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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

April 2021

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...

Notification

Certification of the Single Local Use Tax Rate for Remote Sellers - 2021

The Comptroller of Public Accounts, administering agency for the collection of the Single Local Use Tax Rate for Remote Sellers, has determined, as required by Tax Code, Section 151.0595 (e), that the estimated average rate of local sales and use taxes imposed in this state during the preceding state fiscal year ending August 2020 is 1.75 percent. This rate will be in effect for the period of Jan. 1, 2021, to Dec. 31, 2021.

Announcement

We've Made Webfile Better! Simpler, Smarter, Refreshed

Webfile is a secure, online tool for filing and paying taxes and fees. And now it's even better!

If you file and pay sales tax via Webfile, get ready for a streamlined experience! We've updated this tool with an easy-to-follow user interface, so you can

  • Navigate quickly to frequently used services
  • Update your accounts
  • Save and resume your filing progress

If you already use Webfile, your username and password won't change. You will still have 24/7 access and the ability to file early and pay on the due date.

If your profile is locked and you haven’t set up security questions in the new system, you will need to contact Taxpayer Services at 800-252-5555 or Electronic Reporting at 800-442-3453 for password assistance.

Reminders

Emergency Preparation Supplies Sales Tax Holiday

Natural disasters will continue to happen, even while we continue to battle COVID-19. The winter storm in February 2021 found many Texans without power, and generators and other emergency supplies were in high demand. Now is the time to think ahead! Texans can prepare during the 2021 Emergency Preparation Supplies Sales Tax Holiday for emergencies that leave us without power, as well as 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 24, and ends at midnight on Monday, April 26.

Online Purchases and Telephone Orders

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 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:

  • 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

* Please note that current law does not exempt personal protection equipment. This includes face masks (industrial, medical grade, cloth or disposable), protective clothing, helmets or face shields.

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.

Tax Training Resources

Resources for Texas Taxpayers

Our office offers video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

Currently we are offering virtual Taxpayer Seminars conducted via Webex Events. For more information, visit the Taxpayer Seminars webpage.

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

Sales and Use Tax

Natural Gas and Electricity, Part Two: Nonresidential and/or Commercial Use

This article is the second in a two-part series about natural gas and electricity. In part one we discussed residential use of natural gas and electricity. Part two discusses nonresidential and/or commercial use of natural gas and electricity and its taxability, exemptions for nonresidential and/or commercial use, and how to obtain a utility study to determine predominant use for processing, manufacturing and fabricating. It also explains how to request a refund if you are charged sales tax in error.

What are Natural Gas and Electricity?

Natural Gas
Natural gas is a flammable gas, consisting largely of methane and other hydrocarbons, occurring naturally underground (often in association with petroleum) and used as fuel. It is one of the primary sources of energy for a lot of our day-to-day activities and is recognized by the U.S. Energy Information Administration (EIA) as a relatively clean burning fossil fuel, resulting “in fewer emissions of nearly all types of air pollutants and carbon dioxide (CO2) than burning coal or petroleum products to produce an equal amount of energy.” Less than one-tenth of the use of natural gas goes to both residential and commercial end-user sectors, according to 2018 EIA data.

Electricity
Electricity is the supply of electric current to a house, building or other location for heating, lighting, or powering appliances. Texas is the largest electricity consumer among the 50 states. The second largest share of Texas’ electricity retail sales go to the commercial sector, based on the EIA detailed state data.

Nonresidential and/or Commercial Use of Natural Gas and Electricity

Nonresidential use is the use of natural gas and electricity in a building or portion of a building that is not occupied as a residence. Commercial use is the use of natural gas and electricity that is generally undertaken for business purposes.

Exemption for Certain Nonresidential and/or Commercial Use

The use of natural gas and electricity is presumed taxable, unless an exemption applies. Nonresidential and/or commercial use of natural gas and electricity is exempt from state and local sales and use tax when sold for use in agriculture; use in timber operations; and direct use in

Exemption Certificate
You must present to your utility service provider a properly completed sales and use tax exemption certificate (PDF).

Agricultural and Timber Operation Exemptions

Farmers, ranchers and timber producers can claim exemptions from some Texas taxes when purchasing certain items used exclusively to produce agricultural and timber products for sale.

If you are a farmer, rancher or timber producer engaged in one of the activities listed below, you qualify for tax exemption on the purchase of natural gas and electricity used to produce your agricultural and timber products for sale.

Ag/Timber Number Registration
Farmers, ranchers and timber producers may register for an Ag/Timber Number. If you do not have a valid Ag/Timber Number, you must pay tax to retailers on your purchases.

Agricultural Exemption
An exemption from sales tax on the use of natural gas and electricity for agricultural purposes can include, but is not limited to

  • powering machinery and equipment (including repair or component parts) used exclusively in the production of food or other agricultural products for sale
  • dairy or poultry operations
  • pumping for farm and ranch irrigation
  • feedlot operations
  • commercial fish farm operations
  • growing plants for sale in a commercial nursery

Timber Operation Exemption
An exemption from sales tax on the use of natural gas and electricity for timber operation purposes can include, but is not limited to

  • irrigation systems used in the production of timber products for sale
  • powering machinery and equipment (including repair or component parts) used exclusively in the production of timber
  • powering machinery and equipment used by an original producer for packing and processing timber products

Exemption Certificate
You must present to your utility service provider a properly completed agricultural (PDF) or timber (PDF) sales and use tax exemption certificate showing a current Ag/Timber Number when claiming an exemption.

Utility Study – Predominant Use

A utility study is an engineering report that analyzes utility usage. The purpose of the study is to determine the percentage of electricity used for both exempt and taxable purposes. You must be using natural gas and/or electricity predominantly for an exempt purpose to claim an exemption from sales and use tax.

Determining Predominant Use
Natural gas or electricity used during a regular monthly billing period for both taxable and exempt purposes under a single meter is either going to be completely exempt or completely taxable based upon the predominant use of the natural gas or electricity measured by that meter.

A person who performs a processing, manufacturing, or other exempt function must establish the predominant use of the natural gas or electricity based upon 12 consecutive months of use.

Claiming an Exemption for Predominant Use
A person claiming a sales tax exemption because their predominant use of natural gas or electricity purchased through a single meter is for an exempt use must have a natural gas or electricity utility study performed to establish the predominant exempt use of the natural gas or electricity.

If the utility study determines that the natural gas and electricity purchased through a single meter is for an exempt use, you must provide a sales and use tax exemption certificate (PDF) to your utility service provider to claim the exemption.

A copy of the study must be on file at the business location for which the study was performed.

Refund of Sales and Use Tax for Nonresidential and/or Commercial Use

If you were charged sales and use tax in error for nonresidential and/or commercial use of natural gas and electricity, you may qualify for a refund. You must first ask the utility service provider for a refund of any tax paid in error. The utility service provider can either grant the refund request or provide you a completed Form 00-985, Assignment of Right to Refund (PDF), so that you can request a refund directly from the Comptroller’s office.

Refund Claim Requirements
To request a refund from the Comptroller’s office, you must

  • submit a claim in writing that states fully and in detail the reason or ground on which the claim is founded;
  • identify the period during which the claimed overpayment was made; and
  • submit the claim within the applicable limitations period, which is generally four years from the date the tax was due and payable.

Submitting a Refund Claim
To submit a claim for refund, you can

Texas Comptroller of Public Accounts
Attn: Sales Tax Refunds
111 E. 17th Street
Austin, TX 78774-0100

You can also check the status of a previously submitted refund claim by sending an email to refund.status@cpa.texas.gov.

For more information about sales tax refunds, visit our Sales Tax Refunds webpage.

More Information

Sales Tax Exemptions for Qualified Organizations – Purchases and Sales

Eligible nonprofit organizations and governmental entities may qualify for sales tax exemption on certain purchases. In this article, we will discuss the types of organizations that qualify and items or services that such organizations can purchase tax free. We will also explain the sales tax responsibilities these organizations have when making sales.

Types of Exempt Organizations

Exempt organizations include both qualifying nonprofits that have applied to the Comptroller’s office for exempt status and governmental entities that automatically receive exempt status by statute.

Nonprofit Organizations
The following types of nonprofit organizations can qualify for exemption from paying Texas sales tax. They must apply to the Comptroller’s office for exemption:

  • charitable organizations
  • educational organizations
  • religious organizations
  • certain 501(c) organizations
  • volunteer fire departments
  • convention and tourist promotional agencies
  • chambers of commerce
  • youth athletic organizations

Please note that nonprofit organizations that have been granted 501(c) status by the Internal Revenue Service are not automatically granted tax exemption in Texas. These organizations must apply to our office and be approved for sales tax exemption.

Governmental Organizations
Governmental entities are automatically exempt by statute and are not required to apply for exemption with our office. These include

  • Texas state and local government (including agencies and instrumentalities such as the Texas Department of Public Safety or the Lower Colorado River Authority);
  • federal governmental entities (including branches of the military); and
  • foreign diplomatic and consular personnel in the United States.

