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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
We've Made Some Updates!

July 2022

The Texas Comptroller of Public Accounts publishes this newsletter to keep you informed about Texas taxes. Tax Policy News provides general information and is not legal or professional advice. As many of you may know, we've had several organizational changes within the Tax Policy Division. Check out the Division Spotlight below for an introduction to the new management. You will also notice that we've expanded our content in this newsletter, and we hope to provide you more information on issues we are working on in our division. We are also moving to a quarterly publication instead of monthly. We hope you like the changes.

In This Issue...

Reminders

Back-to-School Sales Tax Holiday – Tips for Sellers

Since 1999, Texas shoppers have saved money during one weekend every August on the annual sales tax holiday. This year’s holiday is right around the corner, beginning Friday, Aug. 5, and lasting through Sunday, Aug. 7.

If you are a seller, read on to learn which items are exempt during the sales tax holiday, and how to handle special situations such as rain checks, advertising and tax reporting.

Qualifying Items

During the sales tax holiday, certain items priced under $100 are exempt from state and local 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 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 such as basketball uniforms, baseball cleats, or protective wear such as 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 or zippers.
  • Jewelry, handbags, purses, briefcases, luggage, umbrellas, wallets, watches or other accessories.

Backpacks

You can sell student backpacks (including backpacks with wheels, and messenger bags) 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 a school supply kit that contains 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, and if the cost of the exempt items is more than the taxable items, the kit is exempt. If the cost of the taxable items is more than the exempt items, the kit is taxable.

School Supplies Bought Using a Business Account – Exemption Certificate Required

If a customer buys qualifying school supplies using a business account, the customer must give you a properly completed exemption certificate (PDF) to complete the purchase tax free.

"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.

Online Purchases and Telephone Orders

During the sales tax holiday, qualifying items purchased in-store, online, by telephone, mail, custom order or any other means are exempt. The sale of the item must take place during the specific holiday period. The purchase date is easy to determine for in-store transactions but becomes more complicated with remote purchases. The purchaser must have given the consideration for the item during the period even if the item may not be delivered until after the period is over.

For example, if a purchaser enters their credit card information in an online shopping website on Sunday, Aug. 7, 2022, at 5 p.m. to purchase qualifying school supplies, but the school supplies will not be shipped until Friday, Aug. 12, and will not arrive until Tuesday, Aug. 16, the purchase still qualifies for the exemption. However, if the charge to the credit card is declined by the payment processor at 11 p.m. on Sunday, Aug. 7, and the purchaser does not resubmit payment until Monday, Aug. 8, the purchase is taxable.

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 with a rain check during the holiday weekend are exempt regardless of when they received the rain check. A customer purchasing a qualifying item after the sales tax holiday with a rain check received during the sales tax holiday does not qualify for the sales tax exemption.

Advertising Non-Qualifying Items

If you sell items that do not qualify for the sales tax holiday exemption, you can advertise that you will pay the sales tax for your customers if you meet the following guidelines:

  • You must indicate in an advertisement or statement that you are paying sales tax for your customer;
  • You may not indicate or imply that the sale is exempt or excluded from tax; and
  • Any purchaser's receipt or statement you provide to your customer must separately state the amount of sales tax and indicate the tax will be paid by the seller.

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 the tax to our office.

More Information

City Annexation or De-Annexation Activity – Please Notify Us

Texas cities – Have you annexed or de-annexed any areas recently? If so, please send this information to the Comptroller’s office. We cannot start or stop collection of applicable local sales and use taxes in the affected areas until we hear from you. The information we need includes the annexation/de-annexation ordinance(s), plat map(s) of the affected area(s), and whether the area is developed or undeveloped land. Once we receive this information, we will update our records, notify any affected taxpayers and advise affected utility companies to start collecting your tax.

Please send the required information to Comptroller of Public Accounts, P.O. Box 13528, Austin, TX 78711-3528 or attach a PDF copy of the information to an email addressed to taxalloc.revacct@cpa.texas.gov.

