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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

June 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...

The 86th Texas Legislature

Legislative Update

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.

Audit Update

Update to Redetermination Hearing Requests Process

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.

Reminders

Franchise Tax

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.

Insurance Tax

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.

Sales Tax

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 Training Resources

Podcast Episodes, Webinars, Videos and Seminars

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:

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.

Motor Vehicle Tax

Motor Vehicle Sales and Use Tax Guide

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 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.

Motor Vehicle Titled to Lease Company

Motor vehicles purchased to be leased are subject to motor vehicle sales or use tax based on the purchase price of the motor vehicle to the lessor. It is the lessor’s purchase that is subject to tax. Tax is due at the time of titling and/or registration.

The leasing company remits tax at a rate of 6.25 percent of the total consideration paid, less trade-in and fair market value deduction (PDF).

When the motor vehicle is leased, no additional tax is collected on the lease payments.

Motor Vehicle Leased Outside Texas by Texas Resident – Title to Leasing Company

When a motor vehicle is leased in another state, and the lessee is a Texas resident or a business domiciled or doing business in Texas that brings the motor vehicle to Texas, the lessee (as the operator) owes motor vehicle use tax. This also applies when a Texas resident assumes a lease on an out-of-state vehicle and brings it into Texas for use. The amount owed in use tax is based on the price the lessor paid for the motor vehicle, not the dollar amount being assumed by the lessee.

Credit can be given for any tax the lessor or the lessee paid to another state, Puerto Rico or any U.S. possession or territory. Either the lessor or the lessee must document such tax payments in order to claim credit.

Title to Lease Customer at End of an Operating Lease

A retail sale occurs when the leasing company sells the motor vehicle to the lessee or another party. If the lessee agrees to purchase the motor vehicle, motor vehicle sales or use tax is based on the amount paid at the conclusion of the lease. Standard presumptive value (SPV) applies if the leasing company is not a dealer. SPV is the private-party transaction value of a motor vehicle as determined by the Texas Department of Motor Vehicles (TxDMV) based on an appropriate regional guidebook of a nationally recognized motor vehicle value guide service.

The lessee receives no credit for tax reimbursed to the lessor on lessor’s initial purchase of the vehicle to be leased.

Conditional Sale

An agreement that satisfies either of the following conditions is considered a conditional sale and not a lease:

  • The lessor transfers the motor vehicle to a lessee under a “must purchase” clause; or
  • The lessor transfers the motor vehicle to a lessee under an “option to purchase” clause at nominal value.

Under a conditional sale, the lessor is not responsible for tax. Instead, the lessee (as the purchaser) is liable for the tax, which is based on the total consideration the lessee paid to the lessor. The lessee pays the tax up front at the time the vehicle is titled and/or registered.

No additional tax is due at the end of the agreement when the lessor transfers the title to the lessee, provided the correct amount was paid upon titling in the lessor’s name.

Motor Vehicle Leased Outside Texas by New Resident – Title to Leasing Company

If a new Texas resident brings a leased motor vehicle into Texas, the new resident owes the $90 new resident tax.

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

More Information:

Sales Tax

Landscaping, Lawn Care and Tree Services

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

Sales and Franchise Tax

Closing Your Business in Texas

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:

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

Steps to Close Your Business
Type of Business Steps to Close the Business Other Steps or Forms Required
All businesses (includes sole proprietor or owner and partnership having only natural persons as partners)
  1. Cancel any Comptroller-issued permits or licenses, including:
  2. File any reports due, even if no tax is due.
  3. Pay any amounts due for tax, penalties and interest.
Texas entity registered with the Texas Secretary of State’s office (SOS), including:
  • corporation
  • limited liability company (LLC)
  • limited partnership (LP)
  • professional association (PA)
  • professional corporation (PC)
See above A Texas entity registered with the SOS that is subject to franchise tax must file a final franchise tax report with an accounting period end date that includes the date of your last activity in Texas.
  1. Franchise taxpayers must file Form 05-359, Request for Certificate of Account Status to Terminate (PDF). If your entity is part of a combined group, see Terminating or Reinstating a Business and Requesting Tax Certificates and Tax Clearance Letters for instructions.
  2. File with the SOS, before the end of the year, the:
    • Comptroller-issued Certificate of Account Status to Terminate
    • SOS-required termination forms
    • SOS filing fees
Texas entity not registered with the Texas SOS See above
  1. File any reports due, even if no tax is due. A Texas entity not registered with the SOS that is subject to franchise tax must file a final franchise tax report with an accounting period end date that includes the date of your last activity in Texas.
  2. Pay any amounts due for tax, penalties and interest.
  3. Provide the date your entity ended its business operations in Texas by sending to our office:
    • a completed nexus questionnaire or
    • a statement letter giving the entity’s:
      • name
      • Texas taxpayer number
      • last day of business operations in Texas
      • authorized representative’s name and signature
Out-of-state entity registered with the Texas SOS
  1. File any reports due, even if no tax is due. An out-of-state entity registered with the SOS that is subject to franchise tax must file a final franchise tax report with an accounting period end date that includes the date of your last business activity in Texas.
  2. Pay any amounts due for tax, penalties and interest.
  3. Franchise taxpayers must file Form 05-359, Request for Certificate of Account Status to Terminate (PDF). If your entity is part of a combined group, see Terminating or Reinstating a Business and Requesting Tax Certificates and Tax Clearance Letters for instructions.
  4. File with the SOS, before the end of the year, the:
    • Comptroller-issued Certificate of Account Status to Terminate
    • SOS-required termination forms
    • SOS filing fees
Out-of-state entity not registered with the Texas SOS
  1. File any reports due, even if no tax is due. An out-of-state entity not registered with the SOS that is subject to franchise tax must file a final franchise tax report with an accounting period end date that includes the date of your last activity in Texas.
  2. Pay any amounts due for tax, penalties and/or interest.
  3. Provide the date your entity ended its business operations in Texas by sending to our office:
    • a completed nexus questionnaire or
    • a statement letter giving the entity’s:
      • name
      • Texas taxpayer number
      • last day of business operations in Texas
      • authorized representative’s name and signature

Private Letter Rulings

Sales and Use Tax

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.

Website Update

Hotel Occupancy Tax

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.

Public Notice

A Message from the Texas Workforce Commission – Service Animals and Their Access to Public Places

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.

Rules

Proposed

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

Franchise Tax

Rule 3.584– Margin: Reports and Payments
Publication date – June 21, 2019
Comment period end date – July 21, 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: