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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

December 2019

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...

Tax Training Resources

Podcast Episodes, Webinars, Videos and Seminars

Webinars

A recording of a recent webinar, “Fairs, Festivals, Markets and Shows” is now available available on our Tax Training Resources webpage. The one-hour webinar highlights tax responsibilities when organizing or selling at fairs, festivals, markets and shows.

Our last webinar, Online Sales and Remote Sellers, was held on Dec. 10, 2019. This webinar highlighted updates from the 86th Texas Legislature. A recording of this webinar will soon be available on our Tax Training Resources webpage.

Videos

We also offer video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

Seminars

We offer sales and use tax seminars across the state throughout the year. New taxpayers are especially encouraged to attend these overviews of tax responsibilities for buyers, sellers and service providers. For locations, dates and times, see the Taxpayer Seminars webpage.

Visit our Tax Training Resources webpage to

  • find out more about our training resources
  • register for upcoming webinars
  • view the Podcast and Webinar Archive sections for previous recordings

Sales and Use Tax

CBD Products Sold in Texas

Recently, Texas lawmakers passed a bill legalizing industrial hemp and products derived from hemp plants, including CBD oil.

CBD products are often sold in forms such as

  • candy
  • crystals
  • gels
  • lotions
  • liquid drops
  • sprays
  • oils
  • patches
  • pet products

The above examples are considered tangible personal property and subject to sales tax unless otherwise exempt as a drug.

Drug Products

If a CBD product meets the definition of a drug and is sold with a written prescription from a licensed practitioner of the healing arts (such as a physician), it is exempt from Texas sales tax.

A drug is defined as a product that

  • is intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease, illness, injury, or pain;
  • is applied to the human body, or that humans ingest or inhale;
  • is not an appliance or device; and
  • is not food

An over-the-counter drug or medicine (i.e., one that is not prescribed or dispensed by a physician) is also considered a drug and exempt from sales tax when it is labeled with a "Drug Facts" panel in accordance with federal Food and Drug Administration (FDA) regulations.

More Information

Tax Responsibilities of Animal Rescue Groups and Nonprofit Animal Shelters

Animal rescue groups and nonprofit animal shelters have different sales tax responsibilities. While both may be exempt entities and exempt from paying sales tax on their purchases, they generally must collect sales tax on their sales. However, the Texas Tax Code specifically exempts nonprofit animal shelters from collecting sales tax on their animal adoption fees. An animal rescue group is generally required to collect sales tax on any sales and animal adoption fees.

Animal Rescue Groups

An animal rescue group’s adoption fees are subject to sales and use tax. If your animal rescue group has received tax-exempt status from the Comptroller’s office, you can purchase items tax-free that support the goal of the organization – but the exempt status does not fully extend to your sales. Qualifying tax-exempt nonprofit organizations can have two one-day, tax-free sales each calendar year. If you collect adoption fees during your two annual one-day tax-free sale days, these fees are tax-exempt.

For example, a golden retriever rescue group with a 501(c)(3) status that does not qualify as an animal shelter, as defined in the Health and Safety Code, must collect and remit sales tax on their animal adoption fees. If they have applied for and received Texas sales tax exempt status, they do not have to collect tax on their animal adoption fees during their designated tax-free sale days. Additionally, they can purchase items relating to their exempt purpose tax-free such as dog beds and dog food.

Related Expenses

Expenses incurred by an animal rescue group and charged to the purchaser of the animal are also taxable. For example, transportation fees for an animal sold to a purchaser and delivered to a Texas location are taxable.

Please note – if you sell a rescue animal to an out-of-state purchaser, the adoption is not subject to Texas sales tax and any related charges to the sale are not taxable if you have documentation showing the rescue animal was delivered to a location outside of Texas. You may, however, need to collect another state’s sales tax on the purchase. All states have different tax regulations for the collection of sales tax. It is recommended that you determine the state tax responsibility on the purchase of a rescued animal and related charges for an animal that is transported to another state.

Nonprofit Animal Shelters

The term “animal shelter” is defined in the Health and Safety Code as a facility that keeps or legally impounds stray, homeless, abandoned, or unwanted animals. The shelter must also satisfy the Health and Safety Code’s standards for animal shelters.