If you have any questions or are unsure if we have been notified about your city’s annexation or de-annexation activity, please give us a call at 800-531-5441 ext. 3-4530.

Franchise Tax

Franchise Tax – Second Extension Request for Mandatory Electronic Payers – Due Aug. 15

The deadline for filing a second extension request for franchise tax mandatory electronic payers is Aug. 15. If all of the tax you will report as due on the report you will file on or before Nov. 15 was paid with your first extension, use franchise tax Webfile or submit Form 05-164, Texas Franchise Tax Extension Request (PDF), to request a second extension.

If the amount paid with your first extension does not cover 100 percent of the amount of tax that will be reported as due on the report that will be filed on or before Nov. 15, you must pay the difference with your second extension request. Entities must electronically submit payment using the appropriate electronic payment method described below:

Webfile – Select the file extension option in Webfile and pay the difference, if any, between the amount paid with your first extension and 100 percent of the amount of tax that will be reported as due on the report filed on or before Nov. 15. You do not need to submit a paper Extension Request form if you select the file extension option in Webfile.

TEXNET – Select the extension payment option and pay the difference between the amount paid with your first extension and 100 percent of the amount of tax that will be reported as due on the report filed on or before Nov. 15. You do not need to request an extension in Webfile or submit a paper Extension Request form if you select the extension payment option in TEXNET.

Insurance Tax

Volunteer Fire Department Assistance Fund Assessment Billing

The Comptroller’s office mailed invoices to insurers at the end of May for the Volunteer Fire Department Assistance Fund Assessment, and payment is due Aug. 1, 2022.

This assessment applies to property and casualty insurers writing homeowners insurance, fire insurance, farm and ranch owner’s insurance, private passenger auto physical damage insurance, commercial auto physical damage insurance and the non-liability portion of commercial multi-peril insurance.

Publications and Webpages

Latest Updates
  • Local Sales and Use Tax Collection – A Guide for Sellers
    • Summary: In addition to Rule 3.334, Local Sales and Use Taxes, this publication provides guidance for sellers related to their responsibilities for collecting local sales and use taxes. Amendments to Rule 3.334, effective May 31, 2020, addressed sellers’ responsibilities when orders are not received by sales personnel.
  • Data Processing Services Are Taxable
    • Summary: This publication was updated to include information related to the settling of electronic payment transactions after the passage of Senate Bill 153, 87th Legislature, 2021. The bill excluded the settling of electronic payment transactions by certain payment processors and financial institutions from the definition of data processing services.
  • Remote Sellers and Marketplace Frequently Asked Questions (FAQs)
    • Summary: These Frequently Asked Questions (FAQs) provide additional information for remote sellers, marketplace sellers and marketplace providers. The FAQs were updated to discuss the requirements for marketplace providers addressed in recent legislation as it relates to prepaid 9-1-1 emergency service fees imposed on the sale of prepaid wireless telecommunications services, applicable fees associated with the sale of lead-acid batteries and deductions allowed for the resale of tickets to amusement services. These requirements were adopted by Senate Bill 296, 87th Legislature, 2021, and became effective July 1, 2022.

New Webpages

  • Prevent All Cigarette Trafficking (PACT) Act Reporting
    • Summary: This new webpage provides guidance on the federal statute requiring some entities to report sales of cigarettes, certain tobacco products, and electronic nicotine delivery systems (ENDS) into the states where they sell or advertise the products.
  • Direct Sales Tax Refunds for Reporting Severance Taxpayers
    • Summary: This new publication provides guidance for sales tax refunds for producers and first purchasers that pay oil and natural gas severance taxes. Effective Sept. 1, 2021, producers and first purchasers that report and pay crude oil or natural gas severance taxes but do not have a sales or use tax permit can ask the Comptroller’s office directly for a refund of sales and/or use tax paid in error.

Rules

Proposed

The Comptroller’s office proposed the following rule for public comment through the Texas Register:

General Rules

Rule 3.16 – Delinquent Taxpayer Financial Records; Information Exchange
Publication date – June 24, 2022
Comment period end date – July 24, 2022
Adopted

The Comptroller’s office filed the following rules for adoption with the Secretary of State. You may view the effective rules on the Texas Administrative Code webpage.

General Rules

Rule 3.9 – Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers
Publication date – July 15, 2022
Effective date – July 19, 2022
Summary: The Comptroller amended Rule 3.9 to require distributors of off-highway vehicles to report warranties issued for new off-highway vehicles that were sold to residents of Texas by a retailer located outside Texas. Distributors of off-highway vehicles are subject to the same reporting requirements as manufacturers of off-highway vehicles. Senate Bill 586, 87th Legislature, 2021.

Practice and Procedures

Rule 1.1 – Scope and Construction of Rules
Effective date – June 8, 2022
Summary: The Comptroller amended Rule 1.1 to add violations of Health and Safety Code Section 161.0901 as being matters subject to the rules. Section 161.0901 addresses disciplinary actions against cigarette and tobacco retailers, which were previously addressed in Tax Code Sections 154.1142 and 155.0592, and adds e-cigarette retailers under Health and Safety Code Chapter 147. Senate Bill 248, 87th Legislature, 2021.
Rule 1.10 – Requesting a Hearing
Effective date – June 8, 2022
Summary: The Comptroller amended Rule 1.10 to provide the date by which taxpayers must present resale or exemption certificates. Once a taxpayer has timely requested a redetermination hearing, the taxpayer has 90 days, rather than 60 days, to provide resale or exemption certificates after the Comptroller makes a written request. Senate Bill 296, 87th Legislature, 2021 and Tax Code Sections 151.054(e) and 151.104(d).
Rule 1.11 – Statement of Grounds; Preliminary Conference
Effective date – June 8, 2022
Summary: The Comptroller amended Rule 1.11 to waive the signature requirement for taxpayers who file a Statement of Grounds by e-mail if the Statement of Grounds identifies the individual who is the taxpayer's designated representative. Amendments also give taxpayers 90 days, rather than 60 days, to provide resale or exemption certificates after the Comptroller makes a written request. Senate Bill 296, 87th Legislature, 2021, and Tax Code Sections 151.054(e) and 151.104(d).
Rule 1.13 – Taxpayer's Acceptance or Rejection of Position Letter, and Reply to Position Letter
Effective date – June 8, 2022
Summary: The Comptroller amended Rule 1.13 to replace the reference to "Chief Counsel" with the title "General Counsel."
Rule 1.21 – Cigarette, E-cigarette, Cigar, and Tobacco Tax Hearings
Effective date – June 8, 2022
Summary: The Comptroller amended Rule 1.21 to add e-cigarette retailers and explain how a permit holder may request a hearing for violations of Health and Safety Code Section 161.0901, Disciplinary Action Against Cigarette, E-Cigarette, and Tobacco Product Retailers. Health and Safety Code Section 161.0901 allows the Comptroller to impose civil penalties on e-cigarette retailers, as well as retailers of cigarettes, cigars, and tobacco products. Senate Bill 248, 87th Legislature, 2021, repealed Tax Code Section 154.1142, Disciplinary Action for Certain Violations and Section 155.0592, Disciplinary Action for Certain Violations, and enacted new Health and Safety Code Section 161.0901, Disciplinary Action Against Cigarette, E-cigarette, and Tobacco Product Retailers.

