Tax Policy News

When state lawmakers gathered at the Texas Capitol for their regular session, I was confident they would reach agreement on the budget and other key fiscal issues, but I couldn’t have told you exactly how that would happen. The ground has shifted under our feet so many times since early 2020 that sometimes it has seemed as though it would never stop moving.

Despite the pandemic that wreaked havoc with the economy — and February’s ice storm that cost too many Texans their lives and caused immense damage — lawmakers did the job. Throughout this difficult time, I kept my promise to update them on the changing economic picture so they could accomplish that task.

Lawmakers approved a budget paying for programs that include education, health and human services, public safety and criminal justice. They fully funded public-school finance reforms, worked to improve our electricity grid and addressed a major long-term obligation with a bill to put the Employees Retirement System on the path to actuarial soundness. Among other important items, they didn’t renew Chapter 313, the state’s most costly economic incentive program for attracting corporate expansions and relocations. Without legislative intervention, it will expire at the end of 2022.

With special legislative sessions, lawmakers have been working overtime. As Texas Comptroller, I will continue to provide the most up-to-date financial information to them and the public. I’m grateful to our dedicated agency staff members who help me do that job — this issue of Tax Policy News highlighting the 87th Legislature’s work on tax policy issues is but one of many examples of their support and commitment.

We’ll continue to stay on top of economic changes, and we’ll always be transparent about what we know. Working together, I know that Texans will make it through difficult times as we always do — and Texas will emerge stronger than ever.

Credit Card Payment for Cigarette and Tobacco Permit Fees
House Bill 3578
Effective Sept. 1, 2021

House Bill 3578 allows payments for cigarette and tobacco permits to be made by credit card. Prior to this bill, payments had to be made by cash, check, or money order.

Amends Tax Code Section 154.1135

Regulation and Administration of Taxes Imposed on the Sale or Use of Cigarette, E-Cigarette and Tobacco Products to Minors
Senate Bill 248
Effective Sept. 1, 2021

Senate Bill 248 expands the definition of e-cigarette to include a consumable liquid solution or other material aerosolized or vaporized during the use of an electronic cigarette or similar device, regardless of whether the liquid or other material contains nicotine.

The bill creates, and requires e-cigarette retailers to obtain, an e-cigarette retailer permit. The bill sets out the parameters of permit suspension by the Comptroller based on the number of violations by a retailer during a 24-month period.

The bill provides that a cigarette, e-cigarette, or tobacco product retailer is subject to disciplinary action if an agent or employee of the retailer sells a cigarette, e-cigarette, or tobacco product to an individual who is younger than 21 years of age, or otherwise violates Subchapter H, Chapter 161, Health and Safety Code.

The bill creates a new interstate warehouse permit. The new permit allows an interstate warehouse to receive untaxed tobacco products and store them exclusively for sale or delivery to another state. The bill also amends the definition of first sale to specify that it does not include an interstate warehouse transaction.

Repeals Tax Code Sections 154.121(c), (d), and (e) and 155.058(c), (d), and (e)

Repeals Tax Code Sections 154.1142, 154.1143, 155.0592, and 155.0593

Adds Health and Safety Code Chapter 147

Amends Health and Safety Code Section 161.081

Adds Health and Safety Code Sections 161.0901 and 161.0903

Amends Tax Code Chapters 154 and 155

Forgiveness of Loans Under the Paycheck Protection Program and Other Federal Legislation
House Bill 1195
Effective May 8, 2021

House Bill 1195 allows a taxable entity to exclude from total revenue money that

(1) is received in loans or grants under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended by the Paycheck Protection Program Flexibility Act of 2020; the Consolidated Appropriations Act, 2021; the American Rescue Plan Act of 2021; or the PPP Extension Act of 2021; or is a shuttered venue operator grant; microloan program recovery assistance; or restaurant revitalization grant under the Consolidated Appropriations Act, 2021; or the American Rescue Plan Act of 2021 as applicable; and

(2) is excluded from gross income for purposes of federal income taxation by Sections 276 and 278 of the Consolidated Appropriations Act, 2021; or Sections 9672 or 9673 of the American Rescue Plan Act of 2021.

The taxable entity may include, as cost of goods sold or compensation, expenses paid using qualifying loan or grant proceeds to the extent the expenses qualify as a cost of goods sold or as compensation.

Adds Tax Code Section 171.10131

Certified Rehabilitation of Certified Historic Structures
House Bill 3777
Effective Jan. 1, 2022

House Bill 3777 removes from the franchise tax credit the cost and expenses to rehabilitate a certified historic structure by a nonprofit corporation or other corporation exempt from tax under Section 171.063, if the structure is leased to a tax-exempt entity in a disqualified lease. "Tax-exempt entity" and "disqualified lease" are defined by reference to Section 168(h), Internal Revenue Code.

Amends Tax Code Section 171.901(4) and redesignates it as Section 171.9015

Exemption from Franchise Tax and Fees for Veteran-Owned Businesses
Senate Bill 938
Effective Jan. 1, 2022

Senate Bill 938 requires that the Secretary of State waive all filing fees for new veteran-owned businesses. The bill also provides for a five-year exemption from the franchise tax for new veteran-owned businesses that first begin doing business in the state on or after Jan. 1, 2022, and before Jan. 1, 2026. The bill defines "new veteran-owned business" as a business owned by a natural person or persons who were honorably discharged from the U.S. armed forces. The provisions of the bill are repealed effective Jan. 1, 2026.

Amends Tax Code Sections 171.0001, 171.001, 171.063, and 171.204

Adds Tax Code Section 171.0005

Hotel and Convention Center Projects
House Bill 4103
Effective June 14, 2021

House Bill 4103 adds the city of Victoria to the cities that can allocate revenues to construct and maintain a sports-related facility. The bill also adds the cities of Victoria, Leander, and Missouri City to the list of municipalities that may be eligible for a qualified project. The bill adds the cities of Lubbock and Victoria to the cities eligible for an additional entitlement of tax revenues from qualified establishments. The bill also amends the land ownership requirements for a qualified establishment for the city of Grand Prairie. Lastly, the bill extends the date a municipality may commence a qualified project to Sept. 1, 2027.

Amends Tax Code Section 351.101(n), 351.10712, 351.152, and 351.157

Sale of Electricity to a Public School District
House Bill 2263
Effective Jan. 1, 2024

House Bill 2263 provides an exemption for gross receipts received from the sale of electricity to a public school district customer.

Amends Tax Code Section 182.022 (Imposition and Rate of Tax), by adding subsection (d)

Alcohol To-Go
House Bill 1024
Effective May 12, 2021

House Bill 1024 allows a holder of a mixed beverage permit and a food and beverage certificate from the Texas Alcoholic Beverage Commission (TABC) to sell beer, wine, and cocktails with food orders that are purchased for pickup or delivery, including delivery by a third party. It also allows private club registration permit holders with a food and beverage certificate to do the same.

This exempts the sale of alcoholic beverages sold with to-go food orders from mixed beverage taxes, because they are not consumed on premises as required by Sections 183.021 and 183.041. Instead, the beverages would be subject to sales and use tax under Chapter 151.

Amends Alcoholic Beverage Code Sections 28.1001, 32.01, 32.15, 32.17, and 57.01

Adds Alcoholic Beverage Code Section 32.155

Wine To-Go
House Bill 1755
Effective Sept. 1, 2021

House Bill 1755 allows a holder of a mixed beverage permit and a food and beverage certificate from TABC to let their customers who order wine with food to remove the container of wine from the premises whether it is opened or unopened.

Similar to House Bill 1024, wine sold only for consumption off premises is exempt from mixed beverage taxes. This is because the wine is not consumed on premises as required by Sections 183.021 and 183.041. Instead, the wine would be subject to sales and use tax under Chapter 151.

Amends Alcoholic Beverage Code Sections 28.10

Texas Music Incubator Program
Senate Bill 609
Effective Sept. 1, 2021

Senate Bill 609 establishes the Texas Music Incubator Program. The program will allow eligible music venues and eligible music festival promoters to apply for a rebate of the mixed beverage gross receipts tax and sales tax paid on the sale of alcoholic beverages in the preceding fiscal year, up to a maximum of $100,000. The program will be administered by the Governor’s office. The Comptroller’s office will issue refunds of rebates approved by the Governor’s office from the newly created Texas Music Incubator Account in the General Revenue Fund. The program may provide rebates until all the money in the Texas Music Incubator Account is exhausted. The bill requires the Governor's office to establish the program and begin accepting applications by Sept. 1, 2022.

Amends Government Code Chapter 485

Regulation of the Injection and Geologic Storage of Carbon Dioxide
House Bill 1284
Effective June 9, 2021

House Bill 1284 removes the requirement to get a certification from the Texas Commission on Environmental Quality prior to applying with the Comptroller for the reduced tax rate available for enhanced recovery projects using anthropogenic carbon dioxide. Taxpayers will now only need to get a certification from the Railroad Commission.

Amends Tax Code Section 202.0545

Oil-Field Cleanup Regulatory Fees on Oil and Gas
House Bill 2675
Effective Sept. 1, 2019

House Bill 2675 repeals the provisions providing for the suspension of the collection of oil-field cleanup regulatory fees when the balance of the fund exceeds a specified amount.

Amends Natural Resources Code Sections 81.116(d) and 81.117(d)

Taxability of Medical or Dental Billing Services
House Bill 1445
Effective Jan. 1, 2022 (treated by CPA as effective immediately)

House Bill 1445 amends the definition of taxable insurance services to exclude medical or dental billing services performed prior to the original submission of a medical or dental insurance claim.

Amends Tax Code Section 151.0039

Sales Made at a County Fair
House Bill 3799
Effective Oct. 1, 2021

House Bill 3799 clarifies that a county fair association or another nonprofit entity may make tax-free sales at a county fair that is held on property owned by the county.

Amends Tax Code Section 151.3102

Exclusion of Payment Processing From Taxable Data Processing
Senate Bill 153
Effective Oct. 1, 2021

Senate Bill 153 codifies current policy excluding certain types of payment processing from the definition of taxable data processing. This includes the settling of electronic payment transactions by a downstream payment processor or point-of-sale payment processor, a money transmitter, a federally insured financial institution, a person sponsored by such a financial institution to settle electronic payment transactions, or a payment card network. The bill also excludes services exclusively used to encrypt electronic payment information for acceptance onto a payment card network to comply with the standards set by the Payment Card Industry Security Standards Council.

Amends Tax Code Section 151.0035

Sales or Adoptions by Nonprofit Animal Welfare Organizations
Senate Bill 197
Effective on Oct. 1, 2021

Senate Bill 197 allows nonprofit animal welfare organizations, as defined in the Health and Safety Code, to make animal sales and adoptions tax free. Prior to SB 197, only nonprofit animal shelters could make animal sales and adoptions tax free.

Amends Tax Code Section 151.343

Extension of Time to Provide Resale and Exemption Certificates
Senate Bill 296
Effective June 7, 2021

Senate Bill 296 gives taxpayers additional time to provide resale and exemption certificates. After receiving written notice from the Comptroller, taxpayers must provide resale and exemption certificates within 90 days instead of 60 days. The taxpayer and the Comptroller may agree on a date later than the 90 days for provision of the certificates.

Amends Tax Code Sections 151.054, 151.104

Exemption for Firearm Safety Equipment
Senate Bill 313
Effective Sept. 1, 2021

Senate Bill 313 exempts firearm safety equipment from sales and use taxes. The bill provides that "firearm safety equipment" includes a gun lock box, a gun safe, a barrel lock, a trigger lock, firearm safety training manual or electronic publication, and other items designed to ensure the safe handling or storage of a firearm.

Adds Tax Code Section 151.3131

Marketplace Providers
Senate Bill 477
Effective Oct. 1, 2021; July 1, 2022

Effective Oct. 1, 2021, Senate Bill 477

• allows a marketplace provider to take, on behalf of the marketplace seller, the sales tax deduction generally allowed for the resale of tickets and admission documents to amusement services. The marketplace seller must certify that he or she paid the tax due on the original purchase.
• clarifies that the occasional sales exemption does not apply to marketplace sales.

Amends Health and Safety Code Sections 361.138 and 771.0712

Amends Tax Code Sections 151.0242, 151.304, 321.203(e-1), and 323.203(e-1)

Effective July 1, 2022, Senate Bill 477

• requires a marketplace provider that sells lead-acid batteries to collect the applicable fee associated with that sale.
• requires marketplace providers collect the prepaid 9-1-1 emergency service fee on the sale of prepaid wireless telecommunications services.

Off-Highway Vehicles Reporting Requirements for ATVs Purchased Out of State
Senate Bill 586
Effective Sept. 1, 2021, reports due no later than March 1, 2022

Senate Bill 586 adds distributors to the list of entities required to file an annual report with the Comptroller listing each warranty issued for a new, off-highway vehicle that was sold to a Texas resident by a retailer located outside the state in the preceding calendar year. Currently, only manufacturers are required to file reports. The bill also authorizes the comptroller to audit, inspect, or verify a distributor’s compliance with these provisions.

Amends Tax Code Sections 151.481, 151.482, 151.485, 151.486, and 151.487

Texas Music Incubator Program
Senate Bill 609
Effective Sept. 1, 2021

Senate Bill 609 establishes the Texas Music Incubator Program. The program will allow eligible music venues and eligible music festival promoters to apply for a rebate of the mixed beverage gross receipts tax and sales tax paid on the sale of alcoholic beverages in the preceding fiscal year, up to a maximum of $100,000. The program will be administered by the Governor’s office. The Comptroller’s office will issue refunds of rebates approved by the Governor’s office from the newly created Texas Music Incubator Account in the General Revenue Fund. The program may provide rebates until all the money in the Texas Music Incubator Account is exhausted. The bill requires the Governor's office to establish the program and begin accepting applications by Sept. 1, 2022.

Amends Government Code Chapter 485

Request for Tax Refund by Nonpermitted Severance Taxpayers
Senate Bill 833
Effective Sept. 1, 2021

Senate Bill 833 allows a person who files an oil or gas producer's report or first purchaser's report, and who does not hold a sales tax permit, to file a claim for a refund for sales taxes paid in error to a sales tax permit holder directly with the Comptroller’s office without an assignment of refund.

Adds Tax Code Section 151.4305

Sales Tax Refund for Employers of Qualified Apprentices
Senate Bill 1524
Effective Jan. 1, 2022

Senate Bill 1524 creates a sales and use tax refund for businesses that employ qualified apprentices, which expires Dec. 31, 2026. An employer may not apply for a refund under this section unless the executive director of the Texas Workforce Commission certifies that the employer is able to employ apprentices in qualified apprenticeships. The refund amount is limited to not more than $2,500 per qualified apprentice position per calendar year. An employer may have up to six apprentices if it meets the requirements. The employer must apply with the Comptroller’s office for the refund and include the certification from the Texas Workforce Commission.

Adds Tax Code Section 151.4292

No Tax Due Certificate

Disclosure of Tax Amount Due
Senate Bill 873
Effective Sept. 1, 2021

Senate Bill 873 requires that the purchaser of a business asking the Comptroller for a certification of the amount of tax that business owes the Comptroller, must do so on an affidavit or form prescribed by the Comptroller. The bill also clarifies that Tax Code Section 111.006(a) does not apply to the disclosure.

Amends Tax Code Section 111.020

Tax Refunds

Rate of Interest
House Bill 2530
Effective Sept. 1, 2021

House Bill 2530 changes the month for determining the rate of interest for refunds or credits from December of the previous calendar year to November of the previous calendar year.

The interest rate paid on refunds or credits remains the lesser of the annual rate of interest earned on deposits in the state treasury or the prime rate plus one percent.

Amends Tax Code Section 111.064

Utilities

Recovery and Securitization of Costs
House Bill 1520
Effective June 16, 2021

House Bill 1520 allows the Public Finance Authority to provide a method of financing for customer rate relief bonds authorized by the Railroad Commission. The proceeds would be used to reduce the cost that customers would experience due to the extraordinary costs that gas utilities may incur to secure gas supply and provide service during natural or man-made disasters, system failures, and other catastrophic events; and to restore gas utility systems after such events by providing securitization financing enabling gas utilities to recover these costs.

The bill exempts from state and local taxation any profits made from the sale of the bonds. It also exempts from state and local taxation the amount a gas utility collects in bond charges from its customers. Any interest on the customer rate relief bonds is not subject to taxation by and may not be included as part of the measurement of a tax by Texas or a political subdivision of Texas.

Amends Government Code Sections 1232.002, 1232.006, and 1232.108

Adds Government Code Section 1232.1072

Adds Utilities Code Sections 104.361 – 104.380

Financing Certain Costs Associated With Electric Markets
House Bill 4492
Effective June 16, 2021

House Bill 4492 directs the Comptroller to invest not more than $800 million of the Economic Stabilization Fund (ESF) in debt obligations issued by the Electric Reliability Council of Texas (ERCOT). The bill enables ERCOT to issue debt obligations to finance substantial balances owed by wholesale market participants and that would otherwise be uplifted as a result of Winter Storm Uri. The bill also authorizes the Public Utility Commission, on application of ERCOT, to adopt an order authorizing the issuance of debt obligations. The bill exempts from state and local sales and use, franchise, and gross receipts taxes the transfer and receipt of default charges relating to the debt obligations. The bill also exempts from state and local income, sales, franchise, gross receipts, and other taxes or similar charges, transactions involving the transfer and ownership of uplift property and the receipt of uplift charges.

Amends Government Code Section 404.0241

Amends Utilities Code Section 39.002. and 39.151

Adds Utilities Code Sections 39.159, 39.601-39.609, and 39.651-39.664

Electric Cooperatives Financing of Extraordinary Costs and Expenses
Senate Bill 1580
Effective June 18, 2021

Senate Bill 1580 enables electric cooperatives to use securitization financing to recover extraordinary costs and expenses incurred due to the abnormal weather that occurred in Texas from 12:00 a.m. on Feb. 12, 2021, to 11:59 p.m. on Feb. 20, 2021.

The bill exempts from state and local income, sales, franchise, gross receipts, and other taxes or similar charges transactions involving the transfer and ownership of securitized property and the receipt of securitized charges.

Adds Utilities Code Sections 41.151 – 41.163

Amends Utilities Code Section 39.002

Adds Utilities Code Sections 39.159 – 39.160

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