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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

July 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 pandemic.

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

International Fuel Tax Agreement (IFTA) Report is Now Paperless

The second quarter 2020 IFTA tax reports are due July 31, 2020. Please note that we now offer paperless filing and email due date reminders for your IFTA report.

For increased cost efficiency, the Comptroller’s office stopped mailing Form 56-101, International Fuel Tax Agreement (IFTA) Report (PDF) and Form 56-102, IFTA Fuel Tax Report Supplement (PDF). This change became effective during the first quarter of 2020 (filing period 201). The forms are still available online.

Filing your IFTA report is fast, easy and more convenient with Webfile. To file and/or pay taxes or fees using Webfile, you need a personal identification code (which is your Webfile number). This number is printed on the bottom right corner of the welcome letter included with your IFTA license and decals. Visit our File and Pay webpage for more information.

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

The deadline for filing a second extension request for mandatory electronic payers is Aug. 17. Entities that properly secure a second extension (after filing a first extension) 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 most recent webinar, "Sales Tax Exemptions for Healthcare Items," highlighted the sales tax exemptions available for a variety of healthcare items such as medicines, medical equipment and devices. We also discussed what is needed to claim an exemption for these purchases. A recording of the webinar will soon be available on our Tax Training Resources webpage.

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

Franchise Tax

Simplified Process – Claiming a Historic Structure Credit
The process of claiming a historic structure credit on a franchise tax return has been simplified! You can now upload your Historic Structure Certificate at the time you submit your tax report via Webfile. This new option eliminates the need to send your certificate in by standard mail, improving response times and saving on postage. We have information about Webfile on our File and Pay webpage.

Sales and Use Tax

Back-to-School Sales Tax Holiday – Tips for Sellers

The annual sales tax holiday is right around the corner and we have some tips for sellers. Since 1999, Texas shoppers have saved money during one weekend every August on the sales tax holiday. This year’s holiday begins Friday, Aug. 7, and goes through Sunday, Aug. 9.

Some school districts may be starting earlier this year due to the COVID-19 virus. Because of this, our office has received requests to change the date of the sales tax holiday, as well as requests to extend the holiday to assist with social distancing. While we are sympathetic to these issues, the dates and duration of the sales tax holiday are set by statute. Our office cannot alter these dates without a legislative change.

Online Purchases and Telephone Orders

To promote social distancing, the Comptroller’s office wants all taxpayers to know that during the annual sales tax holiday, qualifying items can be purchased online or by telephone, mail, custom order or any other means (including in-store purchases) tax free, 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 seller accepts the order during the exemption period for immediate shipment, even if delivery is made after the exemption period ends.

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

An order is filled 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 seller.

In-Store Purchases

The Comptroller’s office urges all retailers and shoppers to practice appropriate social distancing as described in the Center for Disease Control and Prevention guidelines during the sales tax holiday.

Qualifying Items

During the sales tax holiday, certain items priced under $100 are exempt from local and state sales tax, including school supplies, clothing, shoes, and student backpacks. Your customers can also put items on layaway or use rain checks to take advantage of the savings.

A customer does not have to give you an exemption certificate, unless they buy school supplies using a business account or they buy more than 10 backpacks (as explained below).

The following links provide lists of items that are exempt during the sales tax holiday:

Non-Qualifying Items

The following items do not qualify for exemption during the sales tax holiday:

  • textbooks
  • computers
  • software
  • clothing and footwear used primarily for athletic activities or for protective wear such as basketball uniforms, baseball cleats, football pads
  • clothing or footwear rentals
  • dry cleaning or laundry services
  • alterations (including embroidery)
  • items used to make or repair clothing, such as fabric, thread, yarn, buttons, snaps, hooks and zippers
  • jewelry, handbags, purses, briefcases, luggage, umbrellas, wallets, watches and other accessories

Backpacks

If you sell student backpacks (including backpacks with wheels and messenger bags), you can sell the ones priced under $100 without collecting tax.

You can sell up to 10 backpacks tax free at one time without requiring an exemption certificate (PDF) from the customer.

The following bags do not qualify for the exemption:

  • framed backpacks
  • luggage
  • briefcases
  • athletic, duffle or gym bags
  • computer bags
  • purses

School Supplies

Only specific school supplies you sell for less than $100 qualify for the exemption.

For kits of school supplies that contain both exempt and taxable items, the taxability of the kit depends on the cost of the exempt and taxable items in it. There is no limit on the number of school supplies in a kit, but if the cost of the exempt items is more than the taxable ones, the kit is exempt. If the cost of the taxable items is more than the exempt ones, the kit is taxable.

School Supplies Bought Using a Business Account – Exemption Certificate Required

If a customer buys qualifying school supplies from you using a business account, the customer must give you a properly completed exemption certificate (PDF).

"Under a business account" means the customer is

  • using a business credit card or business check and not a personal credit card or personal check;
  • being billed under a business account you maintain; or
  • using a business membership, if you are a membership-based retailer.

Layaways and Rain Checks

During the tax holiday, your customers do not have to pay tax on qualifying items when they

  • put qualifying items on layaway; or
  • make the final payment on something already on layaway.

Qualifying items that customers buy during the holiday weekend with a rain check are exempt regardless of when they received the rain check. If, however, a customer gives you a rain check during the holiday weekend, but pays for the qualifying item after the holiday, that item is not eligible for the exemption.

Advertising Non-Qualifying Items

If you sell items that do not qualify for the sales tax holiday exemption, you may advertise that you will pay the sales tax for your customers if you follow certain guidelines.

You must indicate that you are paying the customer’s tax. On the receipt given to the customer, you must separately state the sales price paid by the customer from the amount of the tax and indicate that the tax will be paid by you, the retailer. You may not suggest in any way that the item is not taxable.

Reporting Tax

When you report sales for the qualifying items you sold tax-free during the sales tax holiday, only include these tax-free sales in Total Texas Sales (Item 1) of your sales tax return. Do not include your tax-free sales in Taxable Sales (Item 2).

If you sell qualifying exempt items and collect sales tax during the holiday, then you must remit it to our office.

More Information

Internet Access Charges – Not Taxable Beginning July 1, 2020

Beginning July 1, 2020, Texas will no longer impose sales tax on separately stated internet access charges due to the Internet Tax Freedom Act (ITFA) of 2016.

Federal law included a grandfather clause for those state and local governments, including Texas, who imposed a tax on internet services prior to October 1, 1998. This clause expires on June 30, 2020.

Bundled Charges

Effective July 1, 2020, when a service provider bundles the internet access with another taxable service, such as telecommunications service or cable television service, the service provider should not collect tax on the amount allocated to internet access if the service provider can establish through their books and records a reasonable allocation for the taxable service and for the nontaxable internet access. See Section 151.025(d) and Rule 3.313(b)(2), Cable Television Service and Bundle Cable Service. Rule 3.366, Internet Access Services, Rule 3.334 Telecommunication Services and Rule 3.313 are being amended to reflect this change in the taxability of internet access services.

If the service provider cannot establish a reasonable allocation for the nontaxable internet services, the entire charge for the bundled services is taxable.

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 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

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: