Tax Policy News

Rule 3.334, Local Sales and Use Taxes, effective May 31, 2020, implements provisions related to the Wayfair decision, marketplace providers and single local use tax rate for remote sellers legislation, and provides guidance on determining the place of business of a seller.

Texas sellers are now required to collect any additional local use tax if they ship or deliver items to an address in another local taxing jurisdiction that has a higher local sale and use tax rate regardless of whether the seller has physical presence (people or property) in that locality.

Additionally, the rule requires both remote sellers and marketplace providers to collect local tax based on the destination location. Remote sellers may elect in writing to the Comptroller to use the single local use tax rate (1.75 percent). Purchasers can also request a refund when the single local use tax rate is higher than the locality’s tax rate. However, marketplace providers cannot use the single local use tax rate.

The rule also clarifies the definition of a place of business to more closely follow the statutory provision that a place of business must have employees (sales personnel) at its location. It amends the definition to specifically exclude computer servers, Internet protocol addresses, websites, domain names or software applications because orders placed through these applications are automated and are not received by sales personnel as described by statute.

The rule provides a hierarchy for determining where a local sale is "consummated," which includes an evaluation of whether an order is received at a place of business of the seller in Texas, and whether an order is fulfilled from a place of business of the seller in Texas. This evaluation may result in local tax being due in the local jurisdiction where the order is received, in the local jurisdiction where the order is fulfilled, or in the local jurisdiction where the order is delivered.

The rule also provides guidance regarding the location where an order is received. Two of these provisions are effective Oct. 1, 2021:

• An order received by a salesperson while traveling will be treated as being received at the location from which the salesperson operates if the location independently meets the definition of a place of business.*
• An order not received by a salesperson, such as an order received by a shopping website or shopping application, is received at a location that is not a place of business of the seller.

Pursuant to an agreed temporary injunction, the agency has agreed not to enforce the second of these provisions while its validity is being challenged in district court. The temporary injunction does not change the effective date of rule. If the courts ultimately determine that the rule follows the statute, taxpayers as well as the agency will be bound by that determination.

Look for more in-depth discussions on local sales and use taxes in the upcoming editions of Tax Policy News.

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

Living in the largest state in the U.S. (and one of the greatest, if you ask just about any Texan), with its vast and varied landscapes, scenic views, beautiful lakes and bustling cities, it’s no wonder people move here in droves every year. According to the Texas Realtors 2021 Texas Relocation Report (PDF), over 500,000 new residents moved to Texas from other states in 2019. That’s an average of more than 1,300 people a day. And it’s safe to say that many new and current Texas residents use motor vehicles to travel our great state.

A new resident might bring one or multiple motor vehicles when relocating to Texas. When titling and registering their vehicles in Texas, new residents often wonder whether they owe any tax on their motor vehicle.

Within this group, there are new residents and those who have already established residency. The question then becomes, "Which tax is due: new resident tax or use tax?"

New Resident Tax

A new resident is defined as any person, firm, corporation or association that moves to Texas with the intent to live or locate within the state.

Texas Tax Code Section 152.023, Tax on Motor Vehicle Brought into State by New Texas Resident, imposes a $90 new resident tax on any motor vehicle purchased outside of Texas and brought into this state for use by a new resident, provided the vehicle was previously registered in the new resident’s name in another state or foreign country. The $90 new resident tax is the new resident’s responsibility and must be paid within 30 calendar days from the vehicle’s first use in Texas (60 calendar days for active duty military personnel).

Example – Charles moves to Texas with the intent to live here, and he brings his motor vehicle. The vehicle was previously registered in his name in Colorado. Charles must pay the $90 new resident tax when he presents Form 130-U, Application for Texas Title and/or Registration (PDF), to his local County Tax Assessor-Collector’s (CTAC) office.

A new resident may have previously resided in Texas. A person, firm, corporation or association may not subsequently become a new resident without showing the former Texas residency was abandoned.

Example – Stephanie, a previous resident of Texas, moved out of state and established residency in New York. Stephanie decided to move back to Texas and will bring a vehicle she purchased and registered in New York. The vehicle was not previously registered in Texas, nor was Texas tax paid. Stephanie must pay the $90 new resident tax when she presents Form 130-U, Application for Texas Title and/or Registration (PDF) to her local CTAC’s office.

