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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

November 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...

Reminders

Coin-Operated Amusement Machines Tax – 2020 Renewal Applications

Coin-operated amusement machine owners and operators must file renewal applications and remit payment for their 2020 General Business License, Registration Certificate, Import License or Repair License by Dec. 2, 2019.

A $60 occupation tax permit is also due by Dec. 2, 2019, for each coin-operated amusement machine that is exhibited or displayed in Texas. An occupation tax permit decal must be affixed to each machine in use.

The Comptroller's office mailed renewal application packets in September. Coin-operated amusement machine owners and operators who have not received renewal packets should contact our office by email or by calling 800-531-5441, ext. 33731.

Tax Training Resources

Podcast Episodes, Webinars, Videos and Seminars

Webinars

A recording of our last webinar, “Fairs, Festivals, Markets and Shows” will soon be 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 next webinar, Online Sales and Remote Sellers, is scheduled for Tuesday, Dec. 10, 2019. This webinar will highlight updates from the 86th Texas Legislature. Registration for this webinar will soon be available on our Tax Training Resources webpage.

Podcast Episodes

Our current podcast episode highlights booster clubs and discusses their tax exemptions and responsibilities. You can listen to our booster club podcast episode 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
  • view the Podcast and Webinar Archive sections for previous recordings

Hotel Occupancy Tax

Hotel Occupancy Tax Responsibilities - Renting Through HomeAway and Vacation Rental by Owner (Vrbo)

As of April 1, 2019, HomeAway and Vrbo are collecting and remitting the 6 percent state hotel occupancy tax on their Texas short-term rentals. Previously, only Airbnb collected and remitted this tax on their rental properties.

If you rent your property through HomeAway, Vrbo or Airbnb, you should not collect the state hotel occupancy tax on your properties, nor report any short-term rentals made through these rental platforms on your Texas Hotel Occupancy Tax Report (PDF).

For any non-HomeAway, non-Vrbo and non-Airbnb rentals, you will continue to

If you only rent through HomeAway, Vrbo or Airbnb, you can close your state hotel occupancy tax account by indicating your tax responsibility has ended on the Texas Hotel Occupancy Tax Report (PDF) for your last required reporting period.

Or you can email, mail or fax our Revenue Accounting Section and provide the following:

  • taxpayer number
  • taxpayer name
  • statement requesting responsibility be ended
  • reason for ending the reporting responsibility
  • date responsibility to be ended
  • requestor’s contact information

Revenue Accounting Section contact information

Comptroller of Public Accounts
Attn: Hotel Occupancy Tax
P.O. Box 149356
Austin, TX 78714-9356

For more information, visit the Comptroller’s office Hotel Occupancy Tax FAQs webpage.

Local Hotel Occupancy Tax Responsibilities

If you rent your property through HomeAway, Vrbo or Airbnb, you still have local tax reporting responsibilities.

Local taxing jurisdictions, including cities, counties and special purpose districts, can impose a local hotel occupancy tax.

To determine your local tax responsibilities for HomeAway, Vrbo, Airbnb and rentals outside of these platforms, please contact your city, county or special purpose district where your short-term rental is located.

Sales and Use Tax

Policy Change to Medical Billing Services

Effective Jan. 1, 2020, certain medical billing services currently not subject to tax will become taxable. We have determined that neither Section 151.0039 nor Rule 3.355(a)(8) exclude medical billing services from the definition of insurance claims adjustment or claims processing. These services are taxable insurance services.

Medical billing services may include assigning codes for the preparation of claims, verifying insurance eligibility, preparing claim forms for filing, filing the claim, resubmitting and adjusting claims, reviewing and appealing denied claims, settling claims, and posting payment for a claim. As a result of this policy change, a number of State Tax Automated Research (STAR) documents will be superseded.

See State Tax Automated Research (STAR) document 201911003L for more information.

Reimbursements for Contractors and Taxable Service Providers

As a contractor or taxable service provider, you may incur some business expenses that you wish to be reimbursed for on a dollar-for-dollar basis (i.e., a reimbursement). A reimbursement is a sum paid to cover money that has been spent or lost. Depending on the contract, type of work, and reimbursement type, you may be required to collect sales tax on your charges.

As a reminder, contractors perform new construction; residential real property repair, remodeling, maintenance, and restoration; or nonresidential real property scheduled and periodic maintenance.

In contrast, taxable service providers repair, remodel, or restore nonresidential real property.

For more information on contractors and taxable service providers, see our August 2018 Tax Policy News article, “The Sales Tax ABCs for Contractors and Taxable Service Providers.”

