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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Is a fee charged to a rental car company for retrieving one of its cars that a renter failed to return taxable in Texas?
No. A charge for retrieving (not towing -- simply driving to the location and driving the vehicle back) a motor vehicle rented by a rental company but not returned is not subject to Texas sales tax.
As a Metabolife distributor, do I need my own Texas sales tax permit, and how does the tax on products I buy from Metabolife get handled?
No, home-based distributors of a direct sales organization like Metabolife are not issued sales tax permits -- Metabolife itself collects and remits tax on the suggested retail price of products sold …
Is Metabolife allowed to refund or credit sales tax directly to a distributor who overpaid tax, without the Comptroller processing a refund?
Yes. Rule 3.325(b) sets out the procedure for a purchaser (here, a distributor) to recover overpaid tax from a seller (here, Metabolife), and this procedure applies to a distributor who overpaid tax t…
Is an 'implementation assistance amendment' to a software license -- covering vendor expertise, business-needs consulting, training, and setup assistance -- taxable, or does it qualify as nontaxable consulting services?
The lump-sum implementation assistance charge IS taxable, as part of the software license's sales price. Software consulting services are presumed connected to the sale of taxable software whenever th…
As a Texas distributor for an out-of-state (Nevada) direct sales/multi-level marketing company, who is responsible for collecting and remitting Texas sales tax, and do I need my own sales tax permit?
The Nevada-based direct sales organization itself is responsible for collecting and remitting Texas tax on the products its distributors sell, regardless of where the organization is incorporated -- d…
Is white Portland or masonry cement exempt from Texas sales tax, or does its color affect the standard cement exemption?
Portland and masonry cement remain exempt from Texas sales tax even when made in a white form -- color does not affect the exemption. A seller of white cement is not required to collect sales tax on i…
A seller of early childhood educational products wants a full breakdown of how to tax sales to Head Start programs and other buyer categories -- which need an exemption certificate, which are automatically exempt, and which require a resale certificate?
The Comptroller sorted the buyer categories into four types: (c) exempt by statute, no certification needed from the purchaser -- Head Start Programs/Delegates/Grantees, Federal/State/Local Government…
When a customer's tax consulting firm requests a blanket vendor's-right-to-refund assignment letter, must a schedule listing the specific invoices be attached at the time the assignment is sought or filed, in order to stop the refund statute of limitations from running?
No. A schedule listing the specific invoices covered by a blanket refund assignment is NOT required at the time the assignment is sought or filed with the Comptroller in order to toll (stop the clock …
Which grocery-store packaging supplies (bags, boxes, trays, shrink wrap, containers) qualify for the manufacturing/processing exemption in departments like cheese, produce, bakery, and bulk foods, and does it matter if the department is also selling exempt products?
It depends on whether the department is truly PROCESSING (exempt packaging) versus merely REPACKAGING (taxable packaging) -- and a grocery store can purchase all its packaging supplies tax-free if it'…
Which of a country club's various member charges -- handicap fees, golf association dues, driving range fees, private lessons, club repairs/rentals, and homeowners assessments -- are subject to Texas sales tax?
It's a mixed bag charge-by-charge: handicap fees are taxable only if calculated on a computer; men's golf association dues collected by the club are NOT taxable if association membership isn't mandato…
Is a construction contractor exempt from sales tax when building a rental-car service center on city-owned airport land, where the building will eventually revert to the city, on the theory that the traveling public ultimately benefits from having rental car facilities at the airport?
No. Even though the public benefits from having car rental facilities at the airport, and even though the building will become city property at the end of the 20-year lease term, the primary beneficia…
Can newspaper publishers buy digital cameras tax-free when the cameras connect to a computer that outputs film/paper for the printing press, and can a publisher who already paid tax get a refund?
Yes. Because the digital camera directly inputs data through the computer to the press that incorporates the image into the newspaper, newspaper publishers may purchase digital cameras tax-free by giv…
Is the electricity a mall pretzel shop uses to bake pretzels exempt from sales tax, given that the pretzels are baked on-site and sold hot to customers?
No, this electricity is taxable, not exempt. Even though the pretzels are baked on the premises using electric ovens, the pretzels are sold to customers in a heated state -- taken directly from the ov…
A teacher wants to order rockets from an out-of-state company for a class project. Is it better for each student to order and pay individually, or for the school to place one order and collect money from students as "donations"?
Have the school place the order. If students order directly from the out-of-state company themselves, Texas use tax is still due — there's no exemption for kids buying school supplies. But if students…
Is electricity used to irrigate fields where cattle graze exempt from Texas sales tax, and does it matter if some of that electricity might also be used for a home garden?
Electricity used on a farm or ranch to irrigate fields growing food, feed, grass, or other agricultural products sold in the regular course of business IS exempt under Tax Code Section 151.316, and gr…
I run a paintball field. Do I charge sales tax on field-use fees? Do I owe use tax on data processing done by an out-of-state company? And do I have to list shipping charges separately from the item price?
Yes to all three, with one nuance. A fee to use the paintball field is a taxable amusement service (though a genuine tournament/contest entry fee can be exempt). Yes, you owe Texas use tax on an out-o…
I run a horse breeding and show stable. Which of my supplies, equipment, fencing, buildings, and trailers qualify for Texas's farm/ranch sales tax exemption?
It depends heavily on the specific item and where it's used. Horses and horse feed are always exempt. A long list of supplies and equipment is exempt ONLY when used exclusively on the farm/ranch (not …
An out-of-state Internet retailer plans to fulfill orders by drop-shipping from a related Texas limited partnership's warehouses, and will also pay commissions to unrelated Texas retail stores that host invisible order links on their websites. Does any of this create Texas sales/use tax nexus for the out-of-state retailer?
Yes. The Texas limited partnership doing the drop-shipping doesn't itself create nexus for the out-of-state retailer (it can just take a resale certificate). But paying commissions to Texas retail sto…
Our direct sales organization has given distributors conflicting information about whether they owe sales tax on products bought from us. Who actually owes the tax, and does it matter whether a distributor has a retail store versus sells from home?
The direct sales organization is responsible for collecting and remitting sales tax on products sold to its distributors — the idea that distributors don't owe tax to the organization is incorrect. A …
I'm a fixture contractor installing cash register stations, clothing racks, display cases, and gondolas in a newly built retail store — the store owner supplies all materials and I just assemble and install them. Is my labor taxable?
Yes. Even though the fixtures are bolted to the floor of a brand-new store, they remain tangible personal property — not improvements to realty — because they don't lose their identity as personal pro…
We want to split our sales company into a separate delivery-truck company (owned by the same family, run as a limited partnership) so that the delivery charge isn't part of our taxable sales price. Does spinning off a related delivery entity — and using either of two proposed joint-invoice formats — keep the delivery charge out of Texas sales tax?
No. Splitting delivery into a related entity and jointly billing the customer through either proposed invoice format still leaves the delivery charge taxable, because the seller is still the one billi…
One of our distributors resold product to a customer in Michigan, and a separate distributor sells to a retail store with its own storefront in a mall. In both cases the distributor already paid us Texas tax up front on the product. How do we handle refunding or crediting that tax without double-paying the state?
In both cases, the company can recoup the tax by taking a credit on its own current sales tax return (adjusting reported taxable sales) rather than filing a separate refund request. For the out-of-sta…
We run a distribution warehouse that stores finished products made elsewhere, and we use gas-fired air conditioning to cool the space. Does that natural gas qualify for Texas's manufacturing utility tax exemption?
No. Cooling a warehouse that only stores already-finished products (not manufactured on site) is a taxable commercial use under Tax Code Section 151.317, not exempt processing. The exemption only cove…
We electronically scan our resale and exemption certificates instead of keeping paper copies. Does the Comptroller still require us to keep the original hard copies for audit purposes?
Generally yes for signature-bearing records — the Comptroller requires resale/exemption certificates and other documents requiring a signature to be kept in original or microfilmed form so the signatu…
We're adding a fourth floor to a 3-story building and need to modify the existing elevator to reach it. Is extending the elevator to the new floor new construction, and is modifying the existing elevator equipment in the first-floor shaft area new construction or taxable remodeling?
Split answer. Installing new elevator tracks and support structures on the brand-new fourth floor is new construction (not taxable). But adding or modifying equipment like jacks and pumps in the exist…
Our company provides a huge bundle of contracted facilities-management services to malls and shopping centers — janitorial, HVAC upkeep, roof/electrical/plumbing repair, painting, parking lot work, landscaping, equipment repair, snow removal, pest control, and more — all separately itemized on our invoices. Which of these services are taxable, and how do we handle sales tax on the supplies and parts we buy to perform them?
It splits into two legal categories with very different rules. Rule 3.356 "real property services" (janitorial/custodial work like restrooms, building lighting, landscaping, parking lot lights, snow r…
My client is an FAA/JAA-certified repair station that overhauls jet engines and other aircraft parts for commercial airlines and the military, using one shop with both engine and non-engine work happening under a single utility bill. Is the electricity and natural gas used there exempt?
Partially, and it depends on a predominant-use study. Natural gas and electricity used specifically in off-wing processing, overhaul, or repair of a jet engine (or its parts) for a certificated or lic…
We lease Internet-access equipment (computers, modems, printers, etc.) to assisted care living facilities so residents can go online, charging a per-resident fee plus an installation fee. Do we owe sales tax on our charges to the facility, and can we buy the equipment tax-free for resale?
You collect Texas sales tax (8.25% in this case) on both the installation charge and the per-resident/monthly facility fee — but you don't owe any additional local tax for other cities/counties you de…
Our telecom company is leasing fiber-optic cable (which will run through conduit we own) from a leasing company, under a lease that says both parties intend the fiber to remain tangible personal property, is cancellable, and lets the leasing company repossess the fiber on default. We're having a third party install the leased fiber. How is the fiber classified for sales tax, and is the installation charge taxable?
The telecommunications fiber is classified as tangible personal property, not a real property improvement — based on the lease terms showing both parties intend it to stay personal property, the lesso…
I run a home-based S-corp doing computer animation and multimedia work for clients, using purchased computers, printers, scanners, and modems. Does my business qualify as tax-exempt, and can I buy my equipment tax-free?
Producing computer animation for sale counts as manufacturing, so equipment used ONLY to produce animated images that will be sold — computers, printing devices (including ink cartridges), and scanner…
I want to buy a complete coin-operated photo booth (camera, computer, and laser printer that produces a black-and-white photo on paper) and pay sales tax on the coin/bill income it generates instead. Does the booth itself qualify for a manufacturing exemption when I purchase it?
Yes. A complete coin-operated photo booth that produces/manufactures a printed photo qualifies for exemption from sales tax as manufacturing/processing equipment under the Sec. 151.318 manufacturing e…
My client publishes 10-20 page industry reports (mostly narrative articles, less than 10% statistics) by subscription, sent by mail, e-mail, Internet, or fax at varying frequencies. Do these qualify as nontaxable magazines, and does the delivery method or frequency change the answer?
No, they're not exempt magazines — they're a taxable information service, because the reports don't meet the Sec. 151.320(b) statutory definition of a magazine (a usually-paperbacked publication appea…
My company leases electronic radio tags that customers attach to expensive, theft-prone items, and I track those items by radio frequency within a service area if they're stolen. Am I subject to Texas telecommunications utility assessments, and do I owe sales tax on my tracking service?
You're not subject to the Universal Service Fund or Telecommunications Infrastructure Fund (TIF) assessments — those apply to carriers, not to a tracking service like this. But your tracking service m…
I build and host websites. A potential client (a for-profit business) is getting part of its website funded by a federal grant, and I'll be invoicing the grant administrator directly for 75% of the design cost, with the business itself paying the other 25% plus quarterly server hosting fees. How much of this do I charge Texas sales tax on?
Charges for website development and for hosting/storage are both subject to sales tax, and the full amount billed to the for-profit business is taxable — including its 25% share of design and the quar…
My company processes prescription drug claims (all processing work done in Arizona) for both insurance carriers and self-insured employer plans, with members and carriers/plans located in different combinations of in-state and out-of-state. When is this claims-processing service subject to Texas sales tax?
It depends on two things: whether the coverage is a real insurance policy (versus a self-insured plan) and where the covered member lives — not on where your processing company is located. Processing …
I'm a home-based independent distributor for a direct sales company, and I believe I overpaid Texas sales tax on products I later shipped to out-of-state customers. The company told me to seek a refund directly from the Comptroller's office. Is that right, and how does the refund process actually work?
No, that's incorrect — you should request the refund from the direct sales company itself, not the Comptroller. The direct sales organization is the one required to collect and remit sales tax from it…
My firm sends technicians to cell tower sites to test antennas and transmission lines for radio frequency loss (using an electronic network analyzer), and we just report our findings to the carrier — we don't do any hands-on repair work. Is this testing service taxable in Texas?
No. Testing cell tower antennas and transmission lines to measure frequency loss, and simply reporting the findings to the carrier (with no hands-on repair or construction work performed by your firm)…
I sell rubber stamps as a distributor for a Utah-based direct sales (home-party) company that requires distributors to collect sales tax from customers on shipping charges. Is that correct, and does it matter whether I'm buying product to resell versus for my own use?
It depends on why the distributor is buying the product. When a direct sales company ships product directly to an end customer who ordered from a distributor, tax must be collected on the shipping cha…
My out-of-state mail-order/Internet client has no employees, salespeople, or locations in Texas, but plans to exhibit a booth (no sales, no installs) for about seven total hours at a one-time, four-day educational industry conference in Texas, and separately sells downloadable digital content (clipart, music, possibly software) to Texas customers online. We believe this limited, non-recurring conference display doesn't create substantial nexus under Quill and Complete Auto. Is that right?
No — the Comptroller found nexus on two independent grounds. First, based on prior Comptroller hearing precedent, even a single, non-recurring exhibit/display booth at an industry conference (with no …
A company hired me (a one-off contractor, not normally in this line of work) to design and develop custom software for a factory automation system. Do I need to charge Texas sales tax on this?
No, not if you're creating the program from scratch and transferring the exclusive rights to the program to your customer. Under Rule 3.308(b)(4), charges to create a program (or modify an existing on…
Homeowners in our area received FEMA disaster grants to repair their homes, and some are trying to buy materials tax-free by using their FEMA claim number as proof of a government exemption. Are these purchases actually exempt?
No. The purchases are taxable. Texas exempts purchases made by the U.S. Government and its agencies/instrumentalities themselves — but in this situation, FEMA is not the purchaser, the individual home…
Federal government employees use government-issued credit cards at our retail stores, and some refuse to fill out the state's Tax Exempt Certificate. Do we have to require the certificate anyway, should we photocopy the card, and what backup documentation do we need for an audit?
No separate Tax Exempt Certificate is required. If the charge slip or invoice you keep shows the statement "U.S. Govt. Tax Exempt," you may treat the purchase as tax exempt based on that alone. If the…
Two Texas banks want to outsource their 'live operator' telephone customer service reps to a third-party call center company, which will staff, train, and supervise operators who use a telephonic link into the banks' own data center to answer customer questions like account and loan balances. Is this outsourcing arrangement subject to Texas sales and use tax?
No. Providing live operators who access and relay a bank's own customer account information over the phone, under a service agreement where the call center company handles staffing, training, and supe…
My company provides a menu of services to cable TV companies building or rebuilding systems — map verification, base map development, field surveying, quality control, CAD digitizing, system design, plotting, make-ready surveying, subscriber audits, and system audits. Which of these are taxable, and does it matter whether I bundle them or bill them separately?
It depends entirely on WHO creates the underlying design and what your client is really purchasing. If you collect the field data yourself and produce an original engineering design using your own exp…
A state university chartered a flight for its members. Since state agencies are exempt from Texas sales tax, does that exemption also cover the federal excise tax the airline would otherwise charge on the flight?
No. Texas does not impose any tax or fee on flights at all, so there's no Texas exemption question here in the first place — but the federal government DOES impose a 7.75% transportation excise tax on…
Our cemetery association has a federal 501(c)(13) income tax exemption and relies on donations to maintain the cemetery grounds. A firm sold us erosion-control matting tax-free and later asked for our state sales tax exemption certificate, but we don't have one. Can we get exempt status, retroactively if possible, to cover the tax on those materials?
Not for the materials. Texas has no sales tax exemption tied to a federal 501(c)(13) income tax exemption, so the association doesn't have blanket exempt status and can't retroactively wipe out tax on…
An online textbook company (Varsitybooks.com) doesn't have a Texas office, but sends employees to visit a university co-op regularly, and also pays Texas college students on commission to recommend the site to friends. Does the company have to collect Texas sales tax on its sales to Texas customers?
Yes. Using the commissioned student representatives alone is enough to make the company "engaged in business" in Texas under Rule 3.286(G), which covers conducting business in the state through employ…
Our veterinary hospital buys large quantities of Dulbecco's Phosphate Buffered Saline to flush and transfer 7-day equine embryos from a donor mare to a surrogate mare (a well-established procedure called Equine Embryo Transfer). Is this product exempt from Texas sales tax?
Yes. Because the saline is used as a medium to transfer embryos between mares in a way that reduces disease transmission, it qualifies as a drug or medicine. Drugs and medicines dispensed by a license…
We sell and install monuments, headstones, and cemetery benches that get bolted to concrete footings in burial plots. Do we charge our customers sales tax, or are we treated as a contractor who just pays tax on our own materials?
It depends on how you bill. If you charge a single lump-sum price covering both the item and its installation, you're a lump-sum contractor under Tax Code Sec. 151.056 — you pay tax on your own materi…
My company contracts with insurance companies to review their claims data and identify overlooked reinsurance recoveries they're entitled to but haven't collected — we don't touch the original claims or the relationship between the insurer and the insured. Is this service subject to Texas sales tax?
Yes. Even though you don't affect the original claim or the insurer-insured relationship, reviewing claim data to determine whether an insurance company is eligible for reinsurance recovery benefits i…
Two affiliated trucking companies want to consolidate payroll by having a third related company become the formal employer of all their employees, providing payroll and benefits for a management fee — essentially an employee leasing arrangement. Is the management fee subject to Texas sales tax as a data processing service, and does an intercorporate-affiliate exemption apply?
Payroll services are normally taxable as data processing services, but this arrangement looks like it falls under Rule 3.364's staff leasing services category instead — if the requirements of Rule 3.3…
We're restructuring ownership of several producing oil and gas leases (with production equipment already installed and in use) through a series of contributions between related companies, ending with a limited partnership selling the leases — always bundled with their production equipment, never separately — to outside purchasers for a lump sum. Are these sales subject to Texas sales/use tax?
No. None of the transactions are subject to sales tax. The true object of each sale from the limited partnership to a purchaser is the sale of a mineral lease — a nontaxable real property interest — w…
A 501(c)(3) nonprofit is accepting an assignment of a lump-sum general construction contract for a low-income housing project (financed through a partnership with for-profit limited partners who bought low-income housing tax credits), and will serve as the substituted general contractor using separated subcontracts. Can the nonprofit's subcontractors buy materials tax-free, can the nonprofit pass along exemption certificates to them, and who ultimately owes tax on the incorporated materials?
The nonprofit, as a lump-sum general contractor, is the consumer of all building materials and pays tax on them itself — no tax is collected from the project partnership on the lump-sum charge. Becaus…
We want to raise financing secured by five operating units within our petrochemical refinery, structured as a sale/leaseback: we'd transfer bare legal title to a lender trust and immediately lease the units back, keeping full operational control, maintenance responsibility, and a repurchase option, while continuing to own the land underneath. Is this transaction subject to Texas sales and use tax?
No. The transaction is a nontaxable financing arrangement using real property (and possibly substituted property) as collateral, not a taxable sale of tangible personal property. This holds even thoug…
Rule 3.288(f) says we can never accept a direct payment exemption certificate from a contractor performing a lump-sum contract, but Rule 3.357(b)(2) says the lump-sum-vs-separated distinction no longer matters for repair/remodeling/restoration work. Can we accept a direct pay certificate for repairing, remodeling, or restoring nonresidential real property under a lump-sum contract?
Yes. When you repair, remodel, or restore real property, you're acting as a taxable service provider rather than a "contractor" improving realty — so your total charge is taxable whether billed lump-s…
Our contracts with the Texas Department of Transportation require us to build and equip a fully-equipped lab, for the exclusive use of State Engineers, at our own privately-owned hot-mix plant facility. Are the materials to build and equip that lab subject to Texas sales tax, even though the lab sits on our own private property?
No. Even though the lab is built at your privately-owned plant facility, materials to build and equip it may be purchased tax-free by giving your suppliers exemption certificates, because the lab is c…
Our client sells nationwide Internet-based e-mail/fax subscriptions through a toll-free number, using hand-held devices manufactured overseas by OEMs (who license our client's audio-coupling software into the devices) and sold through unrelated third-party Texas retailers. Our client has no office or server in Texas. Does this create Texas sales tax nexus, is the e-mail/fax service itself taxable, and how do we figure out which local tax rate applies?
Yes, nexus exists, on two independent grounds: the client's licensed software resides in hand-held devices used by Texas customers (creating nexus in every local jurisdiction those devices are used), …
A corporation overpaid sales tax on manufacturing equipment, then dissolved and contributed that equipment to a new partnership. Can vendors assign their right to a tax refund directly to the successor partnership using the corporation's old assignment forms?
No. To assign a refund, the vendor must have a valid exemption certificate from the actual purchaser — and the dissolved corporation, not the partnership, was the purchaser. The partnership can't issu…
A monitoring/surveillance company collected Texas sales tax from Texas customers before it was permitted to collect Texas tax, and remitted that tax in good faith to a different state instead. Since it never got permitted in Texas until later, does it still owe that collected tax to Texas?
Yes, all of it. Under Tax Code Section 111.016(a), anyone who collects a tax or money represented to be a tax holds it in trust for Texas and is liable to Texas for the full amount collected — regardl…
A chemical processing plant is buying a redundant Honeywell computerized control system that runs its manufacturing operations. Is the computerized control system, and the software that runs it, exempt from Texas sales tax as manufacturing equipment?
Yes, if bought on or after October 1, 1997. House Bill 1855 amended Texas's manufacturing exemption to specifically cover electronic control-room equipment and computerized-control units that power, s…
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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.