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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

August 2020

The Comptroller's office publishes this 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...

COVID-19 News

Comptroller COVID-19 Response

We appreciate those businesses that continue to remit state and local sales taxes they collected from customers. We understand that all taxpayers are doing their best to remain in compliance and be responsible in submitting taxes they have collected from their customers before the challenges presented due to the COVID-19 virus.

Our agency is here to help those businesses that are struggling to pay the full amount of sales tax they collected from their customers, as a result of COVID-19 restrictions. For businesses that find themselves in this situation, a short-term payment agreement may be available. We ask that you file the sales tax returns that are due, make a good faith payment and contact our Enforcement Hotline at 800-252-8880 to learn about your options for remaining in compliance.

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 businesses are continuing to collect from consumers in their current ongoing limited operations, will be due on the applicable future due date with the expectation of full payment of the taxes that are due.

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 continue to stand with and assist our Texas businesses during these difficult times.

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

Reminders

Franchise Tax Second Extension Request for Mandatory Electronic Payers – Due Aug. 17

The deadline for filing a franchise tax second extension request for mandatory electronic payers is Aug. 17. Entities that properly secure a second extension (after filing a first extension by July 15) will have until Jan. 15, 2021, to file their report (the due date is extended from Nov. 15 as a relief from the COVID-19 pandemic). To properly secure a second extension, entities must electronically submit payment using the appropriate electronic payment method described below:

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 Jan. 15, 2021. 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 or before Jan. 15, 2021. A TEXNET payment of $25,000 or less must be scheduled by 10:00 a.m. (CT) on the due date. Payments above $25,000 must be initiated in the TEXNET system by 8:00 p.m. (CT) on the business day before the due date.

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.

Tax Training Resources

Webinars

Our latest webinar, "Sales Tax Exemptions for Healthcare Items," was held in June and highlighted the sales tax exemptions available for a variety of healthcare items such as medicines, medical equipment and devices. A recording of this webinar will be available soon.

We also offer video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

Coin-Operated Machines Tax

Coin-Operated Machines – Taxes, Licenses and Certificates

There are many businesses in Texas that offer customers entertainment through the use of coin-operated machines. A coin-operated machine is any type of electronic device that requires the customer to insert a coin or other U.S. currency, metal slug, token, electronic card, or check to play a game, music or pleasure machine.

Whether you are a business that currently provides coin-operated machines in Texas, or a new business interested in coin-operated machines, this article provides information about tax compliance – along with answers to your questions about offering coin-operated machines to customers.

What is the coin-operated machines tax and who is responsible?

Texas law imposes a tax on all businesses that offer coin-operated machines to the public. These businesses must be licensed or registered with the Comptroller’s office. The agency also collects a state occupation tax for each machine displayed in an establishment.

Who should hold a general business license (GBL)?

A GBL is required to manufacture, own, buy, sell, rent, lease, trade, maintain, transport, exhibit or store coin-operated amusement machines in Texas. GBL holders can display a machine in another person’s business establishment. The annual fee for a GBL depends on the number of machines:

  • $200 for an applicant with no more than 50 coin-operated machines
  • $400 for an applicant with at least 51, but no more than 200 coin-operated machines
  • $500 for an applicant with more than 200 coin-operated machines

Who should hold a registration certificate?

A registration certificate is required for businesses that

  • own or exhibit coin-operated machines only in their place of business;
  • have no machines in another person’s business; and
  • have no financial interest in the coin-operated machines industry other than owning a machine in their own business.

The fee for a registration certificate is $150.

Who should hold an import license?

An import license is required if you import, transport, own, buy, repair, sell or deliver coin-operated machines from out of state into Texas. Import license holders must also have a GBL. The annual fee for an import license is $500.

Who should hold a repair license?

Anyone who repairs coin-operated machines for others should apply for a repair license. A repair license holder can also transport or store coin-operated machines in Texas. Coin-operated machine owners who repair their own machines, however, can do so without obtaining a repair license. The annual fee for a repair license is $50.

What is the occupation tax permit?

The occupation tax permit is a permit obtained from the Comptroller’s office that must be visible and securely attached to every coin-operated machine exhibited or displayed in an establishment. The annual fee for the permit is $60 per machine.

The occupation tax can be prorated quarterly for machines placed in service for the first time in Texas during the year.

Is there an annual renewal requirement?

License and registration certificate holders should submit a renewal application along with payment no later than Nov. 30 of each year. A renewal application received after the due date may result in an expired license or registration certificate. The license or certificate must be current to display a coin-operated amusement machine.

Are there exemptions from licensing, registration and occupation tax requirements?

Yes. Coin-operated machines designed exclusively for children under 12 years of age are exempt from licensing, registration and occupation tax requirements.

Organizations operating exclusively for charitable, education, religious or benevolent purposes are exempt from licensing, registration and occupation tax requirements, as well.

An individual owning and operating a coin-operated amusement machine in their private residence exclusively for their personal use is also exempt from these requirements.

Organizations with social or fraternal activities, however, do not qualify for exemption from these requirements.

More Information

Sales and Use Tax

Bakeries and Bakery Items – What you "Knead" to Know

Do you earn some of your "dough" selling bakery items? This article will discuss bakery items and explain tax responsibilities for such items, as well as other goods that may be sold in a bakery.

For Texas sales and use tax purposes, bakery items are defined as baked goods typically made by bakeries. Examples include

  • bread
  • rolls
  • buns
  • biscuits
  • bagels
  • croissants
  • pastries
  • doughnuts
  • Danish pastries
  • cakes
  • tortes
  • pies
  • tarts
  • muffins
  • bars (such as lemon bars)
  • cookies
  • large pretzels
  • tortillas

Bakery items do not include snack items, sandwiches, tacos or pizzas. See Texas Tax Code Section 151.314 (c-3), Food and Food Products and Sales Tax Rule 3.293 (a)(2), Food; Food Products; Meals; Food Service.

Taxability of Bakery Items Sold by a Bakery

Bakery items sold by a bakery, regardless of whether the items are heated or served with plates or other eating utensils, are exempt from sales tax. Tax Code Section 151.314 (b-2) defines a bakery as

"a retail location that primarily sells bakery items from a display case or counter, predominantly for consumption off the premises."

Bakeries that sell only bakery items do not need to obtain a sales and use tax permit. However, if a bakery sells bakery items as well as other taxable items, such as taxable food products (e.g., hot coffee, soda, candy, prepared food, party supplies), they must obtain a sales and use tax permit and collect and remit sales tax on taxable items they sell.

Here is an example. Jill operates a doughnut shop that meets the definition of a bakery. One of her customers walks in and orders a dozen doughnuts, six warm croissants, six breakfast tacos and a cup of coffee. Jill is required to charge tax on the breakfast tacos and the coffee, since both are considered prepared food. The doughnuts and croissants meet the definition of a bakery item and are not taxable.

Taxability of Bakery Items Sold by Businesses Other Than Bakeries

Bakery items that are sold by businesses other than bakeries are exempt unless they are heated or sold with eating utensils such as plates, bowls, forks, knives and/or spoons. Note that napkins, wax paper and to-go containers are not considered eating utensils. A bakery item is considered to be served with eating utensils if the seller actually hands the utensils to the customer or places the utensils on a tray, a plate or in a bag. If a seller provides a central station where customers can help themselves to eating utensils, a bakery item is not considered to be sold with those utensils.

For example, Jack operates a coffee shop that does not meet the definition of a bakery. A customer orders a slice of pie. If Jack serves the slice of pie to his customer on a plate, the pie is taxable. On the other hand, if the customer orders a slice of pie to go, and Jack serves the pie to his customer in a to-go container without utensils, the pie is exempt from sales tax.

Another example might be Millie’s Market, a local grocery store that has a bakery section inside, but Millie’s Market does not meet the definition of a bakery. If a customer purchases a large cinnamon roll in a to-go container, it would not be taxable. If, however, the cinnamon roll is warmed before selling or put on a plate with a fork, it is taxable.

More Information

Two Sides of the Same Form – Resale vs. Exemption Certificates

Both resale and exemption certificates serve the purpose of enabling taxpayers to make tax-free purchases. There can be confusion, however, about each certificate’s correct use and acceptance, especially since they are on opposite sides of the same form. This article will discuss the differences between resale and exemption certificates and the responsibilities of both taxpayers and vendors.

Resale Certificate

A purchaser can issue a Texas Sales and Use Tax Resale Certificate, found on the front side of Form 01-339 (PDF), in a sale for resale transaction. This type of transaction allows the purchaser to purchase items intended for resale tax free and pass the tax responsibility on to the end consumer (their customer).

These items include

  • taxable items (tangible personal property [TPP] and taxable services) that are resold in the United States or in Mexico;
  • TPP that is purchased and then leased or rented to a customer;
  • a taxable service performed on TPP in resale inventory; and
  • TPP that is bought and used while performing a taxable service that is eventually turned over and given to a customer. For example, cleaning and janitorial service providers issue a resale certificate for goods transferred to customers, such as wax and furniture oil or polish.

Use of a resale certificate requires an active Texas sales and use tax permit. Out-of-state sellers must include their home state retailer’s registration number (which allows them to resell in their home state) while retailers based in Mexico must include their Federal Taxpayer’s Registry (RFC) number.

A resale certificate must be in the form of Form 01-339, Texas Sales and Use Tax Resale Certificate (front) (PDF), or a Form 01-909, Border States Uniform Sale for Resale Certificate (PDF). A properly completed Uniform Sales and Use Tax Certificate-Multijurisdiction form created by the Multistate Tax Commission is also acceptable.

Exemption Certificate

The Texas Sales and Use Tax Exemption Certificate is found on the opposite side of the same Form 01-339 (PDF). An exemption certificate enables organizations that have applied and received exempt status from the Comptroller’s office to purchase goods and services tax free.

The following organizations can issue exemption certificates:

  • governmental entities (United States, Texas, county, city, special district)
  • religious, educational, or public service organizations that have applied for and received exempt status with the Comptroller’s office
  • nonprofit organizations that have applied for and received exempt status with the Comptroller’s office

A purchaser claiming a sales tax exemption on items used in various areas (i.e., manufacturing, repair of property damaged by a declared natural disaster, etc.) may also issue exemption certificates for qualified goods and services.

Note that agricultural and timber exemptions require different exemption certificates.

Tips for Purchasers: Issuing a Resale or Exemption Certificate

Qualified Purchases

As mentioned earlier, a purchaser can issue a resale certificate to purchase items tax free for resale, and exempt organizations can purchase items tax free that serve to further their exempt purpose.

A resale certificate or exemption certificate may not be issued by a seller for items purchased for personal use or to be used in a taxable manner. For example, a boutique owner cannot issue a resale certificate and purchase clothes tax free that she knows will be for her personal use. In the same way, a member of an exempt organization cannot buy a bicycle tax free for their own child by issuing an exemption certificate to the seller. As illustrated in both examples, the items are for use in a taxable manner and, therefore, tax is due at the time of purchase.

Sales Tax Permits

Purchasers must have an active sales tax permit in Texas in order to issue a resale certificate. A properly completed resale certificate requires an 11-digit taxpayer identification number. Federal Employer Identification Numbers (FEIN) or social security numbers are not acceptable.

A sales tax exemption certificate does not require a purchaser to have a sales tax permit nor does it require an exempt number to be valid. Information on both forms must be legible and properly completed.

Tips for Vendors: Accepting a Resale or Exemption Certificate

Sellers are responsible for collecting and remitting tax on any taxable sales unless they accept a properly completed resale or exemption certificate.

Required Information

When presented with an exemption certificate, a vendor must make sure that the certificate issued by their customer is properly completed. A properly completed exemption certificate must include each of the following:

  • the buyer’s name and address
  • a description of the item(s) being purchased
  • the reason the purchase is exempt from tax
  • the buyer’s signature and the date
  • the seller’s name and address

A properly completed resale certificate must include each of the following:

  • the buyer’s name and address
  • the buyer’s 11-digit sales tax permit number issued by our office
  • a description of the taxable items generally sold, leased, or rented by the buyer
  • the buyer’s signature or an electronic form of the signature and date
  • the seller’s name and address

Blanket Certificates

A purchaser may issue to a seller a blanket resale certificate if the seller purchases only tax-free items for resale. The purchased items may vary, but must belong in the same industry. The seller may rely on the blanket certificate until it is revoked in writing. A seller may also accept a blanket exemption certificate given by a purchaser who purchases only items that are exempt.

Good Faith

Both resale and exemption certificates may be accepted in good faith. Good faith means the seller accepts an exemption or resale certificate at or before the time of the transaction, ensures that all required information is included, and does not have reason to know that the sale is not exempt. It is important to note that there is no statutory requirement for sellers to accept a resale or exemption certificate from their customers.

General Knowledge

A seller is responsible for having a general knowledge of the tax laws as they apply to the seller’s business and to take notice of the type of business the purchaser is engaged in, in order to determine if the items being purchased tax free are within reason. For example, if a customer is purchasing furniture, you should not accept a resale certificate if the business is described on the resale certificate as a jewelry store, since furniture is not regularly sold by jewelry stores.

Refunds

If a seller does not accept a resale or exemption certificate before or at the time of purchase, tax is due from the purchaser. The seller may later issue a refund of the tax directly to the customer or provide their customer with Form 00-985, Assignment of Right to Refund (PDF) so that the customer may request a refund from the Comptroller’s office.

Records

Sellers should keep detailed and accurate records, including copies of the resale or exemption certificates, to show why tax was not collected for these transactions. Records should be kept on file for four years and be readily accessible to the Comptroller’s office.

More Information

Rules

Proposed

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

Cigarette and Tobacco Products Regulation

Rule 3.1202 – Warning Notice Signs
Publication date – July 17, 2020
Comment period end date – Aug. 16, 2020

Crude Oil Production Tax

Rule 3.34 – REPEAL Exemption of Certain Royalty Interests from Oil Occupation Taxes and Regulation Pipeline Taxes Imposition and Collection of the Oil Fee

Rule 3.34 – NEW Exemption of Governmental Entities and Two-Year Inactive Wells
Publication date – July 17, 2020
Comment period end date – Aug. 16, 2020

General Rules

Rule 3.9 – Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers
Publication date – Aug. 21, 2020
Comment period end date – Sept. 20, 2020

State and Local Sales and Use Taxes

Rule 3.285 – Resale Certificate; Sales for Resale
Publication date – Aug. 21, 2020
Comment period end date – Sept. 20, 2020

Rule 3.292 – Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property
Publication date – Aug. 21, 2020
Comment period end date – Sept. 20, 2020

Rule 3.305 – Criminal Offenses and Penalties
Publication date – Aug. 21, 2020
Comment period end date – Sept. 20, 2020

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.

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