Tax Policy News

Since 1999, Texas shoppers have saved money during one weekend every August on the annual sales tax holiday.

The Comptroller encourages you to support Texas businesses while saving money on tax-free purchases of most clothing, footwear, school supplies and backpacks (sold for less than $100) during the annual tax-free weekend. You can purchase qualifying items tax free from a Texas store or from an online or catalog seller doing business in Texas. In most cases, you do not need to give the seller an exemption certificate to buy qualifying items tax free.

This year’s sales tax holiday begins Friday, Aug. 9, and lasts through midnight Sunday, Aug. 11.

The sales tax exemption applies only to qualifying items you buy during the sales tax holiday. Items you buy before or after the sales tax holiday do not qualify for exemption or a tax refund.

See the following for additional information:

• Publication 98-490, Sales Tax Holiday.
• Publicación 98-490s, Fin de Semana Libre de Impuestos Sobre las Ventas.
• Texas Tax Code Section 151.326 – Clothing and Footwear for Limited Period.
• Texas Tax Code Section 151.327 – School Supplies and School Backpacks Before Start of School.

Franchise tax mandatory electronic payers must file a second extension request by Aug. 15 to extend the report due date to Nov. 15.

If you paid all the tax due 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 you paid with your first extension does not cover 100 percent of the amount of tax due, you must pay the difference with your second extension request. You 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.

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, 2024.

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.

Due to legislation passed in May 2023, the Motor Vehicle Crime Prevention Authority (MVCPA) Fee Report that is due on Aug. 1, 2024, will be a split period.

A $4 rate applies from Jan. 1 through May 28 and a $5 rate applies from May 29 through June 30. The report required for the split filing period is Form 25-106-A, Insurance Motor Vehicle Crime Prevention Authority Semiannual Fee Report-January through June (PDF). Form 25-106-A may be filed online through Webfile or by paper report, and will only be used for reports due Aug. 1, 2024.

2024 franchise tax reports were due May 15, but many taxpayers have still not met their franchise tax filing requirements. A change in the requirements may have caused confusion for some taxpayers, many of whom need only file a Public Information Report (PIR) or Ownership Information Report (OIR) to resolve their issue.

In July 2023, the Legislature passed Senate Bill 3, increasing the no tax due threshold to $2.47 million and eliminating the no tax due reporting requirements for certain entities. In response, the Comptroller’s office changed the way some entities report for franchise tax purposes. See our Changes to No Tax Due Reporting For 2024 Reports webpage for details.

Depending on your entity’s annualized total revenue, you may need to file a franchise tax report and a Public Information Report/Ownership Information Report; or you may only need to file a Public Information Report/Ownership Information Report. There is no $50 penalty for late filing a Public Information Report or Ownership Information Report.

Texas law requires the Comptroller to forfeit an entity's right to transact business in Texas if the entity does not file all required franchise tax reports and pay any franchise tax and penalty due within 45 days of the date the notice of intent is mailed. The Comptroller's office provides this notice in accordance with Texas Tax Code Sections 171.251, 171.2515 and 171.256.

If the Comptroller’s office forfeits an entity's right to transact business in Texas, the forfeiture is reflected on the Comptroller’s public website; the entity is generally denied the right to sue or defend in a Texas court; and each officer, director, partner, member or owner may be liable for certain debts of the entity.

You still have time to act to ensure your entity’s right to transact business in Texas is not forfeited. Beginning on Aug. 6, the Comptroller’s office will start mailing Form 05-211, Texas Notice of Intent to Forfeit Right to Transact Business notices to entities who have not satisfied their franchise tax filing requirements.

If an entity has not satisfied franchise tax filing requirements, see our Making Your Franchise Tax Account Current - 2024 Report Year webpage for steps on making your account current.

You can verify an entity’s franchise tax account status online.

The Comptroller’s office filed the following rules for adoption with the Secretary of State:

Local Sales and Use Tax

New Rule 3.334 – Local Sales and Use Tax

Publication date – June 28, 2024
Effective date – July 4, 2024

Summary: The notice of proposed rulemaking for Rule 3.334 published on Oct. 27, 2023, did not include a statement of fiscal implications for small businesses or rural communities as required by Government Code Chapter 2006. The Comptroller therefore repealed the adopted rule as proposed on that date and readopted the rule under the same number and title.