If your organization meets the Health and Safety Code’s definition and standards, charges or fees for animal adoption are exempt from sales tax. For more information on the Health and Safety Code, visit the Texas Department of State Health Services website.

Sales Tax Permit

Our goal is to help animal rescue groups comply with the state tax laws. As we are clarifying that the exemption for animal shelters does not apply to an animal rescue group, we are asking for prospective compliance effective Jan. 1, 2020. We do not intend to pursue back taxes. However, if you collected tax prior to Jan. 1, 2020, you must remit the tax to the state. If you do not have a sales tax permit and do not qualify as an animal shelter, you can apply for a sales tax permit using our Texas Online Tax Registration Application, or mail Form AP-201, Texas Application for Sales and Use Tax Permit (PDF) to our office.

Additional Resources

Tax Responsibilities of Caterers

Who is a Caterer?

The catering industry is responsible for many of the food items we eat at parties and events, and even in our own home. In addition to providing food, a caterer can also help set the perfect mood for any gathering. Our article is geared to help those in the catering industry understand their tax responsibilities.

A caterer is a food operator who prepares, serves and sells ready-to-eat food and drinks. You have likely seen a caterer in action at weddings, fundraisers, corporate events and parties.

A caterer must collect sales tax on the total price billed. This includes separately stated charges for items such as

  • preparing food and drinks
  • delivering meals
  • serving meals and drinks (i.e., bar and wait staff services)
  • cleaning up
  • renting or re-renting rooms or facilities
  • using tables, chairs, glassware, tableware, tablecloths, decorations, etc.

Separately Stated Room or Facility Rental Charges

When a customer rents a room or facility that also provides attached sleeping accommodations, the customer owes hotel tax for the room or facility rental, and sales tax to the hotel or facility for their catering services.

If the caterer rents and pays hotel tax on the room or facility rental as part of their catering services, the customer owes sales tax to the caterer for the total price of the catering, including reimbursement costs for the room or facility rental and hotel tax paid.

Buying, Renting or Leasing Reusable Items

A caterer must pay tax when buying reusable equipment, replacement parts and most catering supplies. Examples of reusable taxable items include

  • tables, chairs, place mats, tablecloths, cloth napkins
  • flatware (knives, forks, and spoons), dishes, cooking utensils
  • dispensers, garbage cans and trash bags, mop holders
  • lime squeezers, grill bricks, aprons, glass creamers
  • appliances, tea lights, chafing and warming dishes
  • menus and inserts

A caterer owes tax for items used to prepare, serve, present, clean up or dispose of food and drinks in a catering service. This also includes gas and electricity used to prepare or store the catered food.

Buying, Renting or Leasing Non-reusable Items

A caterer can buy certain non-reusable items made of paper, wood, plastic, or aluminum tax-free. These non-reusable items include

  • cake boxes, lunch boxes, containers
  • bottle wraps, french fry bags
  • dishes, cups, soufflé cups
  • plastic knives, forks, spoons
  • napkins, soda straws
  • toothpicks, stir sticks
  • ice cream sticks, hot dog trays
  • other types of non-reusable trays

When purchasing these items, instead of paying tax, the caterer may give their supplier a

More Information

Sales Tax and the Creative Arts: Your Tax Responsibilities as an Artist in Texas – Part 3

Audio and Video Master Recordings

In this month’s issue, we continue our series helping artists in Texas understand their sales tax responsibilities. This article discusses items and services producers can purchase tax free when creating audio and video master recordings.

Audio and Video Master Recordings

Master recordings include feature films, corporate films, television programs and commercials, recordings of live performances, musical albums and other projects intended for commercial distribution. The sale of a master recording by the producer of the master is exempt. The sale of copies of the master recording are taxable. See Rule 3.350 (b) (1) and (2).

Master recordings do not include recordings such as wedding videos, videos shown on social media (e.g., YouTube, Facebook and Instagram) and other similar recordings. Sales of these types of videos are taxable, including the original video and copies of the originals. Video games are not master recordings, even if they contain recorded audio or visual sequences.