What is “Sales Price”?

The sales price is the total cost the customer pays for tangible personal property or a taxable service, including any delivery fees or other expenses included in the cost (such as labor), even if separately stated.

When performing a nontaxable service (such as new construction or residential real property repair, remodeling, and restoration), the related charges (such as inspection charges, permit fee and other reimbursements) are component costs of the service regardless of the contract type (lump-sum total charge or separately stated) with the customer.

Tax Responsibilities

Depending on the contract used, your tax responsibilities as a contractor or service provider will vary.

Contractor – Lump Sum v. Separated

Under a lump-sum contract, you are the consumer of all items purchased (or removed from a tax-free inventory) to perform the work. The reimbursement charges incorporated into your lump-sum contract are not taxable, and you do not collect sales tax from your customer on materials, labor, or reimbursements that are part of that charge.

For example, Robert (under a lump-sum contract) completes a kitchen-remodeling project for an existing home in Austin, Texas. He invoices his customer:

  • Kitchen Remodeling: $45,000
  • Includes:
    • Materials
    • Labor
    • Meal Reimbursements
    • Fuel Reimbursements
  • Total Price: $45,000

In this instance, Robert does not need to collect any sales tax from his customer.

Under a separated contract, you are the seller of the incorporated materials. You can provide a properly completed resale certificate to your supply vendor instead of paying tax on the incorporated materials and must collect tax on the incorporated materials billed to your customer, but there is no tax due on labor. Reimbursements related to the incorporated materials charge, such as fuel reimbursements for material pickup and delivery, are taxable. Reimbursement charges directly connected to the labor component, such as wait time, per diem, lodging, etc., are not taxable.

Using a similar example, Robert now invoices his customer using a separated contract:

  • Kitchen Remodeling:
    • Materials: $25,000*
    • Labor: $19,000
    • Meal Reimbursements: $500
    • Fuel Reimbursement (Material Pick Up): $300*
    • Wait Time: $200
  • Subtotal: $45,000
  • Sales Tax (8.25 percent): $2,087.25
  • Total: $47,087.25

(*) – denotes taxable charges

In this example, Robert must collect sales tax on the taxable portions of the separated contact (i.e., materials and fuel reimbursements). The total sales tax he should collect is $2,087.25, which is ($25,300 x .0825).

Contractor - Reimbursements for Equipment and Consumables

Both lump-sum and separated contractors improving real property must pay tax on equipment purchased or rented to complete the job. Additionally, the contractor owes tax on consumables used at the job site of nonexempt customers at the time of purchase. The contractor should not charge tax to the customer for reimbursement of either of these charges.

A separated contractor may bill the customer for reimbursement of expenses incurred on the purchase or rental of equipment and purchases of consumables used on the job. Sales tax on the purchase or rental of these items is an expense to the separated contractor. The contractor must clearly label these items as a reimbursement.

For example, Robert needs to rent an excavator and purchase various consumables to complete a new irrigation system installation for his nonexempt customer. He invoices his customer:

  • Irrigation Installation:
    • Materials: $20,000*
    • Labor: $15,000
    • Consumables Reimbursement: $1,000
    • Equipment Reimbursement: $5,000
  • Subtotal: $41,000
  • Sales Tax (8.25 percent): $1,650
  • Total: $42,650

(*) – denotes taxable charges

In this instance, Robert has indicated the tax-paid consumables and equipment reimbursements on the invoice and does not need to collect tax on these charges. He must still collect tax on the incorporated materials charges ($20,000).

If you do not properly represent the reimbursement of your expenses to purchase or rent equipment or your purchase of the consumables, including the tax you paid, you must remit any charge represented as sales or use tax on your customer’s invoice to the Comptroller’s office. Documenting these charges as expense reimbursements avoids the customer’s perceiving you are collecting taxes.

Reimbursements for Taxable Service Providers

If you repair, remodel, or restore nonresidential real property, you are a taxable service provider. You owe tax when purchasing or renting equipment and consumables you use to complete your projects for nonexempt entities. You are not reselling these items to your customer.

A taxable service provider must collect tax on all charges billed to the customer for the taxable service, regardless of the contract type (lump-sum or separately stated). A service provider must charge tax on a lump-sum charge, including any reimbursements included in that lump-sum charge. For example, Robert renovates an employee breakroom for an existing business office in Houston, Texas. He invoices his customer:

  • Breakroom Remodeling: $152,000*
  • Includes:
    • Materials
    • Labor
    • Meal Reimbursements
    • Fuel Reimbursements
    • Wait Time
  • Subtotal: $152,000
  • Sales Tax (8.25 percent): $12,540
  • Total: $164,540

(*) – denotes taxable charges

Likewise, a taxable service provider must collect tax on all charges made for the service when the charges are separated, including any reimbursement charges. For example, Robert instead invoices his customer using a separated contract:

  • Breakroom Remodeling:
    • Materials: $100,000*
    • Labor: $50,000*
    • Meal Reimbursements: $1,000*
    • Fuel Reimbursement (Material Pick Up): $500*
    • Wait Time: $500*
  • Subtotal: $152,000
  • Sales Tax (8.25 percent): $12,540
  • Total: $164,540

(*) – denotes taxable charges

More Information

Sales Tax and the Creative Arts: Your Tax Responsibilities as an Artist in Texas – Part 2

Graphic Design and Photography

This is our second part in a series of articles about artists and their sales tax responsibilities. Our previous article explained that artwork is tangible personal property. An artist who sells their work at trade shows, festivals, or from their home must have a sales tax permit and collect sales tax from their customers. Part 2 continues that discussion, focusing on the world of graphic art and design.

Charges for the design and sale of graphic art, whether in electronic or hard copy format, are taxable.

Examples of graphic art can include

  • designing logos
  • graphics for a customer’s website homepage
  • business stationery
  • display items
  • marketing materials
  • miscellaneous corporate identity items, as well as such things as painting and photography

If you sell graphic design items, all costs, expenses and services related to producing the design are taxable as part of the sale of finished art. It does not matter if your customer has you send your work to a printer or web designer for development of the final product.

A charge for a design idea or consultation is not taxable if the customer does not hire you to create the design. For example, your customer approaches you to design a set of logos for their start-up company. You charge them $150 for the initial consultation to discuss the design. After you complete the logos, your customer decides not to move forward with your design. The $150 you charged is not taxable because no finished product was transferred to your customer.

Photographers Are Graphic Artists

Another form of graphic art is photography. Sales of photographs provided to customers as physical prints, digital images, or electronic images are taxable. All expenses directly related to the production and sale of photographs and billed to the customer are subject to tax.

If you are a photographer, you are a retailer of taxable items. You must apply for a Texas sales and use tax permit, and collect and remit sales tax for sales of taxable items sold in Texas.

Tax Exemptions for Photographers

With an active sales tax permit, you can claim a tax exemption for items you purchase that will be resold (e.g., photo paper or frames transferred to your customer through the sale) by giving your vendor a resale certificate (PDF) at the time of purchase.

Photographers are also acting as manufacturers when creating items for ultimate sale. As such, you can purchase some items used in the manufacturing process tax free by giving your vendor an exemption certificate (PDF), claiming a manufacturer’s exemption.

Examples of qualifying exempt items include

  • cameras (film and digital)
  • flashes
  • batteries for cameras and flashes
  • scanners used exclusively to digitize images so they can be edited on computers
  • computers and software used exclusively in editing images
  • image setting and proofing equipment
  • film-developing chemicals
  • lights, props and sets
  • special effects equipment and supplies

We hope this helps shed some light on the tax responsibilities you may have as a graphic designer or photographer. Be on the lookout for the next article in our Sales Tax and the Creative Arts series, which will focus on audio and video master recordings.

More Information

Rules

Proposed

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

Amusement Machine Regulation and Tax

Rule 3.602– Licenses and Certificates, Renewals and Due Dates
Publication date – Nov. 22, 2019
Comment period end date – Dec. 22, 2019

Rule 3.603– Denials, Suspensions; Revocations; Violations; Hearings
Publication date – Nov. 22, 2019
Comment period end date – Dec. 22, 2019

Cigarette, E-Cigarette, and Tobacco Products Regulation

Rule 3.1205– Delivery Sales of Cigarettes (Health and Safety Code, Chapter 161, Subchapter R)
Publication date – Nov. 15, 2019
Comment period end date – Dec. 15, 2019

Rule 3.1202– Warning Notice Signs
Publication date – Nov. 15, 2019
Comment period end date – Dec. 15, 2019

Motor Vehicle Sales Tax

Rule 3.82– Exemption for Churches or Religious Societies
Publication date – Nov. 15, 2019
Comment period end date – Dec. 15, 2019

State and Local Sales and Use Tax

Rule 3.320– Texas Emissions Reduction Plan Surcharge; Off-Road, Heavy-Duty Diesel Equipment
Publication date – Nov. 15, 2019
Comment period end date – Dec. 15, 2019

Rule 3.280– Aircraft
Publication date – Nov. 15, 2019
Comment period end date – Dec. 15, 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: