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

January 2023

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.

In This Issue...

Announcements

Tax Policy Reorganization

Effective Jan. 1, 2023, Tax Policy Division changed the name of the Tax Education and Public Engagement Team, reassigned some of its duties to the tax teams, and created a Training Program Coordinator position.

Chelsea Ray is the division’s new Training Program Coordinator. She is responsible for planning and organizing internal and external training. Chelsea is your point of contact for any training requests.

Please submit your training requests to Chelsea via Tax.Help@cpa.texas.gov.

Reminders

2022 Federal Income Tax Returns – Sales Tax Deductions

If you itemize deductions on your 2022 federal income tax return, you have the option of claiming a deduction for state and local sales taxes paid during 2022. See the IRS Sales Tax Deduction Calculator for more information on claiming the deduction.

Insurance Tax Reports Due March 1, 2023

The 2022 annual insurance premium and maintenance tax reports and payments for licensed insurance companies and miscellaneous organizations (such as HMOs) are due on or before March 1, 2023.

Annual insurance premium tax reports and payments for Texas licensed surplus lines agents and agencies, and for entities required to report unauthorized insurance premium taxes, are also due on or before March 1, 2023.

For any questions regarding insurance tax reports, please contact us at insurance.tax@cpa.texas.gov.

Motor Vehicle Crime Prevention Authority Fee

Property and casualty insurance companies authorized by the Texas Department of Insurance to write automobile insurance as described in Insurance Code, Art. 5.01(e) must report and pay the Motor Vehicle Crime Prevention Authority Fee on or before March 1, 2023, for automobile policies effective from July 1, 2022, through Dec. 31, 2022. Companies licensed to write automobile coverage must file the form even if no fee is due. Refer to Form 25-107, Insurance Motor Vehicle Crime Prevention Authority Semiannual Fee Report - July through December (PDF).

Publications and Webpages

Miscellaneous Gross Receipts Tax (MGRT) and the 2020 Federal Census

The MGRT is paid by utility companies, including retail electric providers, that sell electricity, gas, or water to an ultimate consumer in an incorporated city or town with a population of more than 1,000. Under Tax Code Section 182.022(b), the MGRT tax rate depends on the population of the incorporated city or town "according to the last federal census next preceding the filing of the report."

There has not been a specific release of the 2020 federal census data that contains population data for cities and towns as of April 1, 2020, the date of the decennial census. In the absence of that data, the Comptroller’s office worked with the US Census Bureau to develop a spreadsheet ("Population of Incorporated Cities or Towns in Texas for MGRT") (CSV) containing the population of cities and towns in Texas as of April 1, 2020.

MGRT taxpayers should use the population numbers available in the spreadsheet (CSV) developed by the Comptroller’s office when preparing their MGRT report due July 31, 2023, which includes receipts from April 1, 2023 to June 30, 2023.

This information, as well as a link to the spreadsheet (CSV), is available on the Miscellaneous Gross Receipts Tax webpage. We will also mail a notice with this information to MGRT taxpayers in March with the first quarter reports.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a federal program for working people with low to moderate income, even if they do not owe tax or are not required to file a tax return. The credit reduces the amount of tax owed and could provide a refund.

Information about the credit for 2023 is now available in both English and Spanish on our Earned Income Tax Credit (EITC) webpages. We also provide printable EITC posters for employers to share with their employees.

Rules

Proposed

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

Franchise Tax

Rule 3.591 – Margin: Apportionment
Publication date – Jan. 20, 2023
Comment period end date – Feb. 19, 2023
Summary: The Comptroller’s office proposes amendments to Rule 3.591 in response to the Texas Supreme Court opinion in Sirius XM Radio, Inc. v. Hegar, No. 20-0462 (Tex. March 25, 2022). The proposed amendments delete the receipt-producing, end-product act discussion and provide that a service is generally performed where the taxpayer’s people and property are doing the work that the customer hired the taxpayer to perform.

Sulphur Production

Rule 3.41 – Definition and Due Dates
Publication date – Dec. 30, 2022
Comment period end date – Jan. 29, 2023
Summary: The Comptroller’s office proposes the repeal of Rule 3.41 to implement Senate Bill (SB) 757, 84th Legislature, 2015. SB 757 repealed Tax Code Chapter 203, Sulphur Production Tax, effective Sept. 1, 2015. Sulphur producers are no longer required to file a report and pay this tax and the periods are now outside the four-year statute of limitations for assessments and refund claims. See Tax Code Section 111.107(a), When Refund or Credit Is Permitted and Section 111.201, Assessment Limitation.
Adopted

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

Cigarette Tax

Rule 3.101 – Cigarette Tax and Stamping Activities
Publication date – Oct. 14, 2022
Effective date – Oct. 23, 2022
Summary: The Comptroller’s office amended Rule 3.101 to implement Senate Bill (SB) 248, 87th Legislature, 2021. SB 248 allows a person in Texas who receives unstamped cigarettes from a manufacturer, bonded agent, distributor, or importer to store the cigarettes exclusively in an interstate warehouse. The amendments also add definitions; provide that "first sale" does not include sales to an interstate warehouse and interstate warehouse transactions; and specifically states that an interstate warehouse is not a wholesaler.