Live Program Broadcasts

Live program broadcasts include radio or television content that is not pre-recorded and that is broadcast by a producer of cable programs or a radio or television station licensed by the Federal Communications Commission.

Items Used in the Production of Master Recordings and Live Program Broadcasts

Producers can claim an exemption from sales and use tax on purchases of items and services used to produce master recordings or live program broadcasts for ultimate sale if the items and services meet either of the following requirements:

  • the item is a component part of a master recording or live program broadcast; or
  • the item or service is necessary to and used or consumed directly in or during the production of a master recording or live program broadcast.

The exemption includes

  • cameras
  • film
  • film developing chemicals
  • lights
  • props
  • sets
  • teleprompters
  • microphones
  • digital equipment
  • special effects equipment and supplies
  • audio or video routing switchers in a studio

The exemption does not include

  • office equipment or supplies
  • maintenance or janitorial equipment or supplies
  • machinery, equipment or supplies used in sales or transportation
  • telecommunications equipment and services
  • most transmission equipment
  • security services
  • motor vehicle parking services
  • catering tents
  • prepared food and beverages
  • storage, transfer or upload fees of audio or video recordings
Qualified Media Production Locations

The Texas Film Commission certifies qualified media production locations and qualified persons through the Media Production Development Zone Program. The program authorizes a temporary sales tax exemption for certain items and services bought by a qualified person to be used at a qualified media production location. The exemption can include nonresidential repair remodeling services such as construction, maintenance, improvement or renovation.

This exemption is temporary, and each qualified person is required to submit Form 01-162, Annual Report of Purchases for Qualified Media Production Location (PDF) annually for each qualified media production location. Artists can contact the Texas Film Commission for information on the application process.

More Information

Rules

Proposed

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

Motor Fuel Tax

Rule 3.432– Refunds on Gasoline, Diesel Fuel, Compressed Natural Gas, and Liquefied Natural Gas Tax
Publication date – Dec 20, 2019
Comment period end date – Jan 19, 2020

Motor Vehicle Sales Tax

Rule 3.96– Imposition and Collection of a Surcharge on Certain Diesel Powered Motor Vehicles
Publication date – Dec 13, 2019
Comment period end date – Jan 12, 2020

Natural Gas Tax

Rule 3.23– Credits for Qualifying Low Producing Wells
Publication date – Dec 20, 2019
Comment period end date – Jan 19, 2020

Rule 3.30– Natural Gas Tax Managed Audits and Determination of Overpaid Amounts
Publication date – Jan. 10, 2020
Comment period end date – Feb. 9, 2020

State and Local Sales and Use Tax

Rule 3.334– Local Sales and Use Taxes
Publication date – Jan. 3, 2020
Comment period end date – Feb. 2, 2020

Adopted

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

Cigarette and Tobacco Products Regulation

Rule 3.1202– Warning Notice Signs
Publication date – Jan. 10, 2020
Effective date – Jan. 7, 2020

Rule 3.1205– Delivery Sales of Cigarettes (Health and Safety Code, Chapter 161, Subchapter R)
Publication date – Jan. 10, 2020
Effective date – Jan. 7, 2020

Franchise Tax

Rule 3.586– Margin: Nexus
Publication date – Dec. 20, 2019
Effective date – Dec.29, 2019

Motor Vehicle

Rule 3.382– Exemption for Churches or Religious Societies
Publication date – Jan. 10, 2020
Effective date – Jan. 7, 2020

State and Local Sales and Use Tax

Rule 3.280– Aircraft
Publication date – Jan. 10, 2020
Effective date – Jan. 7, 2020

Rule 3.286– Seller’s and Purchaser’s Responsibilities
Publication date – Dec. 27, 2019
Effective date – Jan.1, 2020

Rule 3.320– Texas Emissions Reduction Plan Surcharge; Off-Road, Heavy-Duty Diesel Equipment
Publication date – Jan. 10, 2020
Effective date – Jan. 7, 2020

Rule 3.360– Customs Brokers
Publication date – Dec. 27, 2019
Effective date – Dec. 31, 2019

State Tax Automated Research System

STAR Watch

To see the latest items added to our State Tax Automated Research (STAR) system, use the New Documents link on the STAR home page.

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: