Tax Policy News

There are changes to the filing requirements. See the franchise tax article below.

Annual franchise tax reports are due May 15. Beat the rush to file your franchise tax report or request an extension of time to file – Webfile is available now!

Webfile makes it easy to submit tax reports, make payments, request extensions, file final reports, request tax clearance letters, and view a summary of your transactions. You can find your franchise tax Webfile number (which starts with "XT") on the franchise tax upcoming due date reminder letter we mailed in January.

You can also call 800-442-3453 at any time to get your XT number via our automated system. When you call, be sure to have your 11-digit taxpayer number and identifying information, such as total revenue from a previous report or the amount of the last tax payment you made (cannot be zero).

View the following video tutorials for help with franchise tax:

• How to Create a Webfile Account.
• How to Find Your 11-Digit Taxpayer Number.

The 2023 independently procured insurance tax report (PDF) and supplement (PDF) are due on or before May 15, 2024. To qualify as independently procured insurance, you must obtain the insurance policy directly from a non-admitted insurer, and you must not use the services of an agent or broker in the procurement of coverage. If an agent is involved in the placement of the insurance, the policy may be surplus lines insurance with taxes due to the home state of the insured. If Texas is the home state of the insured and the agent does not hold a surplus lines license in Texas, the transaction may be considered unauthorized insurance.

As of January 2021, taxpayers no longer receive a paper tax report. Instead, the Comptroller’s office sends an email reminder about the filing deadline. Email reminders are sent in April.

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

Prepare yourself for emergencies that can cause physical damage like hurricanes, flash floods, and wildfires during the 2024 Emergency Preparation Supplies Sales Tax Holiday. You can purchase certain emergency preparation supplies tax-free during the sales tax holiday. There is no limit on the number of qualifying items you can purchase, and you do not need to give the seller an exemption certificate to claim the exemption.

This year’s holiday begins at 12:01 a.m. on Saturday, April 27, and ends at midnight on Monday, April 29.

Taxpayers can refer to the Emergency Preparation Supplies Sales Tax Holiday publication for additional information.

The General Land Office has certified that the Coastal Protection Fund has fallen below the minimum balance allowed by law. Therefore, by law, the Coastal Protection Fee is reinstated (PDF) effective June 1, 2024. Crude oil transferred through a marine terminal on or after June 1 is subject to the 1.333 cents per barrel fee. Affected taxpayers were notified in a letter mailed April 12, and official notice was sent to the Texas Register for publication on April 26.

Collection of the Coastal Protection Fee will be suspended again if the fund reaches the maximum balance allowed by law. Affected taxpayers will be notified if the fee is suspended. For more information, visit our Coastal Protection Fee webpage.

The Comptroller’s office will mail invoices to insurers by the end of May for the Volunteer Fire Department Assistance Fund Assessment, and payment is due Aug. 1, 2024. This assessment applies to property and casualty insurers writing homeowners insurance, fire insurance, farm and ranch owners’ insurance, private passenger auto physical damage insurance, commercial auto physical damage insurance and the non-liability portion of commercial multi-peril insurance.

This is a reminder to retailers and consumers that Senate Bill (SB) 379, exempting certain family care items from sales and use tax, became effective Sept. 1, 2023. SB 379 exempts from sales and use tax wound care dressings, adult or children’s diapers, baby wipes, feminine hygiene products, maternity clothing, breast milk pumping products, and baby bottles. SB 379 amended Tax Code Section 151.313 and added Sections 151.3132, 151.3133, 151.3134, and 151.3135.

We previously provided notice to taxpayers in our Tax Policy News Legislative Edition issued in August 2023. We’ve also updated our online Publication 96-280, Grocery and Convenience Stores and Publication 96-280s, Supermercardos y Tiendas de Conveniencia. We are working on amendments to Rule 3.284, Drugs, Medicines, Medical Equipment, and Devices (Tax Code Section 151.313) to update the name of the rule, incorporate the new legislation, and to address some common questions we’ve been receiving since the legislation became effective.

Effective Sept. 1, 2023, wound care and family care items are exempt from sales and use tax. Retailers should not collect sales and use tax on these items, including:

• Adhesive bandages (including strip adhesive bandages, large adhesive bandages and butterfly closures).
• Adult diapers.
• Baby bottles.
• Baby wipes.
• Breast milk pumping products.
• Children’s diapers.
• Corn cushions.
• Feminine hygiene products (including tampons, sanitary napkins, menstrual cups, and menstrual pads).
• Gauze rolls and pads.
• Maternity clothing.

We encourage any retailers with questions on whether specific items are exempt to contact us.

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 threshold to $2.47 million and prohibits the Comptroller’s office from requiring taxable entities whose annualized total revenue is less than or equal to the no tax due threshold to file a No Tax Due Report. The bill also repealed the provision that allowed the Comptroller’s office to require a new veteran-owned business to file a No Tax Due Report during its initial five-year 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 less than or equal to the no tax due 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. Below are the five types of entities that could file a No Tax Due Report prior to 2024 and how each entity will now report (beginning with the 2024 report):

• Taxable entities whose annualized total revenue is less than or equal to the no tax due 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).
• Qualifying 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.
• Qualifying passive entities must file either the long form or the EZ Computation form. Both forms are updated with a circle to darken, located 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.
• Qualifying real estate investment trusts (REITs) 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 less than or equal to the no tax due threshold. If a combined group’s annualized total revenue is less than or equal to the no tax due threshold, the combined group is not required to file a franchise tax report, an Affiliate Schedule (Form 05-166), or 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 filed the following rules for adoption with the Secretary of State:

Cigarette, E-Cigarette, and Tobacco Products Regulation

New Rule 3.1207 – E-Cigarette Retailer Permits

Publication date – Apr. 19, 2024
Effective date – Apr. 22, 2024

Summary: The Comptroller adopts new Rule 3.1207 to implement portions of Senate Bill 248, 87th Legislature, 2021, relating to regulating permits for the sale or delivery of e-cigarettes. The rule provides guidance on obtaining an e-cigarette retailer permit as provided in new Health and Safety Code, Chapter 147 (E-cigarette Retailer Permits). Effective Jan. 1, 2022, a retailer permit is required for persons who engage in the business of selling or the delivery of e-cigarettes to consumers and includes a person who sells e-cigarettes to consumers through a marketplace. The rule provides definitions, discusses the application process and required fees, and addresses applicable penalties for persons who sell or deliver e-cigarettes without a permit.

Rule 3.1203 – Approved Seller Training Programs

Effective date – Mar. 6, 2024

Summary: The Comptroller adopts amendments to Rule 3.1203 concerning approved seller training programs, without changes to the proposed text as published in the Jan. 12, 2024, issue of the Texas Register (49 TexReg 129). The rule was not republished. The amendments implement the portion of Senate Bill 248, 87th Legislature, 2021, that requires vendors providing comptroller approved training programs to include training on e-cigarette sales. The amendments also require the recertification of approved training programs and provides the recertification requirements.

Rule 3.1204 – Administrative Remedies for Violations of Health and Safety Code

Effective date – Mar. 6, 2024

Summary: The Comptroller adopts amendments to Rule 3.1204 concerning administrative remedies for violations of Health and Safety Code, Chapter 161, Subchapter H or K, without changes to the proposed text as published in the Jan. 12, 2024, issue of the Texas Register (49TexReg 129). The rule was not republished. The amendments implement the portions of Senate Bill 248, 87th Legislature, 2021, that relate to violations. The updated provisions extend the look-back violation period from 12 months to 24 months and increase the amount of the fine for each violation that occurs within a specific timeframe. The amendments also require a permit holder to respond to the written notice of violation within 20 calendar days, rather than 15 calendar days, consistent with current agency practice. Additionally, the amendments provide guidance on the process for a permit suspension or revocation.

STAR Doc. No. 202402022L

A taxpayer requested a private letter ruling asking if the coin-operated machines tax applies to mini claw machines containing toys intended for kids, or if they were excluded as machines designed exclusively for a child. The mini claw machines are 5 feet high and 1 foot wide, and contain toys intended for kids 12 and under as a prize.

The coin-operated machines tax applies to a machine or device operated by or with a coin or other United States currency and includes a "skill or pleasure coin-operated machine." However, the Occupations Code specifically excludes from the definition of skill or pleasure coin-operated machine "an amusement machine designed exclusively for a child."

It is the design of the machine that is determinative. To be excluded from the coin-operated machines tax the machine would have to be designed such that no person over 11 years old would use the machine. It does not matter if an immature adult or older child actually uses the machine. Additionally, the kind of prize a person can win does not affect the determination.

STAR Doc. No. 202401025L

A taxpayer requested a private letter ruling regarding the taxability of surgical retractor blades and handles used for procedures including orthopedic and neurological surgeries. Taxpayer's retractor blades separate the margins of a wound or incision.

Orthopedic devices used in the correction or prevention of human deformities, defects, or chronic diseases of the skeleton, joints, or spine are exempt from sales tax. Therapeutic devices used to alleviate pain or for use during the treatment or cure of sickness or disease that are dispensed or prescribed by a licensed practitioner of the healing arts are also exempt. However, therapeutic devices that are used by doctors and hospitals to provide health care and medical services are taxable.

The Comptroller’s office determined the taxpayer’s retractors and handles are used to separate tissue for various types of procedures and are not specifically for the treatment of the skeleton, joints, or spine and are not orthopedic devices. The retractor blades and handles are surgical tools used to provide health care and medical services and are taxable therapeutic devices.

Health care providers, such as doctors, clinics, hospitals, nursing homes, or other institutions providing health care or medical services to individuals owe tax on therapeutic appliances, devices, and related supplies they use in providing nontaxable health care and medical services.

STAR Doc. No. 202402020L

A taxpayer requested a private letter ruling related to the taxability of various website design, website development, marketing consulting, and advertising services.

The taxpayer’s website design service involves developing a website blueprint. A website blueprint is the foundation or strategic plan for a customer’s website. The taxpayer’s service includes goal setting, site mapping, usability consulting, and planning for website architecture, but it does not include the development of a website. The service may be provided on a stand-alone basis or as part of a custom website design and development package.

The taxpayer also provides website development services that include the creation of template-based or custom websites. These services involve the planning of a website layout, the development of web page design and functionality, and the creation and launch of the website.

Services to design and plan, but not create, a website do not fall under the list of services subject to Texas sales and use tax. The Comptroller’s office determined the website blueprinting service is not taxable when it is provided on a stand-alone basis.

The creation and maintenance of a website involves the compilation, storage, and manipulation of data and meets the definition of data processing. The Comptroller’s office determined that the taxpayer’s website development services are taxable.

The taxpayer also provides various marketing consulting and advertising services. The consulting services include implementation and training services related to a third-party customer relationship management platform. The Comptroller’s office found that these services also do not fall under the list of taxable services and are not subject to tax.

The taxpayer’s advertising services include project management, strategy and consulting, campaign planning, media placement, marketing performance reporting, copywriting, keyword research, design of visual elements, the production of finished art, and training on automating repetitive marketing tasks. The services are purchased on a retainer basis and billed under a lump-sum charge.

Advertising services generally do not fall under the services subject to Texas sales and use tax. However, the creation of finished art is a taxable sale of tangible personal property.

The Comptroller’s office determined that the taxpayer may provide both taxable and nontaxable items under its lump-sum charge for retainer services. The taxpayer is not required to separately list taxable and nontaxable items or to include tax on its invoices to customers for its retainer services. Invoices must indicate that tax is included for any taxable items that were provided to customers. The taxpayer is responsible for collecting and remitting tax on any taxable items provided under a charge for retainer services and its books and records must document the tax collected for those items.

STAR Doc. No. 202402021L

Tax Policy responded to a private letter ruling request regarding the taxability of lump-sum rental payments that included equipment, fixtures, and leasehold improvements.

The taxpayer is a commercial finance company that offers equipment and project financing options to its customers. The taxpayer entered into an agreement that charged a lump-sum monthly amount for the rental of equipment including computers, software, printers, medical equipment, and networking equipment and for the finish out and remodeling of space in a medical office building. The taxpayer charged sales tax on the monthly amount.

The Comptroller’s office determined that the agreement between the taxpayer and its customer was not a contract for the lease or rental of real property. The agreement related to the rental of tangible personal property and taxable and nontaxable services. The agreement meets the definition of an operating lease and the payments under that lease are taxable.

The rental payments cover taxable rentals of equipment and software and taxable nonresidential real property repair and remodeling services. The rental payments also cover nontaxable new construction. The taxpayer’s lump-sum charge includes both taxable and nontaxable items with no basis for a breakout, and the entire lump-sum charge is therefore taxable.

STAR Doc. No. 202404005L

Tax Policy Division issued a memo to Audit Division providing guidance on determining the statute of limitation of an entity that is not required to make its tax payments by electronic funds transfer (non-EFT payer) and of an entity required to make its tax payments by electronic funds transfer (EFT payer) when a taxpayer requests an extension for the report period. The memo applies to determining the applicable period of limitation for the Comptroller’s office to assess tax and for a taxable entity to file a refund claim.

Generally, no tax may be assessed and no refund may be requested after four years from the date a tax becomes due and payable. See Texas Tax Code Section 111.201 (Assessment Limitation) and Section 111.107 (When Refund or Credit is Permitted). In determining the beginning date for a period of limitation, the date a tax is due and payable is the day after the last day on which a payment is required. See Tax Code Section 111.204 (Beginning of Period of Limitation).

The beginning date for the period of limitation for a non-EFT payer that obtains a valid extension under either the 100 percent of tax due in the prior report year extension method or the 90 percent of tax due in current report year extension method is Nov. 16.

The beginning date for the period of limitation for an EFT payer that obtains a valid first extension under either the 100 percent of tax due in the prior report year extension method or the 90 percent of tax due in current report year extension method is Aug. 16. An EFT payer that has a valid first extension may obtain a second extension of time to Nov. 15 to file its annual report.

Regardless of whether a valid second extension is obtained, the beginning date for the period of limitation for an EFT payer that obtains a valid first extension is Aug. 16. This is because Aug. 16 is the day after the last day on which a payment is required.

The Comptroller’s office amended Rule 3.585, relating to annual report extensions, on Oct. 11, 2017, to align the guidance in the rule with the statutory language. Although the rule was amended in 2017, we will apply this policy to reports originally due on or after Jan. 1, 2020.

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.
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• 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