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.

Previously, Audit Processing issued 180-day notice of demand letters, pursuant to Texas Tax Code 111.105(e), with its redetermination reply letters. In a change to this process, Audit Division will no longer issue notice of demand letters. Instead, an attorney within the Administrative Hearings Section will issue a notice of demand letter when necessary.

When a taxpayer submits a statement of grounds that includes new refund items, Audit Processing will issue the taxpayer a letter requesting that they present new refund items to the auditor within 90 days from the date of the letter. In addition, a taxpayer may also receive a letter asking them to provide all certificates within 60 days.

An auditor will contact the taxpayer shortly after they receive the redetermination reply letter(s) from Audit Processing and explain that the taxpayer will need to provide all certificates and documentation related to their Statement of Grounds by the 61st day. No extensions will be granted to provide certificates, as this 60-day deadline is per statute 151.104(d). The auditor will also explain that the taxpayer should provide all documentation for any new refund items by the 91st day.

This does not mean that if something is missing by the 90th-day deadline, an auditor will not allow more time. As long as the taxpayer has provided records such as the list of the refund items requested and documentation to support the claim, more time may be allowed. If more time is needed to locate additional contracts, shipping documents, etc., the auditor will take this under consideration and may allow more time as needed.

If the requested audit or refund documentation is not provided by the established deadlines, the assignment(s) can be forwarded to the Administrative Hearings Section.

For more information regarding redetermination hearings, please reference Publication 96-145, Rules of Practice and Procedures (PDF) on our agency website.

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.

Webfile – Select the file extension option in Webfile and pay the difference, if any, between the amount paid with your first extension and 100 percent of the amount of tax that will be reported as due on the report filed on or before Nov. 15. You do not need to submit a paper Extension Request form if you select the file extension option in Webfile.

TEXNET – Select the extension payment option and pay the difference between the amount paid with your first extension and 100 percent of the amount of tax that will be reported as due on the report filed on or before Nov. 15.

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.

Reports and Payments Due Aug. 1

The following insurance annual and semi-annual tax payments are due Aug. 1:

Automobile Burglary and Theft Prevention Authority Assessment Report and Payment – Insurance companies that write any form of motor vehicle insurance in Texas as defined in Insurance Code, Article 5.01(e) must pay this assessment.

The first semi-annual payment of the Automobile Burglary and Theft Prevention Authority assessment is due Aug. 1. This payment is based on motor vehicle years for policies effective from Jan. 1 through June 30.

For more information, see Form 25-106, Texas Semi-Annual Insurance Premium Tax Payment Worksheet (PDF).

Premium Tax Prepayments – Licensed insurance companies, miscellaneous organizations and licensed captive insurance companies, with a net tax liability for the previous calendar year in excess of $1,000, must prepay premium tax semi-annually.

The second semi-annual prepayment is due Aug. 1. Prepayments are based on one-half of the total net premium tax due from the previous calendar year or one-half of the estimated current year’s net premium tax due, whichever is less.

For more information, see Form 25-101, Texas Semi-Annual Insurance Premium Tax Payment Worksheet (PDF).

Volunteer Fire Department Assistance Fund Assessment Billing and Payment – 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.

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.

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.

More Information

Publication 94-162 – Fireworks and Texas Taxes

Back-to-School Savings – Aug. 9-11

Get ready for back-to-school savings during the annual tax-free weekend, Aug. 9-11, 2019. During this time, shoppers can purchase tax-free 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 you can buy tax free, see Sales Tax Holiday/Tax-Free Weekend.

More Information

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

Webinars

Our latest webinar, Taxable Services, was held on Tuesday, June 18. The one-hour webinar highlights taxable services in Texas. In addition to a general overview of taxable services, we cover the following:

• amusement services
• data processing services
• nonresidential repair, remodeling and/or restoration services
• personal property maintenance, remodel and/or restoration services
• real property services

A recording of this webinar will soon be available on our Tax Training Resources webpage.

Podcast Episodes

Our next podcast episode will highlight booster clubs, and will discuss their tax exemptions and responsibilities. The booster club podcast episode will soon be released 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; and
• view the Podcast and Webinar Archive sections for previous recordings.

In this month’s issue, we continue a four-part series to help guide you through some common transactions related to motor vehicle sales tax.

This series contains the following topics:

• Part 1 – Motor Vehicle Gift Tax
• Part 2 – Salvage Motor Vehicles
• Part 3 – Motor Vehicle Exemptions
• Part 4 – Motor Vehicle Leases

Part 4 – Leases

In this month’s issue, we are looking at motor vehicle leases, and in next month's issue, we will discuss motor vehicle rentals. In each article we will discuss the differences between the two and how to assess tax on each transaction.

Leased Vehicle Transactions

For motor vehicle tax purposes, a lease is an agreement by an owner (lessor) to give exclusive use of a motor vehicle to a lessee for consideration for more than 180 days. Under the terms of an operating lease agreement, a lessor remains the title owner of a motor vehicle and a lessee has no ownership rights. An operating lease is the most common lease situation. On occasion, a lease may qualify as a conditional sale as described below.

