Tax Policy News

We’re thankful to those businesses that have and continue to remit state and local sales taxes they collected from customers during the time periods prior to April 1, 2020. We understand that virtually all of our taxpayers are doing their best to remain in compliance and be responsible in submitting the taxes they collected from their customers prior to the imposition of the changes related to addressing the impact of the COVID-19 virus.

Our agency is here to offer assistance to those businesses that are struggling to pay the full amount of sales taxes they collected from their customers prior to April 1, 2020, as a result of COVID-19 restrictions. For businesses that find themselves in this situation, our agency is offering assistance in the form of short-term payment agreements and, in most instances, waivers of penalties and interest.

We ask that you file the sales tax returns that were due on April 20, 2020, make a good faith partial payment and contact our Enforcement Hotline at 800-252-8880 to learn about your options for remaining in compliance and avoiding interest and late fees on taxes due.

We understand the closures and/or reduced ability to operate was unexpected and sudden, impacting taxpayers’ business finances and operations. But it is important to remind all taxpayers that state and local sales taxes collected from their customers are trust fund revenues and, by law, are not intended to be used by businesses as operating funds. Please keep in mind that the sales taxes that taxpayers are continuing to collect from consumers in their current ongoing limited operations after April 1, 2020, will be due on the applicable future due dates with an expectation of full payment of the collected taxes.

We strongly encourage you to use our online tools, tutorials and other resources for tax services, and establish 24/7 account access on Webfile.

We’re standing by to help Texas businesses during these difficult times.

Please visit our COVID-19 News page for updated information on

• Tax Filing Relief
• Audit Office Closures
• Educational Opportunities and Investments
• Existing Payment Plans
• Field Office Closures
• Fiscal Management
• Property Tax Assistance Division
• Sitewide Procurement
• Unclaimed Property

The 2020 annual franchise tax reports are now due July 15. See Franchise Tax Extensions of Time to File for information on extensions due to COVID-19.

Webfile makes it easy to submit tax reports, make payments, request extensions, file final reports or request tax clearance letters. Your Webfile account allows you to view a summary of your transactions. You can find your franchise tax Webfile number (which starts with "XT") on the franchise tax upcoming due date reminder letter we mailed in February.

You can also call 800-442-3453 at any time to get your XT number via an automated system. When you call, be sure to have your 11-digit taxpayer number and identifying information, such as total revenue from a previous report or the amount of the last tax payment you made (cannot be zero).

The following video tutorials will help you with filing franchise tax:

• How to Create a Webfile Account, Electronically File and Pay Franchise Taxes
• How to File a No Tax Due Report
• How to Find Your 11-Digit Taxpayer Number

The 2019 independently procured insurance tax report (PDF) and supplement (PDF) are due May 15. The Comptroller's office will mail the report forms in April.

See our Insurance Premium Tax (Independently Procured) page for information on requesting an extension due to COVID-19.

To qualify as independently procured insurance, you must obtain a policy of insurance directly from a non-admitted insurer and must not use the services of an agent or broker in the procurement of coverage. If an agent is involved in the placement of the insurance, the policy will be surplus lines insurance with taxes due to the home state of the insured. If Texas is the home state of the insured and the agent does not hold a surplus lines license in Texas, the transaction may be considered unauthorized insurance.

Natural disasters will continue to happen, even while we battle COVID-19. Prepare yourself during the 2020 Emergency Preparation Supplies Sales Tax Holiday for emergencies that can cause physical damage like hurricanes, flash floods and wildfires. You can purchase certain emergency preparation supplies tax free during the sales tax holiday.  There is no limit on the number of qualifying items you can purchase, and you do not need to issue an exemption certificate to claim the exemption.

This year’s holiday begins at 12:01 a.m. on Saturday, April 25, and ends at midnight on Monday, April 27.

Online Purchases and Telephone Orders

To encourage social distancing, the Texas Comptroller’s office wants all taxpayers to know that during the Emergency Preparation Supplies Sales Tax Holiday, the sale of emergency preparation supplies purchased online or by telephone, mail, custom order, or any other means other than in person qualifies for sales tax exemption when either

• the item is both delivered to, and paid for, by the customer during the exemption period; or
• the customer orders and pays for the item and the retailer accepts the order during the exemption period for immediate shipment, even if delivery is made after the exemption period.

A retailer accepts an order when the retailer has acted to fill the order for immediate shipment.

An order is for immediate shipment regardless of whether the shipment is delayed due to a backlog of orders, or because stock is currently unavailable to, or on back order by, the retailer.

In-store Purchases

The Comptroller strongly encourages all taxpayers buying emergency preparation supplies at their local retailers during the sales tax holiday to practice appropriate social distancing as described in the Center for Disease Control and Prevention guidelines.

These emergency preparation supplies qualify for tax exemption if purchased for a sales price:

Less than $3000

• Portable generators

Less than $300

• Emergency ladders
• Hurricane shutters

Less than $75

• Axes
• Batteries, single or multipack (AAA cell, AA cell, C cell, D cell, 6 volt or 9 volt)
• Can openers - nonelectric
• Carbon monoxide detectors
• Coolers and ice chests for food storage – nonelectric
• Fire extinguishers
• First aid kits
• Fuel containers
• Ground anchor systems and tie-down kits
• Hatchets
• Ice products - reusable and artificial
• Light sources - portable self-powered (including battery operated)
  Examples of items include: candles, flashlights and lanterns
• Mobile telephone batteries and mobile telephone chargers
• Radios - portable self-powered (including battery operated) - includes two-way and weather band radios
• Smoke detectors
• Tarps and other plastic sheeting

Note: Several over-the-counter self-care items, such as antibacterial hand sanitizer, soap, spray and wipes, are always exempt from sales tax if they are labeled with a “Drug Facts” panel in accordance with federal Food and Drug Administration (FDA) regulations.