Franchise Tax

Rule 3.589 – Margin: Compensation
Publication date – Dec. 16, 2022
Effective date – Dec. 19, 2022
Summary: The Comptroller’s office amended Rule 3.589 to correct an error in the 2020-2021 compensation threshold amount. The correct compensation threshold amount is $390,000 for reports originally due on or after Jan. 1, 2020, but before Jan. 1, 2022

Sales Tax

Rule 3.334 – Local Sales and Use Taxes
Publication date – Jan. 27, 2023
Effective date – Jan. 30, 2023
Summary: The district court in City of Coppell, Texas, et al. v. Glenn Hegar (Cause No. D-1-GN-21-003198) found that the agency failed to substantially comply with one or more of the procedural requirements for the notice of proposed rule when the rule was previously adopted in May 2020. The Comptroller’s office adopts amendments to the rule to meet those requirements.

State Tax Automated Research System (STAR)

STAR Watch

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.

Designated Doctor Examinations – STAR Doc. No. 202211002L

STAR Doc. No. 202211002L

Tax Policy issued a policy memo to the Audit Division related to the taxability of designated doctor examinations ordered by the Texas Department of Insurance, Division of Workers’ Compensation (TDI-DWC).

Workers’ compensation is a state-regulated insurance program that pays medical bills and replaces some lost wages for employees who are injured at work or who have work-related diseases or illnesses. During treatment of an injury, an injured worker or the worker's attorney, insurance carrier, or TDI-DWC can request an examination by a designated doctor. TDI-DWC orders an exam to evaluate questions about an injured employee’s medical condition and to resolve disputes about worker’s compensation insurance benefits regarding a work-related injury or illness.

The exams are activities to handle, investigate, adjust, and/or pay claims or losses and are taxable as insurance services.

The policy stated in the memo addresses issues related to workers’ compensation insurance that the Comptroller has not previously addressed. The agency has delayed implementation of the policy related to designated doctor examinations until after the 2023 legislative session. This allows TDI-DWC and the workers' compensation industry time to seek a legislative change.

The agency also issued a private letter ruling to TDI-DWC related to designated doctor examinations. This document, STAR Accession No. 202210014L, is currently superseded. However, the policy will go into effect on Oct. 1, 2023, if a legislative change is not enacted.

Medical Record Retrieval – STAR Doc. No. 202212003L

STAR Doc. No. 202212003L

A taxpayer requested a private letter ruling regarding the taxability of the retrieval of medical records. The taxpayer’s customers are attorneys and insurance companies requesting records pursuant to a lawsuit. A request for records requires the patient’s written consent, a subpoena, or a court order.

The taxpayer charges its customers three types of fees. The first fee covers charges the taxpayer incurs when requesting records from medical providers. The second fee is for reviewing records for accuracy and completeness and to ensure they are provided in accordance with all applicable laws and regulations. The third fee is for additional tasks requested by customers including optical character recognition (OCR), electronic bookmarking of records, and for making additional copies of records in various formats.

The agency determined the first two types of fees are not taxable. Providing records to a patient, a patient’s authorized representative, or under a court order or subpoena is not a sale of a taxable item. Reviewing those records and ensuring they are provided in accordance with the law is also not a taxable service.

The fees for the additional tasks are taxable. For example, charges for OCR and electronic bookmarking of records involve data entry and storage and are taxable data processing services. The sale of additional copies of records regardless of format (i.e., physical or electronic), copies of x-rays and other medical imaging, and copies of CDs and DVDs are taxable sales of tangible personal property.

Credit Rating Services – STAR Doc. No. 202301006L

STAR Doc. No. 202301006L

In August 2022, Tax Policy issued a policy memo to the Audit Division related to the taxability of credit rating services (STAR Doc. No. 202208011L). This memo determined that services to assign credit ratings to legal entities are taxable as credit reporting services.

The memo has been updated to give taxpayers time to come into compliance with this policy. The updated memo states that taxpayers should start collecting and remitting sales and use tax on their taxable credit rating services beginning April 1, 2023. STAR Doc. No. 202208011L has been superseded.

Amending Out-of-Statute Reports to Create an R&D Credit – STAR Doc. No. 202301007L

STAR Doc. No. 202301007L

Tax Policy issued a memo to the Audit Division on whether a taxpayer could amend a franchise tax report for an out-of-statute report period to create a research and development (R&D) credit and credit carryforward.

If the report for the tax year in which the taxpayer made eligible R&D expenditures is closed by the statute of limitations, the taxpayer cannot create a credit in that year. Additionally, there can be no carryforward of a credit that could not be created.

Amending a franchise tax report for an out-of-statute report period to create an R&D credit, and the associated carryforward, is a refund claim and is barred by the statute of limitations.

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.

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