Tax Policy News

We continually strive to provide the best possible Electronic Data Interchange (EDI) user experience. EDI News provides notifications about EDI software updates, new software features and EDI website maintenance information and technical issues.

Upcoming Sales Tax Reporting Changes

The following sales tax reporting changes affect those who create or use third-party/proprietary software to report EDI files.

As a result of the U.S. Supreme Court’s June 21, 2018 decision in South Dakota v. Wayfair, certain out-of-state taxpayers may be required to report local sales and use tax to the state of Texas as remote sellers or marketplace providers beginning Oct. 1, 2019. Please see Texas Tax Responsibilities and Resources for Sellers After Wayfair for more information.

Third-party or Proprietary Software Users

Remote sellers who elect to use the state’s newly created single local use tax rate must update their EDI reporting maps. Taxpayers who continue to report as list or outlet filers do not need changes to their EDI maps. Please note that the single local use tax rate is not available for marketplace providers.

Please contact your software provider and review the new EDI maps (PDF) for coding requirements and other information.

More Information

For EDI questions, please email us at EDI.help@cpa.texas.gov or call 800-442-3453. If this email was forwarded to you, we encourage you to sign up for future EDI News messages.

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.

Another current podcast episode highlights responsibilities for sellers after Wayfair. This episode gives a general overview of the changes that occurred in Texas resulting from the U.S. Supreme Court’s decision in South Dakota v. Wayfair. We also discuss House Bill 1525 from the 86th Texas Legislative Session, which creates new tax responsibilities for marketplace providers and marketplace sellers. You can listen to our Wayfair podcast episode 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

A sale for export is a sale that occurs when a person purchases motor fuel in Texas for sale or use in another state, territory or country.

A subsequent sale for export is a sale that occurs when a Texas-licensed buyer removes the fuel from the bulk transfer system to export the fuel, and – before the export occurs – sells the fuel in Texas to another licensee authorized to export fuel.

To sell fuel tax-free for export, the purchaser must be licensed in Texas as an exporter or be licensed to act in the capacity of an exporter. A person can act in the capacity of an exporter by having one of the following Texas licenses:

• supplier
• permissive supplier
• distributor
• importer
• exporter

To apply for a Texas fuels tax license, complete Form AP-133, Texas Application for Fuels Tax Licenses (PDF) and submit the application with the required bond form.

Reporting

If a subsequent sale for export occurs, all persons involved in the transaction have a reporting requirement in Texas.

The following is an example of a subsequent sale for export transaction. Company A (licensed supplier) sells fuel tax free for export to Company B (licensed distributor) who sells the fuel tax free to Company C (licensed exporter) for export.

To report this transaction, each company has different reporting requirements.

Company A (licensed supplier) sold fuel for export to Company B (licensed distributor). Company A is required to report the sale on Line 16, Gallons sold tax free for export, on Form 06-168, Texas Fuels Tax Report, and include Form 06-158, Texas Schedule of Gallons Sold Tax-Free for Export.

Company B (licensed distributor) subsequently sold the fuel to Company C (licensed exporter). Company B is required to report the sale on Line 17, Gallons subsequently sold tax-free prior to export, on Form 06-168, Texas Fuels Tax Report, and include Form 06-190, Texas Schedule for Gallons Subsequently Sold Texas Tax-Free Prior to Export.

Company C (licensed exporter) exports the fuel. Company C is required to report the purchase on Line 15, Gallons exported, on Form 06-168, Texas Fuels Tax Report, and include, Form 06-157, Texas Schedule of Gallons Exported.

A subsequent sale does not include fuel sales occurring within the bulk transfer system.

If a licensee purchases tax-paid fuel for export, the licensee can take a credit on their fuels tax report within the four-year statute of limitations, provided that the export documentation substantiates the export. If, however, the buyer is not licensed in Texas as an exporter, they have one year from the fuel purchase date to request a fuels tax refund from the Comptroller’s office.