These supplies do not qualify for tax exemption:

• Medical masks and face masks
• Cleaning supplies, such as disinfectants and bleach wipes
• Gloves, including leather, fabric, latex and types used in healthcare
• Toilet paper
• Batteries for automobiles, boats and other motorized vehicles
• Camping stoves
• Camping supplies
• Chainsaws
• Plywood
• Extension ladders
• Stepladders
• Tents
• Repair or replacement parts for emergency preparation supplies
• Services performed on, or related to, emergency preparation supplies

Additional Charges Affect Purchase Price

Delivery, shipping, handling and transportation charges are part of the sales price. If the emergency preparation supply being purchased is taxable, the delivery charge is also taxable. Consider these charges when determining whether an emergency preparation supply can be purchased tax free during the holiday.

For example, you purchase a rescue ladder for $299 with a $10 delivery charge, for a total sales price of $309. Because the total sales price of the ladder is more than $300, tax is due on the $309 sales price.

Webinars

Our last webinar, "Online Sales and Remote Sellers," highlighted the changes that occurred in Texas resulting from the U.S. Supreme Court’s decision in South Dakota v. Wayfair. A recording of this webinar is available on our Tax Training Resources webpage.

Our next webinar, “Sales Tax Exemptions for Healthcare Items,” will highlight the sales tax exemptions available for a variety of healthcare items such as medicines, medical equipment and devices. We will also discuss what is needed to claim an exemption for these purchases. The webinar will be held on Wednesday, June 24, 2020. This webinar is available at the following times:

• Register now for our 10 a.m. to 11 a.m. CST session.
• Register now for our 2 p.m. to 3 p.m. CST session.

We also offer video tutorials on filing and paying sales tax through Webfile. View them on our 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, see the Taxpayer Seminars webpage.

Please note that in response to Governor Abbot’s directive that all state agency-related conferences should be postponed until further notice, all taxpayer seminars originally scheduled for March and April are canceled. We will provide information related to future seminars on the Taxpayer Seminars webpage as they are scheduled..

Visit our Tax Training Resources webpage to

• find out more about our training resources
• register for upcoming webinars
• view the Podcast and Webinar Archive sections for previous recordings

In the November issue of Tax Policy News, we highlighted a policy change regarding medical billing services. Texas Comptroller Glenn Hegar has determined that we will delay implementation of the policy change until after the 2021 legislative session, allowing industry time to seek a legislative change. Until that time, the policy remains that medical billing services that occurred before a claim was submitted are not taxable insurance services.

Background

Medical billing services involve multiple functions, such as: assigning codes for the preparation of claims, verifying insurance eligibility, preparing claim forms for filing, filing claims, resubmitting and adjusting claims, reviewing and appealing denied claims, settling claims, and posting payment for a claim. These services are sometimes performed by an in-house employee, but they are often outsourced to a third-party vendor.

Until 2002, the Comptroller considered medical billing services to be taxable. However, in 2002 the agency determined that claim processing does not begin until receipt of a claim by an insurance company. Therefore, medical billing services that occurred before the claim was submitted were not taxable. The reason for this policy change is unknown.

The policy was revisited in 2019 and it was determined that the preparation of a claim is considered an insurance service in every scenario except medical billing. The 2002 policy change resulted in disparate treatment between medical insurance and other types of insurance. Neither Tax Code Section 151.0039 or Rule 3.355(a)(8) exclude the completion of the form for the insured for a medical insurance claim from the definition of insurance claims adjustment for processing.

As stated above, the Comptroller will delay implementation of the policy change on medical billing services until after the 2021 legislative session, allowing industry time to seek a legislative change. This policy will go into effect on Oct. 1, 2021 if a legislative change is not enacted.

Pet boarding and pet day care are not taxable services, but the items pet boarders sell or other services they offer may be taxable.

Taxable Items Used in Nontaxable Pet Boarding Services

When providing nontaxable pet boarding services, service providers owe tax when buying items they use to provide those services, including

• food bowls
• pet food
• pet bedding items
• towels
• crates
• kennels
• cages

Taxable Items Sold to Customers

If pet boarders sell items to their customers, the boarders must have Texas Sales and Use Tax Permits and collect sales tax on the charges for the taxable items.

These items include

• leashes
• collars
• harnesses
• ID tags
• pet toys
• training aids
• chews
• treats
• pet grooming items

When buying items to resell to customers, pet boarders may give resale certificates to their suppliers instead of paying the sales tax.

Pet Grooming Services

Pet grooming and cleaning are taxable services. These service providers must also have Texas sales tax permits and collect and remit sales tax on their services.

Taxable grooming services include

• bathing
• hair trimming
• brushing
• nail trimming/grinding
• ear cleaning
• teeth cleaning

There are two instances when animal grooming is not taxable. If the animal being groomed is a work animal (e.g., service animal) or the grooming is medically necessary and performed as part of veterinary services, these services are not taxable (See January 2019 Tax Policy News article – Veterinarian Sales and Services). Groomers may accept valid and properly completed exemption certificates from clients claiming an exemption for a work animal instead of collecting sales tax.

More Information

• Rule 3.292 – Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property
• Rule 3.296 – Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer

The Comptroller’s office filed the following rules for adoption with the Secretary of State:

Battery Sales Fee

Cigarette Tax

Motor Vehicle Sales Tax

Oil Field Cleanup Regulatory Fee

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