Franchise Tax

Rule 3.589 – Margin: Compensation
Effective date – April 19, 2022
Summary: The Comptroller amended Rule 3.589 to incorporate policy decisions allowing wages and cash compensation paid to employees in a foreign country, STAR Doc. No. 201510539L (June 14, 2016); allowing discounts and working condition benefits, Winstead PC v. Combs, No. D-1-GN-12-000141 (201st Dist. Ct., Travis County, Tex. Feb. 7, 2013); and allowing the method of computing margin to be amended, STAR Doc. No. 201206444L (June 12, 2012). The amendments also allow compensation expenses paid for with qualifying loan or grant proceeds received for COVID-19 relief. House Bill 1195, 87th Legislature, 2021. Lastly, the amendments add the compensation thresholds for years 2012-2024 and implement statutory changes to definitions.
Rule 3.599 – Margin: Research and Development Activities Credit
Publication date – July 29, 2022
Effective date – August 4, 2022
Summary: The Comptroller amended Rule 3.599 to modify the definition of Internal Revenue Code to include any Treasury Regulation that a taxable entity could have applied to the 2011 federal income tax year. Amendments also remove the restriction on the carryforward of the credit when there is a change in the membership of a combined group and explain how to determine the credit carryforward when the membership of a combined group changes.

Sales Tax

Rule 3.276 – Surveying Services
Effective date – April 11, 2022
Summary: The Comptroller adopted new rule 3.276 to address surveying services. The new rule includes definitions related to providing surveying services, examples of taxable surveying services and nontaxable services, and examples of services performed by surveyors that are statutorily excluded from the definition of taxable real property services. The rule also includes the sales tax permit and collection responsibilities of surveyors and guidance on the acceptance of resale and exemption certificates.
Surveying services were previously addressed in Rule 3.356, Real Property Service. Sections of Rule 3.356 related to surveying services will be repealed.
Rule 3.282 – Auditing Taxpayer Records
Rule 3.285 – Resale Certificate; Sales for Resale
Rule 3.287 – Exemption Certificates
Effective date – April 26, 2022
Summary: The Comptroller amended Rules 3.282, 3.285 and 3.287 to allow taxpayers 90 days, rather than 60 days, to provide resale or exemption certificates after the Comptroller makes a written request for documentation during redetermination. The changes implemented Senate Bill 296, 87th Legislature, 2021, and Tax Code Sections 151.054(e) and 151.104(d).
Rule 3.340 – Qualified Research
Publication date – July 29, 2022
Effective date – August 4, 2022
Summary: The Comptroller amended Rule 3.340 to modify the definition of Internal Revenue Code to include any Treasury Regulations that an entity could have applied to the 2011 federal income tax year.

State Tax Automated Research System (STAR)

STAR provides viewing and downloading of redacted letter rulings, hearings, rules, Attorney General’s Opinions, etc. To see the latest items added to our State Tax Automated Research (STAR) system, use the New Documents link on the STAR home page in the blue menu bar.

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.

Franchise Tax and PrintersFranchise Tax and Printers – STAR Doc. No. 202204004L

STAR Doc. No. 202204004L

Tax Policy issued a policy memo to the Audit Division on the application of the franchise tax to printers. The memo provides additional guidance to Audit on the treatment of handling costs and storage fees for printers when ancillary services are provided. The memo addresses the treatment of these items for both cost of goods sold and apportionment. The memo replaces the previous policy memo dated June 18, 2014 (STAR Doc. No. 201406921L).

Payment Card Management Services – STAR Doc. No. 202204028L

STAR Doc. No. 202204028L

A taxpayer submitted a private letter ruling request regarding the taxability of its payment card management service. The service allows customers, such as food delivery services, to manage and customize payment cards used by employees in their business. Cards can be set up with spend controls that limit users by restricting spending amounts, locations and frequencies.

The taxpayer works with issuing banks to have the payment cards issued to its customers, and issuing banks sponsor the taxpayer’s access to credit card networks. When a card is presented at a retailer to make a purchase, the card network sends a request to the taxpayer for transaction authorization. The taxpayer reviews the limitations set by their customers and either approves or declines transactions based on the limitations. For authorized transactions, the taxpayer transmits settlement information to release the appropriate funds.