More Information

• Section 162.1155, Duty to Report Subsequent Sales of Tax-Free Gasoline Purchased for Export
• Section 162.2165, Duty to Report Subsequent Sales of Tax-Free Diesel Fuel Purchased for Export
• Section 162.104 and Section 162.204, Exemptions
• Section 162.128, When Gasoline Tax Refund or Credit May Be Filed
• Section 162.230, When Diesel Fuel Tax Refund or Credit May Be Filed
• Rule 3.432, Refunds on Gasoline, Diesel Fuel, Compressed Natural Gas, and Liquefied Natural Gas Taxes
• Rule 3.441, Documentation of Imports and Exports, Import Verification Numbers, Exports Sales, and Diversion Numbers

In response to the U.S. Supreme Court’s decision on South Dakota v. Wayfair, remote sellers who were previously not required to collect and remit sales and use tax may have to begin collecting Texas tax on their sales into Texas.

A remote seller is a seller whose only activities in this state are the remote solicitation of sales, including activities such as soliciting sales through catalogs or flyers, radio or television, the telephone, or the internet. A remote seller cannot have a physical presence or representative in the state. Remote sellers are “engaged in business” in Texas, and may have to collect Texas use tax if they exceed the “safe harbor” provision.

What is the “Safe Harbor” Provision?

The safe harbor provision provides that remote sellers with less than $500,000 in total Texas revenue (during the preceding twelve calendar months) are not obligated for collecting use tax on the items they sell to their Texas customers. If you make less than $500,000 in total Texas revenue (during the preceding 12 calendar months), then you do not need a Texas use tax permit. Instead, your customer is responsible for paying the use tax due. As a courtesy to your customer, you can apply for a use tax permit to collect and remit the tax on their behalf.

Any remote sellers with $500,000 or more in total Texas revenue (during the preceding 12 calendar months) must apply for a use tax permit and begin collecting use tax by Oct. 1, 2019. The first 12-month period, determining safe harbor status, is July 1, 2018 through June 30, 2019.

If you need a use tax permit, then you can apply online or submit an application (PDF).

Which Taxes Should I Collect?

Beginning Oct. 1, 2019, if you are required to have a use tax permit, then you have two options for collecting the local use tax. You can either collect the local use tax:

1. based on the destination location (i.e., the location to which the item is delivered); or
2. using a single local use tax rate (i.e., currently a flat rate of 1.75 percent).

If you choose to collect the local use taxes based on the destination location, you do not need to inform our office. Texas use tax rates are identical to Texas sales tax rates. You can use our Tax Rate Locator webpage to determine the exact total local use taxes to collect.

If, however, you opt to collect the single local use tax rate, you must contact our office (in writing) prior to doing so. The single local use tax rate is the estimated average rate of local sales and use taxes imposed in Texas for the prior fiscal year. We will publish this rate in the Texas Register prior to Jan.1st of each year.

What If I’m a Marketplace Seller That Sells Through a Marketplace Provider?

A marketplace is a physical or electronic medium that third-party sellers use to makes sales, including a store, internet website, software application, or catalog. The third-party sellers are referred to as marketplace sellers. A marketplace provider is a person who owns or operates a marketplace and processes sales or payments for marketplace sellers. Marketplace providers include Amazon, eBay, Walmart Marketplace, and Etsy.

Marketplace providers must collect and remit Texas taxes on all third-party sales and certify to marketplace sellers that the marketplace provider will collect and remit Texas tax. After receiving the certification, marketplace sellers will not be responsible for collecting and remitting sales and use tax on their sales through the marketplace, but they must retain sales records.

If you are a remote seller that sells through a marketplace provider, you do not include any sales made through a marketplace provider who has certified that they will collect Texas taxes for the first 12-month period of July 1, 2018, through June 30, 2019. These sales do not count against the safe harbor amount ($500,000). The Comptroller’s office is currently amending Rule 3.286, Seller’s and Purchaser’s Responsibilities. Going forward, remote sellers may have to aggregate their sales through a marketplace provider.

For example, a remote seller makes $300,000 in total sales into Texas through its website and $600,000 in sales through multiple marketplace providers for the first 12-month period. In this instance, as long as the remote seller has no physical presence in Texas, they are below the safe harbor amount and are not required to collect and remit Texas taxes beginning Oct. 1, 2019.
Editor's Note: As of April 1, 2020, sales through all mediums must be included in the calculation of the safe harbor threshold. See STAR 202002011L.

