Tax Policy News

Coin-operated amusement machine owners and operators must file renewal applications for their 2024 general business license, registration certificate, import license or repair license by Nov. 30, 2023. A $60 occupation tax permit for each coin-operated amusement machine exhibited or displayed in Texas is also due by Nov. 30. An occupation tax permit decal must be affixed to each machine in use.

Under Occupations Code Section 2153.154 and Section 2153.405, the Comptroller’s office may not refund the license fee once a license is issued, nor refund the occupation tax to an owner who ceases to exhibit or display a coin-operated machine before the end of the calendar year for which the tax is imposed.

The Comptroller's office mailed renewal application packets in early October. Coin-operated amusement machine owners and operators who have not received renewal packets by Oct. 31 should contact our office at 512-463-3731.

Effective for reports originally due on or after Jan. 1, 2024, Senate Bill (SB) 3, 88th Legislature, Second Called Session, increases the no tax due revenue threshold to $2.47 million and prohibits the Comptroller’s office from requiring taxable entities whose annualized total revenue is at or below the revenue threshold to file a No Tax Due Report. The bill also repealed the requirement that a new veteran-owned business file a No Tax Due Report during its initial 5-year exemption period. Read on to learn how we are implementing these changes.

No Tax Due Report (Form 05-163)

Because taxable entities whose annualized total revenue is at or below the no tax due revenue threshold and qualifying new veteran-owned businesses are no longer required to file a No Tax Due Report, we are discontinuing the No Tax Due Report for the 2024 report year and beyond. The form will not be available for any new reporting periods. Currently there are five types of entities that can file a No Tax Due Report:

• Taxable entities whose annualized total revenue is at or below the no tax threshold;
• Qualifying new veteran-owned businesses;
• Entities that qualify as passive entities;
• Qualifying real estate investment trusts (REITs); and
• Taxable entities with zero Texas gross receipts.

The following is how each entity will report (or not report) beginning with the 2024 report:

• Taxable entities with annualized total revenue at or below the no tax due revenue threshold do not owe any tax and are not required to file a franchise tax report. They are, however, still required to file a Public Information Report (PIR) or Ownership Information Report (OIR).
• New veteran-owned businesses are not required to file a franchise tax report for the initial five-year period that they qualify as a new veteran-owned business. For new veteran-owned businesses, no PIR or OIR is required during this initial five-year period.
• Passive entities must file either the long form or the EZ Computation form. Both forms are being updated with a circle to darken, which is in the taxpayer information section at the top of the form. Other than signing the report, passive entities need not provide information in any other section of the report and no PIR or OIR is required.
• REITs also must file either a long form or EZ Computation form and darken the appropriate circle in the taxpayer information section at the top of the form. Other than signing the report, REITs need not provide information in any other section of the report. REITs must continue to file a PIR or OIR.
• Taxable entities with zero Texas gross receipts must file either a long form or EZ Computation form and complete specific line items on the form to compute the entity’s total revenue and report zero on the Texas gross receipts line. Entities with zero Texas gross receipts must continue to file a PIR or OIR.

The long form, EZ Computation form, PIR, OIR and instructions for each tax year are available at Texas Franchise Tax Forms.

Combined Groups

A combined group must include all taxable entities in the combined group report even if any member, on a separate entity basis, has annualized total revenue at or below the no tax due revenue threshold. If a combined group’s annualized total revenue is at or below the no tax due revenue threshold, the combined group is no longer required to file a franchise tax report, an Affiliate Schedule (Form 05-166), and a Common Owner Information Report (Form 05-177) for that report year. Each individual member of the combined group that is organized in Texas or has nexus in Texas must file a PIR or OIR.

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

Local Sales and Use Tax

Rule 3.334 – Local Sales and Use Taxes

Publication date – Oct. 27, 2023
Comment period end date – Nov. 26, 2023

Summary: The Texas Comptroller of Public Accounts proposes an amendment to Texas Administrative Code, Title 34, Rule 3.334, concerning local sales and use tax. The proposed amendment adds language regarding the location where an order is received for purposes of sourcing local sales and use taxes. The text of the proposed amendment is taken from the Streamlined Sales and Use Tax Agreement.

See Public Hearing on Nov. 8, 2023 – Rule 3.334, Local Sales and Use Tax

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.