The settling of electronic payment transactions by a person sponsored by an issuing bank to a payment card network is excluded from taxable data processing services. The Comptroller determined that the taxpayer’s service falls under this exclusion and is not subject to Texas sales and use tax.

Online Educational Services – STAR Doc. No. 202206008L

STAR Doc. No. 202206008L

The Comptroller responded to a private letter ruling request regarding whether the sale of an online educational platform is subject to sales tax. The taxpayer’s platform is used by accredited universities and colleges as part of the curriculum for nursing and other professional healthcare students. The platform includes simulations that allow students to practice patient interaction, physical assessment, and clinical reasoning skills. After completion of a simulation, a student receives scores assessing the student’s proficiency in the exercise. The student’s professor reviews the scores and provides additional feedback.

The Comptroller determined that the service is not merely the sale of general information and is not taxable as an information service. Similarly, the service includes elements of data processing service but is not taxable as a data processing service. The service provides instruction and feedback to students and is an educational service that is not subject to Texas sales and use tax.

Tax Policy Division Spotlight

Meet Our Management Team!

As a reader of Tax Policy News, you probably already know quite a bit about our agency. The Comptroller’s office serves virtually every Texas citizen. The Tax Policy Division's mission is to research and interpret tax policy and to provide accurate, consistent and timely tax information to taxpayers, tax professionals, state officials, Texas citizens and agency personnel.

This quarter we are introducing our Tax Policy Division management team.

Phillip Ashley, Associate Deputy Comptroller for Tax

Phillip Ashley became the Associate Deputy Comptroller for Tax in November 2021. He has been with the agency since 2001.

In his current role, Phillip has responsibility for the agency’s Tax Policy, Taxpayer Assistance, Enforcement, Audit, Hearings and Litigation, Criminal Investigation, Account Maintenance, Revenue Processing and Revenue Accounting divisions.

Prior to his appointment over the tax divisions, Phillip served as the Associate Deputy Comptroller for Fiscal, overseeing the fiscal operations of the agency, including statewide accounting, financial reporting and budgetary control, state treasury operations, the investment of certain state funds including multiple endowments, the state’s unclaimed property program, the state’s prepaid tuition and 529 college savings plans, and the property tax division.

Phillip holds Bachelor of Business Administration and Master of Business Administration degrees from Baylor University and is a Certified Public Accountant and Certified Government Financial Manager.

Jennifer "Jenny" Burleson, Director of the Tax Policy Division

After longtime director of Tax Policy, Teresa Bostick, decided to retire, Jenny Burleson was named the new director of the Tax Policy Division in November 2021.

Jenny joined the Comptroller’s office in November 2011 as a hearings attorney in the Administrative Hearings Section. She then transferred to the agency’s Contract Section of General Counsel, and after a short time, she transferred to the Tax Policy Division, handling special projects including research and development, reviewing all types of agency correspondence and guidance, and working on rules. Jenny was then privileged to be offered a position as an Administrative Law Judge at the State Office of Administrative Hearings overseeing tax disputes and most recently, she held the position of Senior Counsel for the Comptroller’s Audit Division.

Jenny is a native Coloradan who grew up in West Texas, and graduated from Texas Tech University. Jenny obtained a law degree from South Texas College of Law in Houston.

Herman Mason III, Assistant Director of the Tax Policy Division

Herman Mason III was named Assistant Director of the Tax Policy Division in March 2022. He has been with the Comptroller’s office since 2001. During his tenure with the agency, he has been responsible for legislative implementation and planning, drafting administrative rules and publications, process development and training.

In his current role, Herman oversees the Direct and Indirect Taxes, Compliance Resources, Exempt Organization Applications and Tax Education and Public Engagement teams.

Herman graduated summa cum laude with a Bachelor of Arts in Business Administration from Huston-Tillotson University.

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:

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.
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