What If I No Longer Make $500,000 or More in Total Sales into Texas?

If you have 12 consecutive months in which total Texas revenue for the preceding 12 calendar months was less than $500,000, then you can terminate your tax collection responsibilities.

If you wish to terminate your responsibilities, you must submit Form 01-798, Remote Seller’s Intent to Terminate Use Tax Responsibilities (PDF) to our office. Additionally, you must keep your records for at least four years.

Afterwards, if you have $500,000 or more in total Texas revenue again, then you must resume collecting use tax on the first day of the second month following any 12 calendar months in which your total Texas revenue is $500,000 or more. Again, you must obtain a new permit before you begin selling items in Texas in the future.

Related Information:

• House Bill 1525
• House Bill 2153
• Texas Tax Responsibilities and Resources for Sellers after Wayfair Webpage
• Rule 3.286, Seller’s and Purchaser’s Responsibilities
• Rule 3.334, Local Sales and Use Taxes
• Rule 3.346, Use Tax

Are you an artist? If so, do you know your sales tax responsibilities? This is the first in a series of articles exploring the different sales tax responsibilities for artists in Texas. If you are a sculptor, sketch artist, painter or freelance photographer, and you sell artwork in Texas, this series is for you.

Artwork is Taxable

Artwork is tangible personal property in Texas and is subject to sales and use tax when sold. Artwork can take on many forms, including

• ceramics
• drawings
• paintings
• sculptures
• graphic design
• crafts
• photographs (digital or hard copy)
• video (digital or hard copy)

Applying for a Sales Tax Permit

If you are engaged in business in Texas, you must apply for a sales tax permit. There are three methods of doing so:

1. apply online;
2. apply in person in one of our field offices in the state; or
3. mail the completed application, Form AP-201 (PDF).

You should apply for your sales tax permit prior to or within 90 days of your first day doing business in Texas. On your application, enter the first day you conducted business as an artist in Texas as your “start date.”

Applying for a sales tax permit is free, and you will be assigned your 11-digit Texas taxpayer ID number once you have submitted your application.

Collecting Local Tax at Trade Shows and Art Galleries

Artists commonly sell their work at local art shows and art galleries. Selling your work at these types of venues in Texas means you are engaged in business in Texas and are required to have a sales tax permit.

The Texas state sales and use tax rate is 6.25 percent. Cities, counties, special purpose districts (SPDs) and transit authorities may adopt local sales and use taxes up to 2 percent. Artists must collect the state and local sales tax on sales made from your place of business. A place of business is an outlet or location operated by a seller for the purpose of selling taxable items. A place of business also includes any location operated by a seller at which the seller receives three or more orders for taxable items in a calendar year.

[Editor's Note: Rule 3.334 was amended in 2014 to restrict a place of business’ sales to those sales other than to employees, independent contractors, and natural persons affiliated with the seller. The definition of a distribution center was amended in 2020 to include this same 2014 amendment which had been overlooked. With respect to Tax Code Section 321.002(a)(3)(A), the Comptroller has revised its interpretation of the definition to require that a location be established for the purpose of receiving orders.]

The total rate of tax collected cannot exceed 8.25 percent on the sale of a taxable item or taxable service. For additional local tax rate information, please refer to Publication 94-105, Local Sales and Use Tax Collection – A Guide for Sellers.

You can verify the tax rates assigned to a specific address by visiting our Local Sales and Use Tax webpage to access “Determine the Sales Tax Rate in Your Area” information. This includes our Tax Rate Locator, which you can use to search by physical address. The Tax Rate Locator will provide the percentage of tax to collect at events in different cities and counties and which specific local taxing jurisdictions are applicable for the location.

Online Sales and Local Tax

As an artist, you may also sell your work online through a personal website or other online platform. Keep in mind, internet or online sales are subject to Texas sales and use tax in the same way as sales made by any other method. A tax is imposed on each sale of a taxable item in Texas, whether from a website or a traditional “brick and mortar” (i.e. physical) location.

