Tax Policy News

The 86th Texas Legislature has adjourned, and the Tax Policy division is in the process of updating resources to inform taxpayers of legislative changes. In addition to House Bill 1525 (sales involving marketplace providers) and House Bill 2153 (single local tax rate), there were approximately 30 bills that affect statutes regulated by our office. As we begin implementing these bills, we will be soliciting input from interested parties. If you would like to provide input, please email us your name, contact information and the bill number at tax.help@cpa.texas.gov.

Our August Tax Policy News will summarize Texas tax law changes resulting from bills passed by the 86th Legislature.

If you are a cigarette and tobacco product retailer, you are probably aware that Senate Bill 21 increases the legal age from 18 to 21 for the sale, distribution, possession, purchase, consumption, or receipt of cigarettes, e-cigarettes, or tobacco products. The bill exempts the following from the new age requirement:

• individuals who are at least 18 years of age and present at the time of purchase a valid military identification card showing the individual is active duty in:
  • the United States military forces; or
  • the state military forces; and
• individuals born on or before August 31, 2001.

The bill removes the provision allowing minors to have tobacco products in the presence of parents, guardians, or a spouse.

The Comptroller’s office will mail information packets, including new warning notice signs, to all cigarette and tobacco product retailers reflecting Senate Bill 21 legislative changes prior to Sept. 1, 2019. If you are a retailer of e-cigarettes, please call 800-862-2260 to request new warning signs.

Second Extension Request for Mandatory Electronic Payers – Due Aug. 15

The deadline for filing a second extension request for mandatory electronic payers is Aug. 15. Entities must electronically submit payment using the appropriate electronic payment method described below:

You do not need to request an extension in Webfile or submit a paper Extension Request form if you select the extension payment option in TEXNET. If all of the tax due was paid with the entity’s first extension, use franchise tax Webfile, or submit Form 05-164, Texas Franchise Tax Extension Request (PDF), to request a second extension..

If you are reading Tax Policy News, you probably know quite a bit about our agency. The Comptroller’s office serves virtually every Texas citizen. Among its many responsibilities as chief financial officer, the Comptroller’s office collects taxes and fees owed to the state.

This month we are introducing the Tax Division Spotlight. In doing so, we are pleased to provide a glimpse inside the tax divisions in our agency, starting with our Tax Policy Division.

As the state's tax collector, the Comptroller's office devotes more time and resources to taxes than nearly any other initiative. With duties ranging from interpreting Texas tax policy to answering taxpayer questions every hour of the workday, the division provides extensive support to internal and external customers.

"The primary mission of the Tax Policy Division is to implement Texas tax law, develop policy and then share accurate and consistent information with our customers," says Teresa Bostick, division director. "These include taxpayers, tax professionals, state officials, Texas citizens and agency personnel."

To meet these goals, the division's sections – indirect and direct tax teams, tax policy affairs coordination, taxpayer services, tax education and public engagement, and compliance resources and exempt organizations – engage a variety of cutting-edge tools, training and best practices.

The indirect and direct tax teams adopt administrative rules, research tax questions and provide private letter ruling (PLR) responses to taxpayers. They also support legislative, audit and litigation activities. In fiscal year 2018, 15 rules became effective. The teams also completed 103 private letter rulings during that time.

Division employees who work within tax policy affairs coordination support and assist the division. They provide legal assistance for special initiatives, legislation and litigation.

Our tax education and public engagement team supports several different resources for both Comptroller staff and taxpayers. These include updating and maintaining tax webpages on Comptroller.Texas.Gov, updating and maintaining tax publications, and writing Tax Policy News. This team also responds to taxpayer’s inquiries with general information letters, and completed 5,487 letters in fiscal year 2018. To cover a variety of customer learning styles, the division also offers webinars, in-person seminars, videos and podcast episodes. The tax education and public engagement team provides training for both Comptroller staff and taxpayers.

The taxpayer services team is on the front lines of tackling taxpayer questions, disseminating tax information and providing account assistance in the call center. "Our aim is to provide fair, courteous and consistent service to all Texas taxpayers," says Bostick. Call center staff are prepared to respond to both broad- and narrow-focused customer questions on the spot – and help taxpayers navigate the necessary tax forms. The section handled nearly 511,000 calls in fiscal year 2018.