In our next issue, we will discuss motor vehicle rentals. If you are in the business of renting motor vehicles, stay tuned.

More Information:

• Rule 3.70, Motor Vehicle Leases and Sales
• Publication 96-254, Motor Vehicle Tax Guide

Landscaping, lawn care and tree services include maintaining or improving lawns, plants, and trees. Some of these services are taxable while some are not.

Landscaping services do not include building, installing or repairing decks, retaining walls, fences, ponds, pools or underground sprinkler systems. See the “Construction” section for information on how tax is collected for those services.

Taxable Services

Landscaping and lawn care service providers, arborists and other tree care service providers must have a Texas Sales and Use Tax Permit and collect sales tax on the total amount charged for these services.

Examples of taxable landscaping, lawn care and tree services include:

• identifying, preventing or curing plant diseases
• planting and maintaining gardens
• planting, mowing, trimming and edging grass or other ground cover
• planting, transplanting, relocating and removing indoor or outdoor plants
• pruning, bracing, spraying, fertilizing and watering plants
• planting, trimming, spraying, maintaining and removing trees
• tree surgery, pruning and spraying
• hauling away branches, limbs and trees

Nontaxable Services

Examples of nontaxable landscaping, lawn care and tree services include:

• mowing cemeteries
• mowing pipeline or highway rights-of-way
• trimming trees away from power lines
• cutting down damaged or dead trees in a declared disaster area
• caring for trees in a commercial fruit or nut orchard*
• landscaping as part of new residential construction**

For nontaxable services, you can accept a properly completed sales tax exemption certificate (PDF) from your customer to document these services.

*Farmers and ranchers who raise agricultural products for sale as part of their regular business can give a Texas Agricultural Sales and Use Tax Exemption Certificate (PDF) to their sellers to claim an agricultural exemption from sales tax. You must clearly document on your invoices or receipts that your services were for an agricultural operation.

**See the “Landscaping New Residential Structures” section below for more information.

Collecting and Reporting Tax

You must collect state and local tax on the total amount you charge for your taxable services.

If you bill both taxable and nontaxable services in one charge, the entire charge is presumed taxable, if the taxable portion is 5 percent or more of the total bill. You or your customer can overcome the presumption by providing proof that establishes the percentage related to nontaxable services. Your invoices or contracts should clearly identify the services you perform.

For separately stated taxable and nontaxable charges, only collect sales tax on the charges for taxable services.

Local sales taxes are collected based on your place of business. If you are engaged in business in other local taxing jurisdictions, then you may be required to collect local use tax in addition to sales tax, as long as the total amount of local tax collected does not exceed 2 percent.

For more information on collecting local taxes, see Local Sales and Use Tax Collection – A Guide for Sellers (PDF).

Materials, Supplies and Equipment

Tax is due on all equipment and supplies you use or purchase to perform your services.

You can give your suppliers properly completed resale certificates (PDF) instead of paying tax on services and materials you purchased for sale to your customer as part of your services.

For example, if you use fertilizer, plants, herbicides, processed dirt, sand or gravel, you can buy these items tax free by giving your supplier a resale certificate because you are reselling them to your customer.

On the other hand, if you buy items such as rakes, shovels, or wheelbarrows for your employees to use to perform the services, you owe sales and use tax on these items because you are not selling them to your customers.

Reselling a Landscaping Service

If you buy landscaping or other taxable services from a third-party vendor (subcontracting) and resell those services to your customer, you can give the vendor a properly completed resale certificate (PDF) instead of paying tax. You must then collect tax from your customer on the total service charges.

Lawn and Yard Care Services by the Self-Employed

Nontaxable Services

If you are self-employed, your lawn and yard care services are nontaxable if you:

• perform the actual services;
• have no employees, partners or others doing the services; and
• earned $5,000 or less during the last 12 months.

Taxable Services

If you earned more than $5,000 for your lawn and yard care services in the last 12 months, you must have a sales tax permit and collect tax beginning the next quarter.

If you have a sales tax permit and your earnings fall to $5,000 or less for the most recent 12 months, your services become nontaxable again at the beginning of the next quarter. In that case, you should call or write the comptroller to close your permit, unless you have other taxable sales.

Landscape Designers and Architects

Standalone charges for a landscape designer’s or an architect’s professional services are not taxable and include:

• consulting
• researching
• preparing design plans
• other engineering or architectural services

If, however, you also provide a taxable service with your nontaxable professional services, you must list the taxable and nontaxable charges separately. Otherwise, your total charge will be presumed taxable if the taxable portion is greater than 5 percent. You or your customer can overcome the presumption by providing proof that establishes the percentage related to nontaxable services. Your invoices or contracts should clearly identify the services you perform.

Construction

Landscaping services do not include building, installing or repairing decks, retaining walls, fences, pools or underground sprinkler systems. These activities (real property improvements) are either new construction or real property repair, remodeling or restoration work.

If you perform new construction or residential repair, remodeling or restoration contract work, then you are a contractor. If you repair, remodel or restore nonresidential real property, then you are a taxable service provider.

New Construction and Residential Repair, Remodeling or Restoration Work

Sales tax is not due on labor to repair, remodel, or restore residential real property or to build new residential or nonresidential structures.

The contract type determines who pays tax on the incorporated materials.

Under a lump sum contract (one charge for labor and incorporated materials), you pay sales tax when buying the materials and do not collect tax from your customer.

Under a separated contract (separate charges for labor and incorporated materials), you collect sales tax from the customer on the charges for the materials, but not for labor. You will collect local tax based on the job site’s address.

A contractor using a separated contract can buy the incorporated materials tax free by giving a properly completed resale certificate (PDF) to their retailer.

Nonresidential Real Property Repair, Remodeling and Restoration

When you repair, remodel or restore nonresidential real property (for example, fix an existing sprinkler system or repair part of a fence or retaining wall for a commercial property), you are providing a taxable service. You must collect sales tax on the total charge to your customer for materials, labor and other expenses.

You can give a resale certificate (PDF) to the supplier instead of paying sales tax on any incorporated materials and services that you will sell to the customer.

Landscaping New Residential Structures

Landscaping and lawn care services are not taxable when a contractor or homebuilder buys them as part of building a new home or residence. These services are excluded from sales and use tax.

This exclusion applies to model and speculative homes that will be sold for residential use, but not for an office or other nonresidential building. For example, tax is due on landscaping for a sales office, even if it is located in a residential development.

The materials you transfer to the contractor or homebuilder, such as trees and plants, are taxable. Your contract type determines who pays the tax on these incorporated materials.

Under a lump-sum contract (one charge for materials and labor), you pay tax when buying the materials and do not collect tax from your customer.

Under a separated contract (separate charges for materials and labor), you collect tax on the material charges from the contractor or homebuilder. You can buy the incorporated materials tax free by giving the retailer a resale certificate (PDF).

It is very important that you obtain, at the time you contract to do the work, written certification from your customer confirming that the exclusion applies because the property involved is both residential and new (i.e., has never been occupied). If the contractor or homebuilder provides false certification, then you will not be responsible for the tax consequences.

More Information

• Rule 3.356, Real Property Service
• Rule 3.291, Contractors
• Rule 3.357, Real Property Repair, Remodeling, and Restoration; Real Property Maintenance
• State Tax Automated Research (STAR) System letter 200808239H.

Closing your business in Texas might take more steps than you realize. You may only need to close your business with the Comptroller’s office, or you may need to take further action, depending on how your business was registered and what types of licenses or permits you have.

The information provided here explains how to close the Texas state tax reporting responsibilities for your business with our office. If you have licenses or reporting responsibilities with other agencies, please contact those agencies for information on their requirements.

Use the chart below to see the steps you must follow and what forms you are required to file to close your business.

Once you determine the forms you are required to file, you can contact our office to cancel Comptroller-issued licenses and permits, except fuels tax and IFTA licenses. Call the phone number for the appropriate tax from our list of Frequently Called Numbers.

To cancel fuels tax and IFTA licenses, including dyed diesel end user permits, contact us by email, mail or fax:

• Email:
  • Fuels Tax: FuelsTax@cpa.texas.gov
  • IFTA: IFTA@cpa.texas.gov
• Mail:
  • Texas Comptroller of Public Accounts
  • Attn: Fuels Tax/IFTA
  • Lyndon B. Johnson State Office Building
  • 111 East 17th Street
  • Austin, Texas 78774
• Fax:
  • Fuels Tax: 512-936-0012
  • IFTA: 512-936-0013

Find your business in the chart below to learn what steps to take to close your business and what forms you need.

Sales Tax - Taxability of Trolley-Style Bike Rental Service

April 18, 2019

The Tax Policy Division ruled that a trolley-style bike service is a taxable amusement services and not a transportation service.

The taxpayer charges a fee for providing a trolley-style bike with an operator during a specified time slot. The trolley can carry up to 16 riders and relies on their pedaling power to move along a designated route. The operator, or “captain,” is responsible for the riders’ safety and the trolley’s operations. Riders can bring snacks and drinks on their ride, and can request stops at points of interest along the route. The trolleys are rented on an hourly basis and the taxpayer’s services are advertised as group amusement activities.

Renting tangible personal property (i.e., a trolley-style bike) with an operator implies that the purchaser is paying for a service. Services are generally not taxable unless specifically taxed under Texas Tax Code Section 151.0101, Taxable Services. Although a stand-alone charge for transportation is not taxable, this service offers more than just transportation. The trolley-style bike service is intended to provide a ride for entertainment and recreation. The purchaser of this experience is paying for a taxable amusement service.

See State Tax Automated Research (STAR) System letter 201904001L.

As of April 1, 2019, HomeAway will collect and remit the 6 percent state hotel occupancy tax on Texas short-term rentals booked through HomeAway websites.

We created a new webpage to answer frequently asked questions about the new tax responsibilities for HomeAway and its partners.

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.

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

Franchise 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