Artists’ sales of their work through an online marketplace are taxable, but the law requires marketplace providers to collect and remit state and local sales and use tax on all artists’ sales (marketplace seller). Artists are not responsible for collecting and remitting sales and use tax on their sales through the marketplace, but they must retain records of the sales. See more information about marketplace sellers and marketplace providers in this issue’s article titled Remote Sellers’ Responsibilities Following the Wayfair Decision.

In-State Sales

If your artwork is received in Texas (i.e., the purchaser [customer] picks it up or it is shipped or electronically delivered to a Texas address), tax is due.

In general, local sales tax is based on the location of the seller’s place of business. Local use tax is based on the location where the customer receives the item. If you ship or deliver artwork to your customers, you may have to collect local sales tax, local use tax or both.

Out-of-State Sales

Artwork shipped, physically delivered or electronically delivered to an out-of-state location is exempt from Texas sales tax when transported by the seller or a third party carrier. However, you must retain documents to verify the out-of-state delivery or drop shipment.

You may need to collect another state’s sales or use tax if you are considered “engaged in business” in that state for the sale of a taxable item. All states have different tax regulations for the collection of sales and use tax.

Resale Certificates

As an artist selling your artwork, you can purchase materials tax free that are incorporated into the final product by issuing a properly completed Texas Sales and Use Tax Resale Certificate (PDF). The resale certificate must show the purchaser’s name and 11-digit taxpayer ID number that corresponds to an active sales tax permit. Examples of items you can purchase tax free include items like paint, canvases, ink, and yarn. You must pay tax on any items not incorporated into the final product (e.g., paintbrushes, templates, easels, molds, etc.).

Manufacturing Exemptions

Artists can also claim specific tax exemptions on certain materials as manufacturers by providing a Texas Sales and Use Tax Exemption Certificate (PDF). To qualify for a manufacturing exemption, an artist must manufacture, fabricate or process tangible personal property for sale. Artists can claim a valid exemption from sales tax as long as the material purchased:

• is directly used or consumed in or during the actual manufacturing, processing, or fabrication of tangible personal property for ultimate sale;
• is necessary or essential to the manufacturing, processing, or fabrication operation; and
• directly makes or causes a chemical or physical change to the product manufactured, processed, or fabricated for ultimate sale.

We will discuss these exemptions in further detail in our upcoming articles.

Reporting Sales and Use Tax

Your sales tax returns may be due monthly (for permit holders who have $1,500 or more in state sales and use tax per quarter to report), quarterly (for permit holders who have less than $1,500 in state sales and use tax per quarter to report) or yearly (for permit holders who have less than $1,000 in state sales and use tax to report during a calendar year), depending on the amount of tax you collect. Returns and payments are due by the 20th day of the month following the report period. For example, the return for the first quarter (January, February and March) is due April 20. Filing the return and paying the tax on time entitles you to a timely filing discount equal to one-half percent of the tax collected as compensation.

Individuals holding a Texas Sales and Use Tax Permit must file a Texas Sales and Use Tax Return even if no tax is due or no sales are made. A $50 late filing penalty is assessed on every report not filed or filed after the due date. The $50 penalty is due in addition to any other penalties assessed for the reporting period.

Looking Ahead

This article provides a general overview of artists and their sales tax responsibilities, but there is so much more to talk about. Future editions of Tax Policy News will explore more in-depth topics related to the creative arts, such as photography and graphic arts services, as well as certain manufacturing exemptions available to artists.

More Information

• Texas Tax Code Section 151.009, Tangible Personal Property
• Texas Tax Code Section 151.051, Sales Tax Imposed
• Rule 3.286, Seller’s and Purchaser’s Responsibilities
• Rule 3.300, Manufacturing; Custom Manufacturing; Fabricating; Processing
• Rule 3.334, Local Sales and Use Taxes
• Publication 94-105, Local Sales and Use Tax Collection – A Guide for Sellers; and
• Publication 96-211, Fairs, Festivals, Markets and Shows

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

General

Motor Vehicle Sales Tax

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