The exempt organizations team processes applications for exemption from franchise tax, sales tax and hotel tax based on federal, charitable, religious, educational and other exempt categories provided by law. Exempt status is an important factor, and entities depend on the team to process their applications promptly. The team processed 14,812 applications in fiscal year 2018.

The compliance resources section supports the division mission by performing a variety of tasks, ranging from designing and managing agency forms, filing agency rules with the Secretary of State, maintaining the State Tax Automated Research (STAR) system and updating the tax pages on the agency website.

For more insights into the Tax Policy Division, watch this short video.

Webinars

Our next webinar, Fairs, Festivals, Markets and Shows, will be held on Tuesday, Sept. 10. Whether you are a promoter or organizer of a festival or a vendor selling your creations, this webinar is for you! Join us and learn about your tax responsibilities when organizing or selling at fairs, festivals, markets and shows.

Registration for the upcoming webinar is available on our Tax Training Resources webpage.

Videos

Our current video series covers contractors, repairpersons and Texas sales tax:

• Sales Tax Overview for Contractors
• Tax Responsibilities for Contractors Working with Exempt Organizations
• Residential Construction Tax Responsibilities for Contractors
• New Construction Tax Responsibilities for Contractors
• Non-Residential Construction Tax Responsibilities

We also offer video tutorials on filing and paying sales tax through Webfile. To view these videos, visit the 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, visit the Taxpayer Seminars webpage.

Visit our Tax Training Resources webpage to

• find out more about our training resources
• listen to the current episode of our podcast
• register for upcoming webinars
• view the Podcast and Webinar Archive sections for previous recordings

In last month’s issue, we looked at transactions involving motor vehicle leases. This month’s issue will discuss transactions involving motor vehicle rentals.

Motor Vehicle Gross Rental Receipts

Companies that rent motor vehicles, including automobiles, motor homes, motorcycles, trucks, truck tractors, trailers, semi-trailers, travel trailers and park models, must collect motor vehicle gross rental receipts tax from their customers. The percentage of tax charged is based on the length of the rental contract.

• For contracts of 1-30 days: 10 percent of gross receipts, less separately stated fees for insurance, fuel, and damage assessments.
• For contracts exceeding 30 days, but no longer than 180 days: 6.25 percent of gross receipts.

Rental companies are required to have a Motor Vehicle Rental Tax Permit (PDF), collect rental tax from their customers and report and remit the tax to the Comptroller’s office.

There are two types of motor vehicle rental permits, nonqualified or qualified. A nonqualified permit requires that you pay motor vehicle sales and use tax at the time of registration or titling. A qualified permit allows tax-deferred registration when you title a rental vehicle in your name.

More Information

• Rule 3.78 – Motor Vehicle Rentals
• Publication 96-254 – Motor Vehicle Tax Guide

Even though it seems like 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 one weekend every August on the sales tax holiday. This year’s holiday begins Friday, Aug. 9, and goes through Sunday, Aug. 11.

In this month’s issue, we will explain which items are exempt during the sales tax holiday, and instruct sellers on how to handle special situations, such as rain checks, advertising and tax reporting.

Qualifying Items

During the sales tax holiday, 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 rain checks to take advantage of the savings.

A customer does not have to give you an exemption certificate, unless they buy school supplies using a business account or they buy more than 10 backpacks (as explained below).

The following links provide lists of items that are exempt during the sales tax holiday:

• Clothing, Footwear and Other Items
• School Supplies

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 a 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 sales tax on non-qualifying items.

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

Please note that during the 86th Legislative Session, House Bill 2358 made changes to the absorption of sales tax by retailers. The bill is effective Oct. 1, 2019, and does not affect this year’s sales tax holiday. Our August Tax Policy News will summarize Texas tax law changes resulting from bills passed by the 86th Legislature and will provide a summary of all bills, including House Bill 2358.

Reporting Tax

When you report sales for the qualifying items you sold tax-free during the sales tax holiday, only include these tax-free sales in Total Texas Sales (Item 1) of your sales tax return. Do not include your tax-free sales in Taxable Sales (Item 2).

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

More Information

• Publication 98-490, Sales Tax Holiday
• Rule 3.365 - Sales Tax Holiday – Clothing, Shoes and School Supplies
• Texas Tax Code Section 151.326 – Clothing and Footwear for Limited Period
• Texas Tax Code Section 151.327 – School Supplies and School Backpacks Before Start of School

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