Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
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Glenn Hegar
Texas Comptroller of Public Accounts
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taxes

Tax Policy News

July 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...

Announcement

Sales and Use Tax Reporting is About to Get Easier

The Comptroller’s office has developed a new feature that will help provide sellers with more information about their tax responsibilities at the time of a sale.

Beginning June 30th, sellers were able to download files which can be incorporated into their tax reporting and point-of-sale software. These files include

  • a comprehensive dataset of Texas addresses and associated state and local sales and use tax responsibilities
  • a local jurisdiction tax rate file

The Comptroller’s office will update these files quarterly to account for new tax jurisdictions and rate changes within jurisdictions. The tax responsibility and rates will be valid for that quarter.

For more information, email the Tax Allocation Section at Taxalloc.RevAcct@cpa.texas.gov or visit the Sales Tax Rate Locator webpage.

Reminder

Local Tax Sourcing Changes

Rule 3.334, Local Sales and Use Taxes, effective May 31, 2020, implemented several provisions related to local tax collection by remote sellers and marketplace providers. The rule also clarified the definition of a place of business. It made clear that sales personnel must be present for a location to be considered a place of business and that a place of business does not include a computer server, IP address, domain name, website or software application.

The Texas Comptroller of Public Accounts delayed the implementation of the following two provisions to provide taxpayers time to prepare for these changes.

Effective Oct. 1, 2021, local tax sourcing will change as follows:

  • Orders received by salespersons while working away from their office will be sourced to the location from where the salesperson works if the location meets the definition of a place of business*.
  • Orders received by a shopping website or shopping application will be sourced to the Texas customer’s location unless fulfilled by the seller’s Texas place of business*.

*As defined in Rule 3.334 – Local Sales and Use Taxes.

Tax Training Resources

Resources for Texas Taxpayers

The Comptroller’s office offers video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

Our office also offers virtual Sales and Use Tax Seminars conducted via Webex Events. New taxpayers are especially encouraged to attend these overviews of tax responsibilities for buyers, sellers and service providers. 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

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. 6, and goes through Sunday, Aug. 8.

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 date 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 Under a Business Account – Exemption Certificate Required

If a customer buys qualifying school supplies from you under 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

Fairs and Festivals – A Guide for Event Promoters and Sellers

Texas plays host to a wide variety of festivals, shows and other unique events that draw attendees from all over the world. While going to such an event can be a great experience, coordinating and planning a large production like a rodeo, concert or craft show is a task that can feel as big as our state. There are many details to cover, and it comes with many responsibilities – including taxes.

In this article, we will explain the sales tax responsibilities for event promoters and organizers in addition to the responsibilities of the many sellers, from Texas and beyond, who participate in these events every year.

Sales Tax Responsibilities for Promoters and Organizers

Permit Requirements

Event promoters and organizers are sellers and must hold an active Texas sales tax permit. They are responsible for collecting and remitting sales tax on the items they sell.

An event may include the participation of for-profit vendors who are responsible for collecting and remitting their own sales and use tax. Some vendors may not have sales and use tax permits. In this case, the event promoter is responsible for reporting tax on any sales made by non-permitted vendors. Event promoters may require all individual vendors to apply for and have a sales tax permit.

Collecting and Remitting Taxes

Any permitted sellers, whether the event promoter or an event participant, must collect and remit sales and use tax on their taxable sales. Sales or use tax must be collected on the total sales price of the taxable items sold. A receipt or invoice must separately show the tax or clearly state that the seller included Texas sales tax in the sales price.

Sellers will collect 6.25 percent state tax and up to 2 percent local tax on their taxable sales. If sellers participate in different events around Texas, they will collect tax based on the location of each event. Utilize our Sales Tax Rate Locator to find the local tax rate by entering the address of the event.

Taxable and Nontaxable Sales and Purchases

Below are some common sales and purchases for event promoters:

Admissions – Taxable
Admission fees to amusement services are subject to sales tax, unless the event is otherwise exempt. The event promoter must collect sales tax on admission fees, including administrative and processing fees.

Booth and Participant Fees – Nontaxable
Booth fees, floor space fees and rental charges for a space to sell or display taxable items are not subject to sales tax. Generally, the rental of "space" (i.e., real property) is not subject to sales and use tax when not connected to the taxable sale, lease or rental of items or services.

Supplies – Taxable
When stated separately from booth fees, an event promoter must collect tax on the rental of tables, chairs, electricity and power strips.

Parking Fees –Taxable
Parking fees are taxable. The business operating the parking facility must collect sales tax on parking fees.

Event organizers and promoters are also responsible for paying tax on amounts paid for items they rent or buy and do not resell. The following are some common purchases made by event promoters:

Certain Advertising and Marketing Services – Taxability Varies
The tax treatment for advertising services for the event depends on the type of services you purchase.

  • Digital Advertising – Not Taxable
    • Placing an advertisement on a web page belonging to another is internet advertising (which includes classified ads, banner ads, text links, skyscraper ads, vertical banners, or a combination of these), and the charge is not taxable. Be aware, however, that if the online advertising includes more than placing an advertisement, it may be taxable.
  • Website Creation/Design/Updating – Taxable
    • Website design and development, hosting, maintenance and modifying webpage content are taxable data processing services.
    • Note – the first 20 percent of total taxable data processing service charge is exempt from sales tax. Sales tax is due on the remaining 80 percent.
  • Finished Art – Taxable
    • Charges for creating finished graphic arts (e.g., logos, images), whether in electronic or hard copy format, are taxable. Examples of graphic artwork include creating graphics for a client’s website and designing marketing materials such as printable flyers and miscellaneous corporate identity items. Tax is due on the total charge for finished artwork.

Portable Restrooms – Taxable
The rental of tangible personal property, such as portable restrooms, is taxable.

Janitorial Services – Taxable
Janitorial services are taxable. Services include keeping the inside and outside premises of a building or other structure clean, orderly, and functional, as well as performing minor adjustments, maintenance, or repairs.

Security Services – Taxability Varies
Security services are subject to Texas sales and use tax. Security services are any services requiring a license under Occupations Code §1702.101 or §1702.102, Private Security Chapter, and services requiring a license such as guard or guard dog companies and private security officers.

Security services provided by full-time peace officers (as defined by Code of Criminal Procedure, Article 2.12) are not taxable. However, if the peace officer is employed by a security service, their time is taxable when included in the charges by the security service.

Sales Tax Responsibilities for Sellers

Permit Requirements

For tax purposes, a fair or festival booth is a temporary place of business. Sellers operating a booth at these events, including sellers from outside Texas participating at these events, are engaged in business in Texas and must have a sales tax permit if they

  • sell taxable items or services;
  • take orders for taxable items or services; or
  • use the event to promote selling taxable items or services.

There are no temporary seller permits for vendors who come into the state to sell their products at a fair, festival or show.

Apply for a sales tax permit one of two ways: online or by submitting Form AP-201, Texas Application (PDF) by mail.

Sellers of Nontaxable Items

Sellers who only sell nontaxable foods, such as jams or canned foods, are not required to hold a sales tax permit. However, it is important to note that event organizers and promoters may require every participating seller to hold a sales tax permit, even if they do not sell taxable items.

Direct Sales Organizations

A direct sales organization (or multi-level marketing company) is a person or entity who typically sells taxable items directly to purchasers through independent salespersons (e.g., representatives, consultants) and in or through a place of business. Examples include Pampered Chef, Mary Kay and Scentsy.

Sellers who are independent salespersons or consultants for a direct sales organization are not required to hold a sales tax permit. Instead, the direct sales organization is considered engaged in business in Texas and is required to collect and remit any Texas sales tax due.

Resale Certificates

When you buy taxable items for resale you do not have to pay the sales tax. In lieu of paying tax, you must give your supplier a properly completed Form 01-339 (front), Texas Sales and Use Tax Resale Certificate (PDF). You must pay sales tax if you do not provide a properly completed resale certificate. An active Texas sales tax permit is required to issue a resale certificate.

Taxable and Nontaxable Items

Examples of taxable items commonly sold at fairs and festivals include

  • arts and crafts
  • candles
  • jewelry
  • souvenirs (e.g., t-shirts, hats, magnets)
  • ready-to-eat foods

Examples of nontaxable items include

  • jams and jellies
  • canned foods
  • water

Special Situations

Mobile Food Vendors

A "mobile food vendor" is any person who sells food from a motor vehicle, pushcart or any other form of vehicle. A seller who sets up a tent or a booth at a fair or festival-type event to sell food items is a mobile food vendor.

Sales tax is due on the sale of prepared food. Prepared food includes food sold in a heated state or heated by the seller, food that is ready for immediate consumption and food sold with eating utensils (plates, knives, forks, spoons) provided by the seller. Napkins, clamshells, boxes and wax paper are not considered eating utensils.

Whether the prepared food is for consumption on or off premises (i.e., sold "to go") does not determine whether the food is ready or not ready for immediate consumption.

Mobile food vendors may purchase the following items tax free by issuing their vendors a resale certificate:

  • cups (paper, foam)
  • napkins (paper)
  • straws (paper, plastic)
  • plastic dinnerware
  • to-go condiments

Baked Goods

Baked goods, such as cakes, tortes, pies, tarts, muffins, cookies, doughnuts or pastries, are exempt from sales tax, unless they are sold with plates or eating utensils. Bakery items sold by a bakery, regardless of whether the items are heated by the consumer or seller or served with plates or other eating utensils, are exempt from sales tax.

A bakery is defined as a "a retail location that primarily sells bakery items from a display case or counter, predominantly for consumption off the premises." For tax purposes, the definition of a bakery is extended to farmers markets and craft shows. A table in an event booth would qualify as a display.

Vendors selling ready-to-eat food items at festivals should use the local sales tax rate based on the location where the items are sold.

Exempt Organizations

Nonprofit organizations that have been granted sales tax exemption from the Comptroller’s office may use the event as one of their two, one-day, tax-free sales available to exempt entities each calendar year. If an exempt organization participates in the event and it is not used as a tax-free sales day, sales tax must be collected and remitted by the exempt organization, if permitted, or by the event promoter if not permitted. The exempt organization must let the promoter know that their sales will be tax free under this exemption.

More Information

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.

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.
Account Update Tools

Our Account Update Tools make it easy for you to:

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.

Agency Calendars

Required Applications: