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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

May 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, our agency is helping in the form of payment agreements for reports due in March, April and May. 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

Sales Tax Holidays for ENERGY STAR® and Water-Efficient Products Set for May 23-25

While we continue to be impacted by the COVID-19 pandemic, the Comptroller encourages all taxpayers to continue practicing social distancing and support Texas businesses while saving money on tax-free purchases of certain ENERGY STAR® energy-efficient products during the annual Texas ENERGY STAR Sales Tax Holiday and purchases of certain water-efficient and water-conserving products during the annual Texas Water-Efficient Products Sales Tax Holiday. There is no limit on the number of qualifying items you can buy, and you do not need to give the seller an exemption certificate to buy items tax free.

This year’s tax-free ENERGY STAR and Water-Efficient Products Sales Tax Holiday begins Saturday, May 23, and goes through midnight on Monday, May 25 (Memorial Day).

Online Purchases and Telephone Orders

To promote social distancing, the Texas Comptroller’s office wants all taxpayers to know that during the holidays, you can buy qualifying ENERGY STAR® energy-efficient products and certain water-efficient and water-conserving products 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 or on back order.

In-Store Purchases

The Comptroller’s office urges all taxpayers buying certain ENERGY STAR® energy-efficient products and certain water-efficient and water-conserving products at their local retailers to practice appropriate social distancing as described in the Center for Disease Control and Prevention guidelines during the sales tax holiday.

ENERGY STAR Sales Tax Holiday

You can buy, rent or lease only the following ENERGY STAR®-labeled items tax free:

  • air conditioners (with a sales price of $6,000 or less)
  • refrigerators (with a sales price of $2,000 or less)
  • ceiling fans
  • incandescent and fluorescent light bulbs
  • clothes washers
  • dishwashers
  • dehumidifiers
  • programmable thermostats*

*The ENERGY STAR® qualification for programmable thermostats was suspended on Dec. 31, 2009. The ENERGY STAR Sales Tax Holiday exemption for programmable thermostats applies only to those that received ENERGY STAR® labels before the suspension.

Non-Qualifying Products

Examples of items that do not qualify and are taxable, even if ENERGY STAR®-labeled, include

  • water heaters
  • clothes dryers
  • freezers
  • stoves
  • attic fans
  • heat pumps
  • wine refrigerators
  • kegerators
  • beverage chillers

Additional Charges Affect Sales Price

Delivery, shipping, handling, and transportation charges by the seller are part of the item's sales price. Charges for installing free-standing items are also part of the item's sales price. If the item you buy is not taxable, then these charges are not taxable.

For air conditioners and refrigerators (because they have a price cap), you have to look at the item’s total sales price to determine whether you can buy it tax free.

For example, you buy an ENERGY STAR® refrigerator for $1,995 with a $50 delivery charge for a total sales price of $2,045. Because the refrigerator’s total sales price is more than the $2,000 price cap for refrigerators, tax is due on the entire $2,045 sales price.

If a delivery charge is billed per item, and an invoice includes both exempt and taxable items, only the qualifying item’s delivery charge is exempt.

For a flat-rate delivery charge, the total delivery charge is applied to the tax-exempt items and is exempt if it does not cause the item’s sales price to exceed its price cap.

Contractors and Taxable Service Providers

If you perform new construction or residential repair and remodeling contract work, you are a contractor. If you repair or remodel nonresidential real property, you are a taxable service provider.

Purchases

As a contractor or taxable service provider, you can buy qualifying ENERGY STAR® energy-efficient products tax free to keep in your inventory. You do not need to give the seller an exemption or resale certificate.

Sales

During the holiday, contractors and taxable service providers can sell ENERGY STAR® energy-efficient products tax free if they are incorporated into real property under a separated contract.

Examples of products incorporated into real property are central air conditioning units, ceiling fans and built-in appliances such as dishwashers. This exemption applies to both residential and business customers.

Water-Efficient Products Sales Tax Holiday

During the holiday period, you can buy any product tax free that displays a WaterSense® label or logo. These items can be bought for either personal or business purposes.

Water-Conserving Products

You can also buy certain water-conserving products tax free during the holiday period.

Unlike WaterSense®-labeled items, these items are only exempt when you buy them for use at your residential property.

You can buy items tax free during the holiday that are used or planted for

  • conserving or retaining groundwater;
  • recharging water tables; or
  • decreasing ambient air temperature, and so limiting water evaporation.

