(a), “Food and Food Products.” Taxpayer does not perform any type of manufacturing or processing on the food being stored.

The Tax Policy Division ruled that the purchase of electricity primarily used to operate equipment that stores food products is taxable, regardless if the food or food products are exempt from sales tax.

Rule 3.295(b) addresses specific exemptions for the uses of natural gas and electricity.

See State Tax Automated Research (STAR) System letter 201710004L.

Publication

Rules

Proposed

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

State and Local Sales and Use Taxes

Rule 3.355 – Insurance Services
Publication date – March 16, 2018
Comment period ends – April 15, 2018

Adopted

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

Cigarette Tax

Rule 3.101 – Cigarette Tax and Stamping Activities
Publication date – March 16, 2018
Effective date – March 20, 2018

Franchise Tax

Rule 3.588 – Margin: Cost of Goods Sold
Publication date – March 16, 2018
Effective date – March 20, 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

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.

We support: