Texas State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Texas, with full citations and the original source on every page.
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How did Texas apportion the pre-2008 franchise tax to the state, and does it follow the Multistate Tax Compact's formula?
Texas apportioned the pre-2008 franchise tax using a single gross-receipts factor — Texas gross receipts over total gross receipts — and did not adopt the Multistate Tax Compact's three-factor UDITPA …
How does an out-of-state company apportion service revenue to Texas for the franchise tax when it cannot break down receipts by state?
Service receipts are apportioned to where the services are performed, and a company that cannot trace revenue to each state may use another reasonable method. A Georgia-based corporation performed ser…
Is charging customers to take a class over the internet, or to build a custom e-learning course, taxable in Texas?
Charging a customer to take a class over the internet is not subject to Texas sales tax, and neither is a charge to write original course content or lesson plans. Developing a custom interactive cours…
Can a caterer claim the manufacturing exemption on the gas and electricity its stoves and ovens use to prepare meals for events?
No. Gas and electricity used by a caterer to prepare or store food for immediate consumption do not qualify for the sales tax exemption under Tax Code § 151.317(a)(3), because a caterer that prepares …
Is a chemical solvent that an oil and gas operator injects into a marginal well, and which stays in the produced oil/gas, exempt from Texas sales tax?
Yes. Micelle mutual solvent — a chemical injected into a marginal well to boost production, which becomes part of the hydrocarbons removed from the well and is sold along with the oil or gas — is exem…
Are tickets to a nonprofit sports league's championship game exempt from Texas sales tax, and does hiring a for-profit company to help produce the event jeopardize that?
Tickets to a championship game sold by a 501(c)(6) nonprofit sports league qualify for the Texas sales tax exemption for amusement services exclusively provided by a nonprofit under Tax Code § 151.310…
Does a company owe Texas use tax on a barge and tugboat it uses to haul waste from Louisiana to Texas, if it doesn't own both vessels?
A follow-up letter correcting an earlier ruling's assumed facts: because the third party actually owns the barge (rather than leasing it) and merely contracts for a manned tugboat from another company…
Is charging a client to integrate their software onto a company's web-hosting server a taxable data processing service, and does the seller's cash-basis sales tax reporting matter?
Software integration charges are taxable as part of a web-hosting/data-processing engagement — not a nontaxable professional service — when the integration work is performed in connection with placing…
Can a joint venture that tolls (processes) a gas stream owned by the federal government — extracting and cleaning a specific gas molecule — claim the manufacturing exemption on its processing equipment, even though it never owns or sells the gas itself?
Yes. A joint venture that operates a tolling facility — extracting, separating, and cleaning a specific gas molecule (helium) from a gas stream owned by the federal government, and returning the extra…
If a computer's price is discounted at checkout because the buyer agrees to subscribe to a specific internet provider, is sales tax owed on the original price or the discounted price?
Sales tax is due only on the discounted price actually charged for the computer, not the original pre-discount price — when a retailer reduces a computer's sale price at the point of sale in exchange …
Can someone who buys manufacturing equipment avoid sales tax on the purchase by leasing it out, if the equipment lease is bundled together with a building lease?
No. When an individual buys manufacturing equipment and then leases it together with land and a building to a related company in a single bundled real estate lease — with no separate sales tax charged…
Is leasing a railcar to ship a company's own product exempt from Texas sales tax?
Yes. Leasing a railcar for the purpose of shipping a company's own product is exempt from Texas sales tax as rolling stock, under Comptroller Rule 3.297 and Tax Code § 151.331.
Is demolishing an old building and constructing a separate new one, with no shared wall, taxed as new construction, and can tax mistakenly paid on the demolition be recovered?
Constructing a new two-story building that is a genuinely separate structure — not sharing a common wall with an existing building — qualifies as new construction, so tax is due on incorporated materi…
When a city airport board hires a manager and contractors to build and operate a terminal hotel, who can buy supplies, equipment, and construction materials tax-free, and under what conditions?
An airport board is exempt from Texas sales tax as a local government entity under § 151.309(5), so its own purchases (including hotel tangible personal property) aren't taxed; its authorized purchasi…
Is an infant incubator exempt from Texas sales tax, and what about a transport device, surgical gloves, or a motility measurement system sold to hospitals?
An infant incubator is exempt from Texas sales tax because it qualifies as a prosthetic device under Comptroller Rule 3.284 — it maintains an oxygenation, humidity, and temperature environment that su…
Does Texas's semiconductor-manufacturing exemption cover cleanroom printer supplies, laundering exempt cleanroom gowns, a failure-analysis lab that supports the fab, and cleanroom partition repairs?
