Tax Policy News

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

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

• Texas Tax Code section 151.313 – Health Care Supplies
• Rule 3.284 - Drugs, Medicines, Medical Equipment, and Devices

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

NOTE: SB 197, 87th Reg. Leg. Session (2021) allows nonprofit animal welfare groups to make animal sales and adoptions tax free, whereas previously only nonprofit animal shelters were allowed to make tax-free sales. Effective 10/01/2021.

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

• Texas Health and Safety Code Sections 823.001 and 823.003
• Texas Tax Code Section 151.343, Animals Sold by Nonprofit Animal Shelters
•  Rule 3.316 (m), Occasional Sales; Transfers Without Change in Ownership; Sales by Senior Citizens’ Organizations; Sales by University and College Student Organizations; and Sales by Nonprofit Animal Shelters
• Rule 3.322 (g), Exempt Organizations
• Publication 96-122, Nonprofit and Exempt Organizations – Purchases and Sales

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

• resale certificate (PDF) when buying items being resold to customers as part of the taxable catering services charge; or
• exemption certificate (PDF) when buying supplies to package the catered food.

More Information

• Rule 3.293 – Food; Food Products; Meals; Food Service
• Rule 3.300 – Manufacturing; Custom Manufacturing; Fabricating; Processing
• State Tax Automated Research (STAR) System document 200703903L
• Publication 94-117 – Restaurants and the Texas Sales Tax

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.

More Information

• Texas Tax Code Section 151.3185, Property Used in the Production of Motion Pictures or Video or Audio Recordings and Broadcasts
• Rule 3.350, Master Recordings and Broadcasts
• Publication 94-104, Film, Video and Audio Production Companies and Broadcasting Companies

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

Motor Fuel Tax

Motor Vehicle Sales Tax

Natural Gas Tax

State and Local Sales and Use Tax

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

Cigarette and Tobacco Products Regulation

Franchise Tax

Motor Vehicle

State and Local Sales and Use Tax

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.

The Taxes webpage has links to:

• All Texas taxes and fees.
• Resources for taxpayers.
• Filing and paying taxes.
• Tax laws and rules.

Our Account Update Tools make it easy for you to:

• Change your address.
• Add a location.
• Close a location.
• Change return/email notifications.

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.

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

• Tax Due Dates
• Holiday Schedule