Purchases Made by Nonprofit Organizations

Exempt organizations that have applied for and received exempt status for sales tax from the Comptroller’s office are exempt from paying sales tax on qualified purchases. Qualifying purchases are limited to items that relate to the organization’s exempt purpose.

For example, a charitable organization that serves the homeless population may purchase clothing items, toiletries and other related items tax free because those items relate to the organization’s exempt purpose. On the other hand, that same organization may not make a tax-free purchase of a birthday gift given to an employee or volunteer, because that gift is not related to their exempt purpose of helping individuals experiencing homelessness.

In order to make tax-free purchases, nonprofit organizations (or an authorized agent designated by the organization) must present a properly completed Form 01-339 (back), Texas Sales and Use Tax Exemption Certification (PDF) to its vendors.

Purchases Made by Governmental Organizations

Governmental organizations (local, state and federal entities) are exempt from sales tax on their purchases. Unlike nonprofit organizations, governmental organizations are not limited to making tax-free purchases on items that relate to their exempt purpose. They can purchase any taxable items tax free, including alcoholic beverages, as long as the items are not for personal use.

For example, a public school within a Texas independent school district (ISD) qualifies as both an educational and governmental organization and, therefore, may purchase taxable items tax free.

To claim an exemption, a governmental entity (or an authorized agent) must present to its vendor either a properly completed exemption certificate (PDF) or a purchase voucher (often referred to as a purchase order contract).

Sales Made by Exempt Organizations

It is important to note that exemption from sales tax is for items that an organization buys, not for items that it sells.

If an exempt entity sells taxable tangible personal property, its sales tax responsibilities include applying for a sales tax permit and collecting and remitting the appropriate sales tax to the Comptroller’s office, unless an exemption or exception applies.

An exempt organization does not need to apply for a sales tax permit if they only sell nontaxable items including nontaxable food items such as jelly, cookie dough, jerky, certain bakery items and water. Food items that are normally taxed (ready-to-eat food, candy, soda, etc.) may become exempt based on the seller’s exempt status. Exempt organizations may also not need a permit if they only make sales of taxable items (e.g., clothing, spirit gear, yearbooks) during the qualified organization’s tax-free sales days. If an exempt organization partners with a for-profit entity to sell taxable items to raise funds, then the for-profit entity has sales tax responsibilities as the seller, while the exempt organization does not.

Two Per Year: One-Day Tax-Free Sales
Organizations that have been granted exempt status with our office are eligible to hold two one-day tax-free sales or auctions each calendar year. During each one-day sale, the organization does not need to collect sales tax. For the purpose of this exemption, one day is equal to 24 consecutive hours. Each one-day sale may last for 24 consecutive hours. Your organization may also conduct its two sales back-to-back for 48 consecutive hours.

The exemption does not apply to items sold for more than $5,000 unless the item is manufactured by the organization, or the item is donated to the organization and not sold back to the donor. These tax-free sale days should be designated in advance so that purchasers are aware that the sales are not subject to tax.

Note: Ongoing sales of taxable items on days outside of the organization’s two designated tax-free sale days are taxable.

Resale and Exemption Certificates
When purchasing taxable items tax-free for resale, exempt organizations and authorized agents may issue a properly completed exemption certificate (PDF) in lieu of paying sales tax. If the organization makes ongoing sales of taxable items and holds an active sales tax permit, the exempt organization may issue its vendors a properly completed resale certificate (PDF) instead.

For more information on resale and exemption certificates, see the August 2020 issue of Tax Policy News.

Collecting and Remitting Tax
If you collect sales tax on a sale, you must either remit the tax to the Comptroller’s office or refund it to the purchaser. You cannot collect tax and keep it under the tax-free sale provision.

Verifying an Organization’s Exempt Status

The Comptroller’s Tax-Exempt Entity Search may be used to verify information about organizations that have been exempted by our office from state taxes. Governmental entities may not be listed in the search results since these organizations are automatically exempt and are not required to apply to our office for state tax exemption.

More Information

Rules

Proposed

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

Franchise Tax

Rule 3.599 – Margin: Research and Development Activities Credit
Publication date – April 16, 2021
Comment period end date – May 16, 2021

Sales Tax

Rule 3.340 – Qualified Research
Publication date – April 16, 2021
Comment period end date – May 16, 2021

Adopted

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

Crude Oil Production Tax

Rule 3.39 – Credits for Qualifying Low Producing Oil Leases
Publication date – April 23, 2021
Effective date – April 27, 2021

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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