Examples of items that qualify for the exemption include

  • a soaker or drip-irrigation hose
  • a moisture control for a sprinkler or irrigation system
  • mulch
  • a rain barrel or an alternative rain and moisture collection system
  • a permeable ground cover surface that allows water to reach underground basins, aquifers or water collection points
  • plants, trees and grasses
  • water-saving surfactants
  • soil and compost

Examples of items that do not qualify for the exemption include

  • construction/building materials
  • awnings and other items used to create shade
  • air conditioners
  • ceiling fans
  • sprinklers

Contractors, Landscapers and Other Service Providers

WaterSense Products Purchases

Contractors, landscapers and other service providers can buy WaterSense® products tax free to keep in inventory. An exemption or resale certificate is not required.

WaterSense Products Sales

Contractors, landscapers and other service providers can sell WaterSense® products tax free under a separated contract during the holiday period. This exemption applies to residential and business customers.

Water-Conserving Products Purchases

Since the exemption does not apply to water-conserving products used for business, lump-sum contractors cannot buy water-conserving products tax free to keep in inventory until ready for use in new or existing residential property or in new commercial property. You must continue to pay tax on these items.

Service providers repairing and remodeling commercial property, and all separated contractors, must give a resale certificate to the seller for water-conserving products bought during the holiday period.

Water-Conserving Products Sales

Separated contractors can sell water-conserving products tax free only to individual customers for their residences during the holiday period. Sales to businesses are taxable.

Sales Tax Holiday Refund Requests

During the annual Texas ENERGY STAR and Water-Efficient Products Sales Tax Holiday, purchasers can buy certain ENERGY STAR® energy-efficient products and certain water-efficient and water-conserving products tax free. If you pay sales tax on these items during the sales tax holiday, you can ask the seller for a refund of the tax paid. The seller can either grant the refund or provide their customer with Form 00-985, Assignment of Right to Refund (PDF), which allows the purchaser to file the refund claim directly with the Comptroller’s office.

Should you have additional questions about refund requests, please contact us at 800-531-5441, ext. 34545, or visit our Sales Tax Refunds web page for further details on filing a refund claim.

More Information

For more information about the upcoming sales tax holidays, contact us at Tax Help, or call 800-252-5555.

Annual Franchise Tax Reports Now Due July 15

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:

Volunteer Fire Department Assistance Fund Assessment Billing

The Comptroller’s office will mail invoices to insurers by the end of May for the Volunteer Fire Department Assistance Fund Assessment, and payment is due Aug. 3, 2020.

This assessment applies to property and casualty insurers writing homeowners insurance, fire insurance, farm and ranch owners insurance, private passenger auto physical damage insurance, commercial auto physical damage insurance or commercial multi-peril insurance.

Tax Training Resources

Webinars

Our last webinar, “Online Sales and Remote Sellers,” highlighted updates from the 86th Texas Legislature. 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 the one that fits your schedule:

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

Visit our Tax Training Resources webpage to

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

Hotel Occupancy Tax

Tax-Exempt Hotel Stay – The Permanent Resident Way

Introduction

For the purposes of the state hotel occupancy tax, a hotel is any building where people rent sleeping accommodations for $15 or more per day. Local hotel taxes apply to sleeping rooms costing $2 or more per day.

A hotel's owner, operator or manager must collect hotel taxes from their guests.

Also, persons leasing their houses must collect hotel occupancy tax from their customers (guests) in the same way a hotel or motel collects the tax from its guests. Property management companies, online travel companies and other third-party rental companies may also be responsible for collecting the tax.

In this article, any facility required to collect hotel tax is referred to as "hotel," and "guests" refers to hotel customers.

Exempt Guests

Some guests qualify for exemption from paying state hotel tax, and some also qualify for exemption from paying local hotel taxes. In most cases, an organization or individual claiming exemption must provide the hotel with a signed hotel tax exemption certificate (PDF).

The Exception – Permanent Resident Exemption

Guests qualifying for the permanent resident exemption are not required to provide an exemption certificate. The hotel’s records are proof of a permanent resident’s exemption. The permanent resident exemption applies to both state and local hotel taxes.

Who Qualifies as a Permanent Resident?

A permanent resident is an individual, organization or entity who has paid for the right to use or occupy a room or space in a hotel for at least 30 consecutive days without interruption.

A guest is not required to stay in the same room and can use rewards to pay for the stay without affecting the exemption.

Claiming the Exemption

To claim the permanent resident exemption, a guest must have

  • had a written agreement with the hotel or notified the hotel in writing of the intent to stay for 30 or more consecutive days; and
  • paid to occupy the room for the next 30 consecutive days without a break.