Texas's semiconductor fabrication cleanroom exemption (Tax Code § 151.318(b)(2), (q)) reaches well beyond the cleanroom's core machinery: printer toner and special cleanroom paper used for lot-trackin…
Can an out-of-state buyer of used Texas manufacturing equipment issue a Texas manufacturing exemption certificate, even though the equipment will be shipped out of state and used at a California plant instead of in Texas?
Yes. There is no requirement in the Tax Code or administrative rules that manufacturing equipment purchased under the Section 151.318(a) exemption actually be used in Texas — so a California corporati…
Can a Texas manufacturer buy wrapping and packaging equipment (and its repairs) tax-free, and does that exemption survive if the wrapping/packaging step is subcontracted out to another company?
Yes. A Texas manufacturer may buy stretch wrappers, strappers, and shrink wrappers — plus their repair parts and repair labor — tax-free under Tax Code § 151.318(a)(2), because packaging the finished …
Does software that links a manufacturer's computer to its production machines qualify for the Texas manufacturing exemption, even when the same software also tracks orders and calculates scrap?
Partly. Software that downloads pattern data directly into production machines and has a direct effect on the product being manufactured qualifies as exempt manufacturing equipment. But the same syste…
When a private developer redevelops a city-owned historic building into an entertainment venue under a long-term ground lease, are the donated construction materials, consumables, design services, and historic-building renovation labor exempt from Texas sales tax?
Yes, on these facts. A developer redeveloping city-owned historic sites into an entertainment venue under a 40-year ground lease may issue an exemption certificate to its contractor for materials and …
When a private company builds a city-owned entertainment venue on land it will later sell to the city, can materials the company donates to the city before installation be purchased tax-free?
Yes. Where a private company builds a facility that a city will own and lease back to the company, and the company donates specified materials to the city — with title passing up the contractor chain …
If a company keeps legal title but transfers the beneficial (equitable) ownership of its assets to limited partnerships, who owes Texas franchise tax on the income?
The income follows the beneficial owner, and only the corporate general partner owes the tax. A company kept legal title to its assets but transferred the equitable interest to two limited partnership…
Is renting miniature racecars and a racetrack to a customer for its employees to drive taxed the same way as operating those same racecars yourself as part of an advertising campaign?
No — the same equipment is taxed differently depending on who controls it. Renting miniature racecars and a racetrack to a customer so its own employees or customers can drive them is a taxable rental…
How does the $150,000 franchise-tax gross-receipts threshold work, and how are 'gross receipts everywhere' computed for each component of the tax?
The $150,000 figure is an all-or-nothing threshold, not a deduction. For franchise-tax reports originally due on or after January 1, 2000, a corporation owes no franchise tax if its gross receipts fro…
Are over-the-counter items sold at an optometry office — like nonprescription sunshades, contact solution, and eyeglass repair parts — exempt from Texas sales tax as drugs or medicines?
As of this 2000 letter, most of the listed items sold from an optometry office — eyeglasses, nose pads, nonprescription and clip-on sunshades, eyeglass cords, artificial tears, contact solutions, magn…
Is a wholesaler of prepaid telephone calling cards required to collect Texas sales tax when selling the cards to a retailer who will resell them?
A wholesaler selling telephone prepaid calling cards is engaged in selling taxable tangible personal property — Tax Code § 151.01032 defines a prepaid calling card (a card, item, or access code repres…
If a janitorial vendor bills separately for general building cleaning and for special decontamination cleaning inside a semiconductor cleanroom, is the cleanroom-specific charge exempt from Texas sales tax?
Yes, when separately billed. General building janitorial services are a taxable service under 34 TAC § 3.356(a)(7), but the separate line-item charge for daily decontamination cleaning performed speci…
Does Texas's use tax exemption for repair and replacement parts on licensed self-propelled carriers extend to pipeline components purchased out of state and installed in Texas?
No. Texas Tax Code § 151.330(i) exempts, from use tax, out-of-state repair/replacement parts affixed in Texas only to a self-propelled licensed and certificated carrier (like an aircraft, ship, or mot…
Can a road contractor buy vehicle safety equipment (crash boxes) tax-free because the vehicles are used on a state highway job for the Texas Department of Transportation?
No. "Crash boxes" — devices mounted on the rear of a contractor's pickup trucks to lessen collision damage to the vehicle — do not qualify for exemption, even though the contractor's contract with the…
If an IT services vendor asks a multi-state customer to issue a Texas multi-state benefit exemption certificate under a tax-included contract, is the customer required to issue one?
No. Issuing a Texas multi-state service benefit exemption certificate under Rule 3.330(f)(3) is a choice available to a multi-state customer buying data processing and similar taxable services that be…
For a direct-mail company, is marked-up postage taxable, does labeling a task 'data processing' on an invoice make it taxable, and do they owe tax on printing they buy and mark up for mass mailings?
A direct-mail company received four answers: (1) a markup on U.S. postage is not subject to Texas sales tax, whether charged at cost or marked up; (2) calling a work activity "data processing" on an i…
If a mailing company subcontracts address-imprinting work to another company that doesn't do the actual mailing, is that imprinting charge taxable — even though direct mail services themselves are nontaxable?
Yes, it's taxable — because the charge depends on who is actually doing the mailing. A company that imprints addresses onto mail pieces for another mailing service, but does not itself mail those piec…
If a contractor rents equipment for a government job and later sells it (leaving it on-site instead of taking it back), does it become tax-exempt "consumed" material instead of taxable equipment?
No refund. Crane mats rented to a contractor for a Texas Department of Transportation project, then sold to the contractor and left on the project site at the end of the job, do not qualify for the ta…
Does a new painting, faux-finishing, and stenciling business need to charge sales tax to customers, and does it matter whether the work is new construction, residential remodeling, or commercial remodeling?
It depends on the job and the contract type. New construction of realty, or repair/remodeling of *residential* realty, is done as a "contractor": under a lump-sum contract you pay tax on your own mate…
Are single-use yellow traffic-control tabs, thrown away after 2-3 days on a state road job, exempt from sales tax as consumable supplies used in an exempt government contract?
Possibly exempt, but it depends on facts the Comptroller couldn't confirm from this letter alone. Disposable yellow traffic-control tabs placed on a road for 2-3 days, then pulled up and thrown away (…
Does an out-of-state touring band's corporation owe Texas franchise tax if it performs in Texas only a few days a year, even without corporate-income nexus?
Yes. A corporate touring band that performs in Texas - even about seven days out of the year - is 'doing business' in Texas and is subject to the franchise tax. Tax Code Sec. 171.001 imposes the tax o…
Is wax paper a restaurant buys to microwave-heat sandwiches on exempt as a manufacturing item, or taxable because it's really used to store or separate food?
It depends entirely on how the wax paper is actually used, and the taxpayer bears the burden of proof either way. If the restaurant can show the wax paper is used in preparing, warming, or reheating f…
Can a manufacturing customer use a single manufacturing exemption certificate to buy everything tax-free — including hand tools, brooms, and sports drinks — and just self-assess use tax later on its own return?
No. A manufacturer may only buy tax-free, under a manufacturing exemption certificate, items that will be incorporated into a product for sale or that otherwise qualify for exemption under Tax Code § …
Does an individual who pays sales tax on an item, then donates it to a nonprofit's charity auction where it resells for more than $5,000, get taxed twice — and does the nonprofit's $5,000 one-day-sale limit apply to every 501(c) organization or just colleges?
No double taxation, with a fix available: a purchaser can avoid paying sales tax twice by giving the retailer an exemption certificate at the time of purchase for an item intended for donation to an e…
Was a Texas highway sweeper taxed as a motor vehicle or as moveable specialized equipment?
It depended on construction. Sweeper equipment mounted on a cab chassis was a motor vehicle. A sweeper manufactured from beginning to end was moveable specialized equipment subject to limited sales an…
Is repairing a central air conditioning system taxed the same as repairing a window AC unit, and does it matter whether the building is residential or commercial?
No, they're taxed differently. A charge to repair a central air conditioning system in a nonresidential (commercial) building has been taxable since January 1, 1988, but the same repair on a residenti…
Is dredging silt out of a nonprofit country club's irrigation reservoir a nontaxable maintenance activity, or a taxable repair to real property?
It's taxable, not exempt maintenance. If a country club's water reservoir is manmade, dredging silt and sediment out of it is a repair, remodel, or restoration of a nonresidential improvement to realt…
For an internet-based flower business that takes orders online and uses wire services to fulfill deliveries worldwide, when is Texas sales tax due, and to which local jurisdiction?
A planned Internet flower service bureau — taking web orders for worldwide delivery and using a flower wire service to fulfill them — got a full rundown under 34 TAC § 3.307 (Florists): Texas sales ta…
If a computer shop bench-tests a customer's computer to diagnose a problem, is that diagnostic charge taxable on its own, and what happens if the shop then repairs it?
Diagnostic testing and analysis of computer hardware — bench-testing a machine to find out what's wrong — is not subject to Texas sales tax by itself, unless the shop actually repairs the computer. If…
Does a plumber charge Texas sales tax on labor for new construction plumbing, residential repairs, or commercial plumbing work, and how does the contract type (lump-sum vs. separated) affect materials tax?
No sales tax applies to labor when a plumber installs plumbing/fixtures in new construction or repairs/remodels residential property — the plumber is a "contractor," and how materials are taxed depend…
Can a door manufacturer buy tax-free, as exempt wrapping/packaging supplies, the advertising brochures it includes with each manufactured door?