Battery Sales Fee

Rule 3.711 – Battery Sales Fee Collection and Reporting Requirements

Publication date – Sept. 29, 2023
Effective date – Oct. 5, 2023

Summary: The Comptroller adopts amendments to Rule 3.711 to implement Senate Bill 477, 87th Legislature, 2021, which requires marketplace providers to collect the applicable fees related to the sale of lead-acid batteries. The amendments add definitions of "marketplace," "marketplace provider," and "marketplace seller." The amendments further provide that effective July 1, 2022, marketplace providers selling lead-acid batteries are required to collect the battery sales fee. Lastly, the amendments clarify that the battery sales fee is not due on sales of batteries for resale, as required under Health and Safety Code §361.138, The Comptroller adopts amendments to Rule 3.711 to implement Senate Bill 477, 87th Legislature, 2021, which requires marketplace providers to collect the applicable fees related to the sale of lead-acid batteries. The amendments add definitions of "marketplace," "marketplace provider," and "marketplace seller." The amendments further provide that effective July 1, 2022, marketplace providers selling lead-acid batteries are required to collect the battery sales fee. Lastly, the amendments clarify that the battery sales fee is not due on sales of batteries for resale, as required under Health and Safety Code §361.138, Fee on the Sale of Batteries.

STAR Doc. No. 202309029L

Tax Policy issued a memo to the Audit Division to address electronic games and associated content. This memo updated STAR Accession No. 201405957L (May 28, 2014) to include virtual currencies purchased for use within a game.

Electronic games are games operated on or through the use of devices such as a personal computer, game console, or mobile telephone, where gameplay is accomplished through a connection to the internet. In recent years, electronic games have evolved into more of an interactive virtual gaming experience by offering associated content including items such as additional content, character upgrades, and even their own virtual currencies.

Consumers can purchase games and associated content directly through a game’s website or from third-party retailers. When purchases are made via third-party retailers, they are often in the form of redeemable, physical cards. These cards include a code that grants access to the game and associated content. They may also include a preloaded amount of virtual currency that the purchaser may redeem to access content within a game.

The purchase of electronic games and associated content, including virtual currencies, is taxable as an amusement service regardless of whether access is purchased directly through a game’s website or a redeemable card.

STAR Accession No. 201405957L has been superseded.

STAR Doc. No. 202307011L

A taxpayer requested a private letter ruling on whether the redemption of a merchandise certificate won through a charity auction is subject to sales and use tax. A department store donated the certificate to a nonprofit. The certificate entitled the taxpayer to exchange it for $3,000 in merchandise at the store.

The Comptroller’s office determined the certificate was a gift certificate that entitled the taxpayer to a future purchase of taxable items. The certificate was consideration and redemption of the certificate for merchandise was a taxable sale. The sales price was the full price of the merchandise for which the certificate was redeemed.

STAR Doc. No. 202307012L

A taxpayer requested a private letter ruling regarding the taxability of its seeds. The taxpayer also asked whether its customers are required to provide an agricultural exemption certificate.

The taxpayer’s seeds are used for applications including land reclamation and restoration, conservation, ranch grazing, and wildlife habitat enhancements. All the seed species sold can be used as food for wildlife and livestock. They are not used for turf or lawn purposes.

Seeds that produce items that are sold in the regular course of business or used for feed for exempt farm and ranch animals are exempt from sales and use tax. The Comptroller’s office determined taxpayer’s seeds are sold for these purposes and are not taxable. A purchaser is not required to provide an exemption certificate for these types of seeds.

STAR Doc. No. 202308018L

The qualifying owner, operator, and occupant of a large data center project may claim a sales tax exemption on certain equipment necessary and essential for the operation of the project. The Comptroller’s office issued a private letter ruling related to the expansion of a current large data center project.

A taxpayer that is the sole qualifying owner and qualifying operator of an existing project plans to expand the project to a lot it currently owns that shares a boundary with the existing project. The taxpayer plans to sell the lot for the project expansion to an affiliate. The affiliate will build and own all future buildings on this lot, which the taxpayer intends to become part of the large data center project. The taxpayer will remain the qualifying operator of the project.

A large data center project may be composed of one or more buildings and must include at least 250,000 square feet of space located on a single parcel of land or on contiguous parcels of land that are commonly owned or owned by affiliation with the qualifying operator. The Comptroller’s office determined that the proposed expansion will be on a contiguous parcel and owned by affiliation as required. The affiliate may be listed as a qualifying owner of the large data center project.

STAR Doc. No. 202308020L

A taxpayer requested a private letter ruling related to the taxability of its employee benefit and retirement administration services it provides to employers. The taxpayer’s employee benefit administration services include administering employee health reimbursement accounts (HRAs) and flex spending accounts (FSAs), tracking compliance with the Affordable Care Act (ACA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA), and performing benefit eligibility verification audits. The taxpayer’s retirement services include retirement plan administration and 401(k) plan recordkeeping services.

The Comptroller’s office determined the spending account service and the COBRA administration service were not taxable. The taxpayer’s ACA compliance and eligibility verification services involve the evaluation of employees’ eligibility for insurance coverage, therefore, the Comptroller’s office determined these services were taxable insurance services. The taxpayer also provided an ACA reporting-only service that is a taxable data processing service.

The Comptroller’s office determined the taxpayer’s retirement plan administration and 401(k) recordkeeping services were nontaxable financial services to administer retirement plans.

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
• Holiday Schedule