Motor Vehicle Leased by a New Resident

When a new resident leases a motor vehicle in another state or foreign country and the vehicle was previously registered in the new resident’s name in another state or foreign country, the new resident owes the $90 new resident tax when Form 130-U, Application for Texas Title and/or Registration (PDF) is presented to the CTAC’s office.

Use Tax

A 6.25 percent motor vehicle use tax is due on every motor vehicle purchased outside Texas and brought into the state for public highway use by a Texas resident or by a person domiciled or doing business in Texas.

When the motor vehicle is brought into Texas for use on public roads and highways, Texas motor vehicle use tax is due. The person who owns or operates the vehicle in Texas must pay the motor vehicle use tax to the CTAC’s office within 30 calendar days of bringing the vehicle into Texas for use.

Example – Don, a Texas resident, purchases a motor vehicle in Oklahoma. Oklahoma did not collect tax on the purchase because he will title and register the vehicle in Texas. Don owes the 6.25 percent motor vehicle use tax to the CTAC’s office within 30 calendar days of bringing the vehicle into Texas.

Motor Vehicle Leased by a Texas Resident or Someone Domiciled in Texas

When a Texas resident, or someone domiciled in Texas, leases a motor vehicle in another state or foreign country and brings it into Texas for use, the Texas resident owes the 6.25 percent use tax. The Texas resident pays the use tax when they present Form 130-U, Application for Texas Title and/or Registration (PDF) to their local CTAC’s office.

Credit for Tax Paid to Other State

A credit is allowed to a person, firm or corporation that, as a purchaser, has paid legally imposed sales or use tax to another state (including any political subdivision of that state) on a motor vehicle that later becomes subject to Texas motor vehicle use tax.

For leased vehicles, motor vehicle use tax is due from the person who brings a leased vehicle into Texas, which is always the lessee and not the lessor. See Texas Tax Code Section 152.022, Total Consideration.

In most states, the lessor is required to collect and remit sales or use tax on the lease of a motor vehicle, similar to Texas limited sales tax. Unlike in Texas, the lessee does not pay sales tax directly to the state.

If a lessee purchases a vehicle out of state and brings the leased vehicle into Texas, they can take a credit for the use tax they paid to the lessor and reported to the other state; the credit can be used against any use tax due when the lessee titles and/or registers the leased vehicle in Texas. Credit is not allowed against the new residence use tax paid by a lessee who is a new resident.

A lessee who later purchases the leased vehicle can then take a credit against the sales tax due for either the use tax or the new residence tax as shown on a Texas Tax Title and Registration receipt issued to the lessee/purchaser.

We hope this information helps new and current Texas residents understand their responsibilities when titling and registering a motor vehicle in this state.

More Information

• Publication 96-254, Motor Vehicle Tax Guide
• Motor Vehicle Tax Rule 3.61, Credit for Motor Vehicle Sales or Use Tax Paid to Another State
• Motor Vehicle Tax Rule 3.70, Motor Vehicle Leases and Sales
• Motor Vehicle Tax Rule 3.71, Definition of "Resident" and "New Resident"
• Tax Code Section 152.022, Tax on Motor Vehicle Purchased Outside This State.

You may want to clean out your closet or garage and get a little cash at the same time by selling items on the internet, or holding a garage or yard sale.

Texas sales tax is normally due when you sell tangible personal property. Examples include clothing, shoes, DVDs, books, furniture, toys and other personal items typically sold at garage sales.

While you might not consider yourself to be "in business" in the familiar sense, you could still be responsible for collecting tax on the items you sell. This article provides information to help you understand whether you need to get a Texas Sales and Use Tax Permit and collect sales tax.

Occasional Sales by Individuals

Certain sales may qualify for exemption from tax as "occasional sales." If you qualify, you do not need a sales tax permit, and you do not collect tax on those sales.

You can qualify for an occasional sales exemption if you meet either of these requirements:

• You only sell one or two taxable items during any 12-month period – the price of the items does not matter; or
• You sell in a calendar year (January-December) items originally bought for you or your family members for personal use, and you don’t make more than $3,000 on those sales.

Under the first provision (selling only one or two taxable items), the sales price of the items does not matter. For example, you can sell a piano for $4,000 and a bicycle for $200 in the same 12-month period. If you decide to sell your used lawn mower for $100 before the end of that 12-month period, you are required to get a sales tax permit and collect sales tax on the lawn mower because that would be a third sale.

Under the second provision, you can sell as many items as you want as long as your total sales are $3,000 or less during a calendar year. For example, you hold a garage sale in May and make $1,000. In August, you sell your used bicycle to a neighbor for $200. In December, you sell your TV to a friend for $500. You have made more than two sales in a calendar year, but since the total amount you earned from the sales was less than $3,000, the exemption still applies.

If you continue to sell taxable items after you have reached the $3,000 limit and you have made more than two sales, you will be considered engaged in business, and required to get a sales tax permit and start collecting tax on all future sales of taxable items, beginning with the first sale that occurs after the limit is reached. You may close the sales tax permit if you will no longer sell taxable items or you once again meet the requirements for the occasional sales exemption.

Marketplace Sales of Personal Items

Sales made through a marketplace do not qualify for an occasional sales exemption. See Senate Bill 477, 87th Legislature. If you sell your personal items through a marketplace, you are not responsible for collecting and remitting sales and use tax on those sales if the marketplace provider has certified they are assuming these responsibilities. Texas sellers that sell through a marketplace are responsible for having a Texas tax permit and filing their sales and use tax returns timely, even if their only sales are through a marketplace provider. Because marketplace sellers are required to have a Texas tax permit, any sales they may make outside of a marketplace are also taxable. This includes the sale of personal items in a garage sale or on non-marketplace platforms such as Craigslist, Letgo and Facebook.

Who Does Not Qualify for This Exemption?

The occasional sales exemption only applies to individuals. It does not extend to similar sales made by groups or organizations (e.g., student groups or church groups) that collect items to sell at a garage sale type event or miscellaneous secondhand articles typically sold to raise money for a charity or a special event. However, another exemption may apply for sales made by qualifying exempt organizations.

Additionally, the occasional sales exemption does not apply to "community-wide"-type events that are coordinated or produced by a third party if the seller is required to pay a fee or commission in order to participate in the event (e.g., booth or space rental fees).

In these situations, you are required to have a Texas sales tax permit and collect tax on all sales of taxable items, even if you sell your personal items.

In addition to the exceptions mentioned above, you do not qualify for the occasional sales exemption if any of these conditions apply:

• You have, or are required to have, a Texas Sales and Use Tax Permit (or similar permit from another state).
• You are engaged in business selling taxable items (this includes items made and sold by artists or craftsmen).
• You buy, barter or trade taxable items to resell.
• You sell taxable items through a marketplace.

Occasional Sales Exemption

Use this chart to see if the occasional sales exemption applies to you:

More Information

• Tax Code Section 151.304, Occasional Sales
• Rule 3.316, Occasional Sales; Transfers Without Change in Ownership; Sales by Senior Citizens' Organizations; Sales by University and College Student Organizations; and Sales by Nonprofit Animal Shelters
• Rule 3.286, Seller’s and Purchaser’s Responsibilities
• Publication 94-437, Garage Sales and Occasional Sales
• Publication 94-108, Engaged in Business
• Marketplace Providers and Marketplace Sellers

The Comptroller’s office updated the following resources:

• Publication 94-114, Pest Control Services
• Use Tax webpage

The following new webpages are available online:

• Buying and Selling Fuel Oil
• Timber Exemptions – Sales, Motor Fuel and Motor Vehicle Taxes

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

Sales Tax

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.

The Taxes webpage has links to:

• All Texas taxes and fees.
• Resources for taxpayers.
• Filing and paying taxes.
• Tax laws and rules.

Our Account Update Tools make it easy for you to:

• Change your address.
• Add a location.
• Close a location.
• Change return/email notifications.

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.

The Practitioners’ Corner is a one-stop resource for information about filing and paying taxes, links to tax research sources and searchable databases.

• Tax Due Dates
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