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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Does Texas's intercorporate services exemption cover computer services one bank buys from an affiliated bank if the buying bank is eligible to file a consolidated federal return but has chosen not to?
Yes, for services first made taxable after September 1, 1987 (like data processing). Two banks were both owned, directly or indirectly, by the same parent and were both eligible to file a consolidated…
Is a company's automated call-processing and reporting service a taxable data processing or telephone answering service in Texas, and can it buy its own telephone service tax-free with a resale certificate?
Yes. A company that uses computers to receive, store, and process incoming customer communications and generate summary reports is performing taxable data processing services (80% of the charge taxabl…
For a tour company that sells all-inclusive tour packages, how much of the package revenue is a Texas gross receipt for the franchise tax?
Only the part of the tour performed in Texas is a Texas gross receipt; total package revenue is receipts everywhere. A corporation assembled complete tour packages, sold them, and acted as tour guide;…
How many tax-free fundraising sales can a fraternal organization's Texas chapter hold each year, and does it need a sales tax permit?
Each chapter of a fraternal organization holding a federal 501(c)(10) exemption (like Masons, Elks, Knights of Columbus, or Eastern Star chapters) — along with organizations exempt under IRS Section 5…
Are engineering consulting, project management, and phone technical-support charges taxable when a Texas company also sells and installs the computer equipment involved?
It depends on whether the consulting is genuinely separable from the equipment sale. Project engineering consulting related to selling and installing computer equipment and cabling is presumed part of…
How does a Texas business-loss carryforward work for the franchise tax, and must a corporation use the loss in a year when it already owes no tax?
A business loss carries forward up to five years, but it must be applied to each succeeding year's earned surplus - even if no tax is otherwise due. Texas franchise tax gives no deduction against earn…
For an engineering firm doing accident reconstruction for insurance carriers, which parts of the work (reports, depositions, evidence storage) are taxable insurance services, and does it matter where the incident happened versus where the client is located?
An engineering firm's accident reconstruction is a taxable insurance service under Rule 3.355 when performed for consideration for an insurance carrier, policyholder, insured, or others regarding a po…
After emerging from Chapter 11, must a corporation using fresh start accounting for financial reporting also use it for the Texas franchise-tax taxable-capital report, and can it write down assets?
It must follow whatever method GAAP requires, but it still cannot write down assets in computing surplus. A company emerged from a Chapter 11 bankruptcy (finalized January 27, 2000) and used fresh sta…
When a Delaware corporation converts into a Delaware LLC (and then an LP), is it the same entity for Texas franchise tax, and can the LLC use the corporation's business losses?
It is treated as the same entity, and the LLC keeps the corporation's business losses. A Delaware C corporation converted under Delaware law to a Delaware LLC in April 2000, with the LLC set to conver…
Is the sale of a retiring business's equipment exempt as an occasional sale if the assets are sold in pieces to more than one buyer?
No. A retiring business owner sold equipment, machinery, materials, and supplies to several different buyers over multiple invoices — the entire operating assets were NOT sold in a single transaction …
Is construction-site cleanup (rough cleanup and final house cleaning) taxable in Texas, and does it matter whether the building is a new residence?
Construction site cleanup — both rough cleanup (picking up debris) and final cleanup (cleaning inside the house) — is a taxable real property service, and the company must collect Texas sales tax unle…
Is sales tax due on remodeling work done to bring a nonresidential building up to code after a citation for a code violation?
Yes. An office building was cited by a state licensing agency for building-code violations dating back to its original 1984 construction, including sill gaps between an elevator cab and the hoistway t…
Is a construction company's charge for a dump truck with an operator that hauls debris away from a jobsite taxable, even if the truck/operator charge is billed separately from any waste-removal charge?
Yes, it's taxable. A company dispatched a dump truck with its own employee operator to a construction jobsite, charged the contractor/customer an hourly rate for the truck-with-operator, then hauled t…
Is a business that brokers debt instruments (mortgages, business notes, accounts receivable) subject to Texas sales tax?
No. A business that connects buyers and sellers of seller-financed mortgages, deeds, accounts receivable, business notes, bad debt portfolios, and other income streams is not providing a taxable servi…
Is sales tax due on motor oil used in a commercial plant nursery's tractors and other farm equipment?
No sales tax is due. A commercial plant nursery that grows plants from seeds or cuttings is, for tax purposes, engaged in agricultural activities, so machinery and equipment used exclusively to produc…
If an employer reimburses employees for using their own personal tools and equipment on the job through a formal reimbursement program, is that a taxable lease or rental?
No, it's not a taxable lease or rental. Under an employee tool reimbursement program, an employer reimburses its employees for their use of personal tools and equipment on the job, using a signed Agre…
Are component parts a manufacturer buys to build demonstration machines exempt from sales tax under the manufacturing exemption?
It depends on whether the demonstration machine is ever going to be sold. A manufacturer eligible for manufacturing exemptions may buy a 'display item' — one identical in size and function to items he…
Is a building owner's payment to a property management company for supervising a construction contractor taxable, and if the owner mistakenly paid sales tax on that service in the past, how does the owner get it back?
A property management company's construction-supervision services for a building owner are NOT subject to Texas sales and use tax, when the manager only oversees a third-party contractor's renovation …
Does the sale tax manufacturing exemption cover a coin-operated coffee vending machine, the exemption certificate needed to buy it tax-free, and its repair parts?
Yes, on all three points confirmed. A coin-operated coffee machine that causes a physical or chemical change in the coffee product being processed for sale qualifies for the manufacturing exemption un…
What is 'unjust enrichment' in Texas sales tax law, is it illegal for a seller to keep collected tax instead of sending it to the state, and what are the penalties?
Yes, it's illegal, and the penalties can be severe. Under the doctrine of unjust enrichment, a seller may not profit at the expense of the state or its customers by keeping any amount represented to b…
If two commonly-owned S corporations merge into one, does that eliminate the sales tax that used to apply when they sold lumber products to each other, and does merging change the manufacturing exemption on the equipment involved?
Merging eliminates the sales tax on the internal transfers, but does not fix the manufacturing exemption problem. Two commonly-owned S corporations — S1 (which cuts raw lumber into pickets and fence p…
Is cleaning commercial sewer and drain lines taxable, and does it matter whether the cleaning is done on a schedule versus only when the line clogs?
It depends on whether the cleaning is reactive or truly scheduled. Cleaning sewer and drain lines for COMMERCIAL real property is a taxable nonresidential real property repair service UNLESS it's perf…
Does metal detection equipment used for food-safety quality control during spice and seasoning processing qualify for Texas's manufacturing exemption?
Yes. A food processor that blends and packages spices, herbs, and seasonings purchased metal detection equipment to screen out physical contaminants like metal fragments as part of its food-safety pro…
Is a registered nurse's consulting service for attorneys — reviewing medical charts for malpractice cases — subject to Texas sales tax?
It depends on who the nurse's client is. A registered nurse's new consulting business — reviewing medical charts for attorneys in malpractice matters — is taxable ONLY if performed on behalf of an ins…
Is a university's share of a per-ticket handling/convenience fee, added on top of a city-run ticket agency's own handling fee, taxable as part of the admission charge?
Yes, all of it is taxable. A university that owns an arena and rents it to promoters allows a city-owned ticket agency to add a convenience/handling fee to each ticket to cover ticketing-system and bo…
How does a highway contractor that blasts and crushes rock from a leased quarry compute its taxable cost of rock used in lump-sum construction contracts, versus rock it sells at retail?
This is a detailed auditor's-confirmation letter covering several linked points for a highway contractor that blasts rock from a leased pit, crushes it, and both uses it on lump-sum contracts and sell…
How does a new swimming pool construction business handle Texas sales tax on installing new pools versus repairing existing ones, at residential versus commercial properties?
Installing a new in-ground swimming pool where none previously existed is new construction, whether the property is residential or nonresidential. For RESIDENTIAL property (repair, remodeling, or new …
When a grocery store accepts a manufacturer's coupon or its own store coupon, is Texas sales tax charged on the full price or the discounted price?
Sales tax is due only on the DISCOUNTED price, not the full price, for both types of coupons. A shopper asked the Comptroller to confirm that Rule 3.301(e) (Promotional Plans, Coupons, Retailer Reimbu…
How is 'surplus' defined for the taxable-capital component of the Texas franchise tax?
Surplus is a corporation's net assets minus its stated capital. For the taxable-capital component of the franchise tax, Tax Code Sec. 171.109(a)(1) defines surplus as the net assets of a corporation m…
Will Texas accept the Uniform Sales & Use Tax Certificate - Multijurisdiction as a valid resale certificate, and what does a Texas seller need to accept a resale certificate from an out-of-state retailer?
Yes, conditionally. A resale certificate must be substantially in the form of a Texas Sales and Use Tax Resale Certificate or a Border States Uniform Sale for Resale Certificate under Rule 3.285(h) — …
As of 2000, would the Texas Comptroller accept a web-based resale certificate signed with an electronic signature or a digital signature?
As of this 2000 letter, a printable electronic-signature resale/exemption certificate was accepted, but a digitally signed one was not. A business setting up a website to sell to wholesalers and indiv…
Are a personal trainer's one-on-one training session fees subject to Texas sales tax as an amusement service?
Not taxable, if the training meets a specific two-part test. A registered accountant asked on behalf of a personal-training client, after noticing that two employers billed personal training services …
Is a charge for security services provided by an off-duty peace officer subject to Texas sales tax?
No. A charge by an off-duty peace officer for providing security services is not subject to Texas sales tax. Rule 3.333, 'Security Services,' contains a specific carve-out in section (i)(3) that exemp…
For a manufacturer: are safety apparel, hand tools, and dies/molds used to make products exempt from Texas sales tax, and how does a written agreement affect whether a die charge to a customer is a taxable sale?
Four separate manufacturing-exemption points, confirmed together. (1) Safety apparel and work clothing used during actual manufacturing/processing of goods for ultimate sale is exempt under Tax Code §…
Can a Texas Direct Payment permit holder issue a direct pay exemption certificate to a contractor building a pipeline under a lump-sum contract?
No. On a lump-sum contract, the contractor is treated as the consumer of all materials it incorporates into the customer's property — the contractor pays sales/use tax directly to its suppliers on tho…
Does the manufacturing exemption cover an excavator with grapples used to gather raw material before an organic mulch manufacturing process begins, versus the wood grinder that actually processes it?
It depends on which stage of the operation the equipment is used in. A manufacturer may exempt equipment directly used in the actual manufacturing, processing, or fabrication of goods for ultimate sal…
Are the gross proceeds a company receives when debt securities held as inventory are called or mature counted as gross receipts for Texas franchise-tax apportionment?
Yes. The Comptroller decided that the gross proceeds received from the calls and maturities of debt securities held as inventory are gross receipts for franchise-tax apportionment purposes. The letter…
Does a business that only distributes flyers (without printing or selling them) need a Texas sales tax permit, and what changes if it starts printing and selling flyers too?
Flyer distribution alone is not a taxable service in Texas, so a business that only distributes flyers it neither prints nor sells does not need a sales tax permit for that activity. Every seller of t…
Is a wastewater treatment facility's flat monthly sewer-connection charge to customers taxable, and does a nonprofit water supply corporation owe tax on the chemicals and equipment it buys to run the facility?
The customer-facing charge is not taxable, but the facility's own purchases usually are. There is no sales tax due on flat rate monthly charges billed to customers who connect their sewer lines to a w…
If an outside food service company (not the nursing home itself) contracts to provide meals to nursing home residents, are those meals exempt from Texas sales tax the same way meals from the nursing home's own kitchen would be?
Yes — meals to residents stay exempt even when a third-party contractor, not the nursing home itself, provides them. Rule 3.293(c)(2)(E) and (F) exempts food ready for immediate consumption served to …
What Texas resale certificates and tax permits did a wholesale auto dealer need for vehicles and repair parts?
A wholesale dealer selling only to other dealers had no retail motor vehicle tax collection duty. It could use and collect the vehicle resale certificate for dealer sales, document out-of-state dealer…
Are carbon tanks and chlorine test packets used with a hemodialysis machine exempt from Texas sales tax?
Exempt only for the in-treatment portion of their use. A hemodialysis services company asked whether sales tax was correctly being charged on carbon tanks connected to its dialysis machines (exchanged…
A distributor complained that Metabolife was still charging sales tax on now-exempt vitamins/supplements, and that the company required a minimum sales volume before letting distributors buy tax-free. Is that correct?
No, on both counts. Metabolife is not required to collect sales tax on any vitamins, minerals, and nutritional supplements for humans sold in Texas on or after April 1, 2000 (the effective date of Sen…
If a contractor doing repair or remodeling work on commercial property fails to charge or remit sales tax, can the Comptroller come after the customer (property owner) for the unpaid tax instead of or in addition to the contractor?
Yes. Sales and use tax is ultimately the purchaser's liability, so if a contractor fails to collect and remit tax on a nonresidential repair or remodeling job, the Comptroller can pursue the property …
Is collagen that a dermatologist purchases and injects into a patient's body during an office procedure subject to Texas sales tax?
No. Collagen purchased for the purpose of implanting into the human body qualifies as an exempt prosthetic device under Texas Tax Code § 151.313(a)(4) and Rule 3.284(a)(10)(C), so the dermatologist ow…
Are toothbrushes, floss, and toothpaste that a dentist buys for practice use or to give away to patients subject to Texas sales tax?
Mostly yes. Toothbrushes, floss, and non-fluoride toothpaste are taxable when sold to a dentist for practice use or to give away to patients. Fluoride toothpaste, however, may be sold to dentists tax-…
Is an Eagle Sand Classifier — a machine that washes and sizes sand — exempt manufacturing/processing equipment under Texas sales tax law?
No. Simply sizing, screening, sorting, washing, or drying sand does not count as "processing" under Rule 3.300, because it doesn't modify or change the characteristics of the sand. So a sand classifie…
How could a person show new Texas residency for the reduced motor vehicle use tax?
Rule 3.71(b) generally allowed a person to demonstrate intent to live in Texas by establishing a fixed Texas dwelling, registering to vote in Texas, or showing a legal or economic constraint to live t…
How does Texas sales tax apply to an arborist's oak-wilt treatment — both the taxable chemical injection/spraying and a concrete root-barrier trench built to stop the disease from spreading?
It's split. Chemical treatment/injection to fight oak wilt disease is a taxable real property service under Rule 3.356 and must be billed and taxed separately. A permanent concrete barrier trenched to…
When a software company sells a development-tool product AND separately hires out consultants to help clients build their own applications with that tool, which charges are taxable — the tool itself, the consulting/training, or the applications the consultants help build?
Split ruling. The sale of the SOFTWARE development-tool product itself is taxable. Separately stated charges to train clients on using the tool are not taxable, and charges to help a client build an a…
Which items sold to physical therapy patients — crutches, braces, straps, resistive bands, cold packs, taping supplies, heel lifts — are exempt from Texas sales tax, and does each one need a doctor's prescription?
It varies by item, and mainly turns on whether a doctor's prescription is required. Crutches, tennis elbow straps, patellar straps, and lumbar supports are exempt as prosthetic devices or braces with …
If a for-profit business (like a bank) hires and pays for valet parking at a fundraising social it hosts for a 501(c)(3) exempt organization, does the exempt organization's status make the valet parking service tax-exempt?
No. Valet parking services purchased by a for-profit entity hosting a social event for a sales-tax-exempt 501(c)(3) organization are taxable. The exemption belongs to the entity that holds the exempti…
Does a pagination system — the computer hardware and software a newspaper publisher uses to design and lay out pages before printing — qualify for Texas's manufacturing exemption from sales and use tax?
Yes. A pagination system — the combined computer hardware and software used to design, edit, and assemble newspaper page layouts before the negatives and plates are made — qualifies as exempt manufact…
If a business stops keeping copies of individual invoices (relying instead on a purchase card and a monthly summary sales tax report generated by software), is that summary report enough to satisfy Texas's sales tax recordkeeping requirements for an audit?
No, not as described. A monthly summary tax report that doesn't describe each item purchased, state the tax rate, identify the taxing state/local jurisdictions, or show the taxable amount does not sat…
Are over-the-counter hair regrowth products like Rogaine (minoxidil) exempt from Texas sales tax under the OTC drug and medicine exemption?
Yes. Effective April 1, 2000, sales of over-the-counter drugs and medicines are exempt in Texas, and a medicated product used to promote new hair growth qualifies as a drug or medicine under that exem…
What Texas motor vehicle use tax applied to a vehicle purchased overseas and later brought into Texas?
A Texas resident, including military personnel with Texas as the home of record, generally owed use tax on the overseas purchase price. A new resident could qualify for the reduced new-resident tax on…
A company plans to build a free web-site directory for educators, paid for by local businesses that sponsor it in exchange for advertising space. Is the sponsor's fee for building, hosting, and maintaining the directory subject to Texas sales tax — and how does Texas generally tax internet-related services?
Yes, taxable. Charging advertisers/sponsors for creating (via HTML), hosting, and maintaining the educator directory website is a taxable data processing service under Tax Code § 151.0035, because it …
A company buys fly ash and bottom ash — leftover residue from a utility burning coal to generate electricity — and spreads it on drilling sites for stability. The utility told the buyer these purchases aren't taxable if used as-is without further processing. Is that right?
No, the utility's advice was wrong. Purchases of fly ash and bottom ash are taxable. Coal itself is exempt only because of how the utility uses it (to produce electricity for sale) — that use-based ex…
When a rental customer returns damaged equipment and gets billed for the repair labor and parts, is that repair charge taxable — and does it matter if the renter is a tax-exempt organization?
Generally taxable. A charge to a lessee for labor and parts to repair rental equipment the lessee damaged is a taxable service under Rule 3.294 — but if the entity that rented the equipment provided a…
A Texas resident ordered software from an out-of-state (Colorado) company that charged sales tax but is no longer permitted to collect Texas sales tax. Does the buyer still owe Texas tax on the software, and if so, to which state — Texas or Colorado?
Texas use tax is owed. Texas sales or use tax is due on software delivered to a customer for use in Texas, regardless of where the seller is located. Here, the seller was no longer permitted (as of 12…
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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.