No. A door manufacturer's advertising brochures — describing additional options like screen doors or other door types — are taxable whether they're included with the manufactured product or placed in …
When a contractor buys cabinets from a Texas manufacturer for drop-shipment to a construction site in a different Texas city, is the local sales tax rate based on the manufacturer's location or the job site's location?
It depends entirely on the contract type — resolving the dispute between the contractor and manufacturer, both of whom were partly right. Under a lump-sum contract, the contractor is the consumer of t…
Can a water/sewer materials supplier split a nonprofit Water Supply Corporation's account into taxable "water" purchases and exempt "sewer" purchases, since the sewer items are used in the wastewater treatment (manufacturing) process?
Not a clean split. Nonprofit water supply corporations are not exempt from sales tax generally — some of their purchases can qualify for a manufacturing exemption because processing water (or treated …
Can a retailer switch from reporting sales tax on an accrual basis to a cash basis, and what happens to sales tax already reported under the old method?
Yes, it's permissible for a retailer to switch from an accrual basis to a cash basis of accounting for sales tax reporting purposes (remitting tax as payments are received), and no special forms need …
Is a Procedural Spinal Needle exempt from Texas sales tax as a hypodermic needle, even though it's not listed by that exact name in the administrative rules?
Yes. A hypodermic needle is defined as a needle adapted for use in, or administered by, injection beneath the skin, and hypodermic needles are exempt from Texas sales tax. A Procedural Spinal Needle q…
Is a separately stated project consulting charge on a multimedia (CD-ROM) production invoice taxable as part of the overall taxable presentation, or can it be a nontaxable standalone service?
As billed here, it's taxable. A multimedia CD-ROM presentation (video, animation, interface design, interface programming, CD duplication, and project consulting) is taxable as a whole, and the separa…
If a homebuyer pays extra for upgrade choices (change orders) on a new residential construction contract, can the builder charge sales tax on the labor portion of those change orders?
It depends on the base contract type, and change orders follow that same classification — a realtor's builder client cannot simply tax labor on change orders just because they're billed separately. La…
Are sales of discount or prepaid legal service plans subject to Texas sales and use tax?
No. Sales of discount or prepaid legal services are not a taxable service under Texas Tax Code § 151.0101(a)'s list of taxable services, and Tax Code § 151.308(a)(8) separately exempts insurance premi…
Is a custom software development contract taxable when a Texas consulting company builds a program from scratch for an out-of-state client and transfers all exclusive rights to the customer with no license fee?
Not taxable. A computer consulting company was contracted to design and build, completely from scratch (not a combination or customization of existing software), a custom program for a California cust…
Do cotton gins need a predominant-use study to claim the manufacturing exemption on electricity, given that ginning is a seasonal activity rather than year-round?
No predominant use study is required for a cotton gin to qualify for the exemption on electricity measured through a single meter and used for both exempt (processing) and taxable purposes. But becaus…
Is an annual membership fee for access to an online hunting-lease database taxable as an information service, even though the company calls it a "membership" rather than a service, and charges a flat yearly fee instead of per-inquiry pricing?
Yes, it's taxable — calling the fee a "membership" rather than a per-use service charge doesn't change the outcome. A company selling yearly memberships giving instant access to an online database of …
Working on a city airport construction contract, is EVERYTHING a contractor buys tax-exempt just because the customer is a government agency, including a rented crane?
No, it's much narrower than "everything is exempt because it's a government job." The city itself is exempt on its own purchases under Tax Code § 151.309, but the contractor's exemption under § 151.31…
For the taxable-capital component of the Texas franchise tax, are accrued reserves like warranty reserves or accrued employee costs treated as debt or as part of surplus?
They are part of surplus, not debt. For the taxable-capital component of the franchise tax, Tax Code Sec. 171.109(a)(1) defines surplus as a corporation's net assets minus its stated capital and expre…
Is electricity used to run a mobile home community's shared sewer pump an exempt residential use, and does it matter that this letter corrects an earlier answer from the same Comptroller office?
Yes, exempt — and this letter explicitly corrects an earlier May 16, 2000 letter (200005305L) on the same account. Electricity used to operate a sewer pump serving a mobile home community is an exempt…
Can a private investigation firm exclude reimbursed overhead costs — rent, phone lines, payroll, management fee — from the taxable price it charges a debt-collection client for its investigation services?
No, the firm cannot exclude those reimbursed expenses. A private investigation firm's contract with a debt-collection client reimbursed the firm monthly for half its rent, an accounting fee, two phone…
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These are official tax letter rulings and advisory opinions issued by Texas's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.