The readopted rule includes new definitions for the terms “small business” and “micro-business.” The readopted rule also includes a presumption related to whether a single location operated by a small business or a micro-business is a place of business for the purpose of sourcing local sales tax. If a small business or a micro-business operates a single location where it conducts all of its business, that location will be presumed to be a place of business.

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

Practice and Procedures

Rule 1.6 – Service of Documents on Parties
Rule 1.10 – Requesting a Hearing
Rule 1.35 – Motion for Rehearing

Publication date – Aug. 2, 2024
Comment period end date – Sept. 1, 2024

Summary: The Comptroller of Public Accounts proposes amendments to Rule 1.6, concerning service of documents on parties. The proposed amendments update the mailing address of the Administrative Hearings Section, which has moved to Suite 14.301 of the George H.W. Bush Building at 1801 Congress Ave., Austin, Texas 78701.

The Comptroller of Public Accounts proposes amendments to Rule 1.10, concerning requesting a hearing. The proposed amendments update the mailing addresses for the Audit Division and the Administrative Hearings Section, both of which moved to the George H.W. Bush Building at 1801 Congress Ave., Austin, Texas 78701.

The Comptroller of Public Accounts proposes amendments to Rule 1.35, concerning motion for rehearing. The proposed amendments implement Senate Bill 903, which enacted Tax Code Section 111.106 (Tax Refund: Notice of Intent to Bypass Hearing). Effective Sept. 1, 2021, a taxpayer who files a notice of intent to bypass the refund hearing, and who either participates in a conference with a designated Comptroller employee or is excused from participation in such a conference by the Comptroller, may file suit in district court. Language providing that a motion for rehearing is a prerequisite for a tax refund lawsuit is deleted. The proposed amendments also implement House Bill 2080, which enacted Tax Code Chapter 112, Subchapter E, (Suit After Redetermination). Language requiring a motion for rehearing of a redetermination to identify the disputed amounts associated with the grounds of error raised is added.

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.

STAR Doc. No. 202407003M

The Tax Policy Division issued a memo to the Audit Division related to utility studies and turnarounds for chemical plants and petrochemical refineries.

The sale of natural gas and electricity is generally taxable. There are, however, several exemptions, including gas and electricity used to power exempt manufacturing equipment.

Chemical plants and petrochemical refineries may make both taxable and nontaxable uses of gas and electricity. For example, natural gas and electricity used to power exempt manufacturing equipment such as reactors, catalytic crackers, and condensers are exempt. Natural gas and electricity used for areas such as administrative offices, storage areas, and warehouse or distribution facilities are taxable.

A single meter may measure both taxable and exempt uses of natural gas or electricity. Natural gas or electricity that is used for both taxable and exempt purposes is completely taxable or exempt based on the predominant use of the gas or the electricity. To establish whether the predominant use of natural gas or electricity through a meter is an exempt use, a utility study is required.

Auditors may encounter situations where it is clear that the predominant use of the natural gas or electricity through a meter is for powering exempt manufacturing equipment. For example, electricity through a meter might be used to power manufacturing equipment for multiple production lines as well as for a small amount of office and storage space. If it is clear in the auditor’s judgement that the predominant use of natural gas or electricity through a meter is to power exempt manufacturing equipment, a study should not be required.

A plant turnaround is a scheduled shutdown of all or part of a plant’s operations in order to perform maintenance and repairs on equipment in the plant. Although the repair of equipment is often taxable, labor performed as part of a regularly scheduled and periodic turnaround for a manufacturing or processing plant is maintenance that is not taxable.

For maintenance to be considered scheduled it must be anticipated and designated to occur within a given time period or production level. There are no specific requirements for the amount of time or production between turnarounds. For example, the time between turnarounds could be just a few months for a certain plant or unit within a plant. For other plants or units, it may be a period of several years.

Although the intervals between turnarounds must be reasonably predictable, turnarounds may often be delayed or pushed back. For example, a functioning refinery may push back a scheduled turnaround to maintain production after other refineries have been damaged by a hurricane. The facts and circumstances surrounding the delay, including the length of the delay in relation to the length of the original maintenance interval, dictate the reasonableness of the deviation from the maintenance schedule.

Taxpayers should be able to provide items such as scope of work documents, project plans, and turnaround schedules to document the extent and the timing of a turnaround. Authorization for expenditures and purchase orders further substantiate the taxpayer’s plans for work to be done during a turnaround. Vendor contracts and invoices and other turnaround project information used by the taxpayer to track turnaround costs may also be used to substantiate the actual work that was ultimately performed.

STAR Doc. No. 202406004M

The Tax Policy Division issued a memo to the Audit Division related to the taxability of credit card processing fees.

Retailers that separately state credit card processing fees to their customers have claimed that the fees are not part of the sales price of taxable items sold because the fees are excluded from either:

• the sales price of taxable items as finance, carrying and service charges, or interest from extending credit to the purchaser: or
• the definition of data processing services as the settling of an electronic payment transaction.

The sales price of a taxable item means the total amount for which a taxable item is sold, without a deduction for the cost of materials used, labor or services employed, and other expenses. Finance, carrying and service charges, or interest from credit extended for sales of taxable items are excluded from the sales price.

A retailer who separately states credit card processing fees to its customers is not extending credit to the customers for the purchase of a taxable item. Instead, the retailer is merely accepting credit cards as a means of payment. Accordingly, the credit card processing fee is not a finance, carrying and service, or interest charge from extending credit; and is not excluded from the sales price of taxable items.

The settling of an electronic payment transaction by certain payment processors and financial institutions is excluded from the definition of data processing and is not taxable. However, a retailer selling taxable items is not acting in the capacity of a credit card payment processor or financial institution and its sales do not fall under this exclusion.

Credit card processing fees are an expense incurred by a retailer in connection with the sale of taxable items. When a retailer separately states a charge to its customers to recover that expense, the separately stated charge is part of the sales price of the retailer’s taxable items.

STAR Doc. No. 202402020L

A taxpayer requested a private letter ruling regarding the taxability of a computer-based, secondary education admissions testing service.

The taxpayer’s computer-based test is proctored and administered through the taxpayer’s downloadable application software which is installed onto a test-taking device. After the test, the taxpayer conducts an analysis of the examinee’s responses to the test and provides the examinee with an assessment score. The assessment score helps prove the examinee’s readiness for college.

The Comptroller’s office determined that the taxpayer’s service is not taxable. The service includes elements of data processing in compiling students’ responses to test questions, generating assessment scores, and providing the scores to examinees. However, these activities are performed to facilitate the taxpayer’s testing service that provides an assessment of a student’s readiness for college. Testing a student’s readiness for college does not fall under the services listed as taxable services in Tax Code Section 151.0101. Therefore, the taxpayer’s testing service is not subject to Texas sales and use tax.

STAR Doc. No. 202402023L

A taxpayer requested a private letter ruling regarding the taxability of website analytics products and services it provides to customers in the online lending, banking, payment processing, insurance, and ecommerce industries. The taxpayer’s products identify issues that keep a user from accomplishing a desired action on a website and determine whether a user is a natural person or a bot.

To collect the necessary data, the taxpayer installs software on a customer’s website to track user interactions. The software processes and analyzes the data and creates reports viewable by customers on a dashboard that is available through a web-based portal.

The taxpayer charges an initial fee to install its software on a customer’s website. The taxpayer also charges a fee based on the amount of user sessions for which data was collected and processed and a monthly subscription fee for access to the dashboard.

The Comptroller’s office found that the initial charge is for a license to install code on a customer’s website. This charge was therefore determined to be a taxable sale of software.

The Comptroller’s office determined that the fee based on the amount of user sessions and the monthly subscription fee are taxable charges for data processing. The activities performed for those fees involve the compilation, manipulation, and storage of information gathered from a customer’s website. Those activities fall under the definition of data processing and the fees were therefore determined to be taxable.

The Taxes webpage has links to:

• All Texas taxes and fees.
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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.
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• 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