Hotel’s Acceptance of the Permanent Resident Exemption and Tax Refund

The hotel is liable for the occupancy tax if the guest fails to stay for the required minimum 30 consecutive days. A hotel will often collect the hotel occupancy tax for the first 30 days, and then later credit the guest’s account or refund the tax. If a permanent resident pays tax in error and the hotel does not credit the guest’s account or refund the tax, the guest can apply for a refund.

Without a written agreement or notice, a guest does not become a permanent resident until the 31st consecutive day of their stay. In that case, the guest owes tax on the first 30 days of their stay and does not qualify for a tax refund for this period.

More Information

Motor Vehicle Tax

Motor Vehicle Guide for Orthopedically Handicapped Exemptions

Texas law grants motor vehicle tax exemptions for orthopedically handicapped individuals.

For motor vehicle tax purposes, an orthopedically handicapped person is someone with limited movements of the body’s extremities and/or loss of physical functions, and is either physically unable to operate, or reasonably be transported in, a motor vehicle unless the motor vehicle has been specially modified.

Note: Hearing and sight impairment are not orthopedically handicapped conditions.

To claim this exemption, all of the following requirements must be met:

  • The motor vehicle is primarily (at least 80 percent of the vehicle’s operating time) driven by an orthopedically handicapped person or used primarily for transporting an orthopedically handicapped person.
  • The motor vehicle has been or will be modified.
  • At the time the motor vehicle was purchased, the qualifying orthopedically handicap existed, and the modification was necessary.
  • The proper documentation is provided to the county Tax Assessor-Collector (TAC) when the Form 130-U, Application for Certificate Title and/or Registration is presented.

Eligible modifications to a motor vehicle include those that

  • enable operation by an orthopedically handicapped driver by altering conventional controls, such as hand controls to operate the brake, clutch or accelerator; or relocating or altering the accelerator pedal, and relocating or extending the emergency brake
  • allow an orthopedically handicapped driver to enter or be transported in the motor vehicle by installing a wheelchair lift, hoist, raised roof, or permanently attached ramp, wheelchair hold-down clamps, or special seat restraints (other than conventional seat belts or seat belt extensions)

Modifications that do not qualify a motor vehicle for exemption include (but are not limited to) the following:

  • installation of standard factory options, such as an automatic transmission, power seats, power windows or adjustable pedals
  • installation of weight-bearing grab bars
  • installation of running boards or steps
  • installation of steering wheel spinner knobs
  • the addition of ramps (including bi-fold ramps) that are not permanently attached to the vehicle

Documentation

The buyer (or vehicle dealer, on the buyer’s behalf) must provide the county TAC with a properly completed Texas Motor Vehicle Orthopedically Handicapped Exemption Certificate (PDF) as part of the title application packet.

A “properly completed” certificate must be

  • signed by a licensed practitioner of the healing arts in Section 2; or
  • if Section 2 is incomplete, accompanied by a copy of a restricted driver license (indicating qualifying adaptive devices are required).

More Information

Sales and Use Tax

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 Texas Tax Code 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.

Taxability of COVID-19 Fees and Surcharges by Businesses

When costs increase, many businesses impose additional charges on customer billings, receipts and invoices. Fees and surcharges charged by Texas businesses related to the COVID-19 pandemic are not governmental fees, but charges that businesses have chosen to pass along to recoup the higher costs of goods and services provided to their customers.

For Texas sales tax purposes, additional fees and surcharges related to the selling price of a taxable item are considered part of the sales price and are subject to tax in the same manner as the item or service being sold. If the item or service sold is taxable, then the related fees or surcharges are also taxable, even if separately stated or identified as a dollar-for-dollar reimbursable expense. See Texas Tax Code Section 151.007, Sales Price or Receipts.

Rules

Proposed

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

State and Local Sales and Use Tax

Rule 3.366 – REPEAL Internet Access Services
Publication date – May 15, 2020
Comment period end date – June 14, 2020

Note: The Comptroller’s office is withdrawing the proposed repeal and will be revising Rule 3.366 to address internet access charges when they are bundled with other taxable services.

Adopted

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

Amusement Machine Regulation and Tax

Rule 3.602 – Licenses and Certificates, Renewals and Due Dates
Publication date – May 29, 2020
Effective date – June 4, 2020

Rule 3.603 – Denials, Suspensions; Revocations; Violations; Hearings
Publication date – May 29, 2020
Effective date – June 4, 2020

State and Local Sales and Use Tax

Rule 3.334– Local Sales and Use Taxes
Publication date – May 22, 2020
Effective date – May 31, 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 Search Form 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: