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 natural gas used to maintain a pilot light on a chemical plant's flare stack qualify for the Texas manufacturing exemption, and is a predominant-use study needed?
Yes, the gas qualifies for the manufacturing exemption from sales tax. Because the gas runs through its own meter and is used only to maintain the flare stack's pilot light, no predominant-use study i…
Are shipping/handling charges and membership fees a direct-sales (multi-level marketing) company charges its independent distributors subject to Texas sales tax?
It depends on what's included. Shipping and handling charges for items sold to independent distributors for resale at the suggested retail price are not separately taxed (the cost is already baked int…
Does an oilfield waste bioremediation company owe sales tax on the treating agents, chemicals, and equipment it uses, and does it need to charge its clients sales tax?
The company does not charge its clients sales tax on the bioremediation service itself, and doesn't need a sales tax permit as a nontaxable-service provider. But the company must pay sales or use tax …
When a document-outsourcing company provides photocopying, duplicating, facsimile, internal messenger service, and equipment maintenance, which pieces are taxable — standalone, bundled, or itemized?
Photocopying, duplicating, facsimile, and equipment-maintenance charges are all subject to sales tax as standalone services; facsimile is additionally subject to sales tax as a telecommunications serv…
Do motorized shopping carts (the powered, basket-equipped carts stores provide for mobility-impaired shoppers) qualify for the wheelchair sales tax exemption?
Yes. Motorized shopping carts — the powered, tricycle-like carts with a basket that stores provide for shoppers with mobility impairments — are considered wheelchairs for Texas sales tax purposes and …
Does piping and conveyor equipment used to transport product in a Texas refinery or chemical plant still qualify for the manufacturing exemption after September 30, 1997?
No, not on or after October 1, 1997. H.B. 1855 made clear that piping and conveyors used to transport product do not qualify for the manufacturing exemption from that date forward — reversing the expa…
Is surveying a ship channel to determine water depth (for dredging decisions) a taxable real property service in Texas?
No. Surveying to determine the depth of water in a ship channel — done periodically to decide whether dredging is needed so ships can safely navigate to docks — is not a taxable service. The taxable k…
Is a tire dealer's disposal/collection fee for scrap tires taxable, and does it matter whether the fee is separately stated?
It depends on who bears the fee. The state-imposed scrap tire recycling fee charged to the CONSUMER (new tire buyer) under the now-expiring recycling program is not taxable if separately stated on the…
Are compressors that keep breaded fish frozen after processing exempt from Texas sales tax as manufacturing equipment?
No, the compressors are not exempt. A company that cuts, breads, and freezes fish (later shipped to its own restaurants for cooking and sale as food ready for immediate consumption) uses compressors t…
Can a hospital buy food processing equipment tax-free with an exemption certificate, given that patient meals are treated as part of health care services rather than restaurant-style food sales?
A hospital can issue an exemption certificate for food processing equipment used both to prepare meals for patients (part of its health care services, not a food sale) and to prepare food sold to visi…
How does Texas tax prepaid telephone calling cards, and what changed when S.B. 862 reclassified them as tangible personal property effective September 1, 1997?
Effective September 1, 1997 (corrected from an earlier-stated October 1, 1997 date), Senate Bill 862 recharacterized the sale of telephone prepaid calling cards from a telecommunications service to a …
When a credit-card rewards certificate is redeemed at a store, should sales tax be calculated on the full purchase price before or after the certificate is subtracted?
Sales tax is correctly calculated on the FULL purchase price, with the rewards certificate's value subtracted only AFTER tax is added — not before. A credit-card rewards certificate earned through pur…
Is installing a memory card in a computer taxable, and does installing software drivers along with it change the answer?
Yes, installing a memory card is taxable. Inserting a card into a motherboard — whether replacing an existing card or filling an unused expansion slot — is repair, remodeling, or restoration of the co…
When a used bookstore later redeems a customer's store credit (from selling used books) toward a new purchase, is tax due on the full purchase price or only the cash portion?
Tax is due on the total purchase price, including the credit portion. A used bookstore is correct to collect sales tax on the full charge when a customer buys a book using a store credit memo (earned …
Does equipment that seals shipping cartons with glue, as the final packaging step before shipment, qualify for the Texas manufacturing exemption?
Yes. Manufacturing is defined as every operation from the first stage of production of tangible personal property through completion — and completion includes packaging, if any, since the product must…
Does a home builder's 'tax included' contract language shift sales-tax liability to the contractor, and who is liable if a service later turns out not to qualify for the new-residential-construction exemption?
The submitted 'tax included' contract language does NOT meet the requirements of Rule 3.286(d)(4) because it isn't unconditionally explicit — it refers only to 'applicable taxes' on 'material, labor o…
Can a motor vehicle paint and body shop switch from separately billing parts (with tax collected from the customer) to a lump-sum price (paying tax itself on parts, collecting none from the customer)?
Yes, this is an acceptable way to handle the tax. Labor to repair motor vehicles is not taxable under Rule 3.290(g)(1)-(2). A shop billing a lump-sum price for motor vehicle repair is not a retailer o…
Does a Texas computer retailer need to collect Texas sales tax on computers and parts it ships to customers outside Texas, and can it buy those components tax-free?
No Texas tax collection is required. A retailer is not required to collect Texas sales tax on computers or parts it ships to customers outside Texas, but must keep documentation — like postal receipts…
Can an Internet service provider buy its facility 'environment' and T1 connectivity charges tax-free if it charges its own customers sales tax on those services?
The ISP's own supplier should not charge it tax on the monthly $150 environment-and-connectivity charge. Instead, the supplier itself must pay tax on the taxable items included in that charge — except…
When a gift basket bundles nontaxable food with taxable items (like candy or gift items), how is Texas sales tax applied to the package's price?
Not all food in a gift package is nontaxable — of the food items listed, only candy, chocolates, soda pops, chocolate powder drinks, and chewing gum are taxable; the rest are nontaxable food. Whether …
Is a fee charged to businesses for posting their printable coupons on a website subject to Texas sales tax as data processing?
Yes. Charging businesses a fee to place their coupons on your website — where visitors can print and redeem them — is taxable as data processing, because the service involves entering, scanning, creat…
How does Texas tax hotel amenities, upgraded-package charges, and bundled room-and-meal (American Plan) pricing — hotel occupancy tax, sales tax, or both?
This letter corrects an earlier March 1997 ruling's citation (the Alcoholic Beverage Code section for mixed beverage gross receipts tax is § 183.021, not the repealed § 202.02) and restates five hotel…
Is the fee charged to program a patient's medical history and insurance information onto a smart card subject to Texas sales tax?
Yes. A programming fee — charged to load a patient's health and insurance information onto a credit-card-sized smart card with an embedded memory chip, readable by ambulances, hospital emergency depar…
Are fuel filters, nozzles, hoses, and lubricants used on farm/ranch equipment and vehicles exempt from Texas sales tax?
Yes, with an exemption certificate. Fuel filters, nozzles, and hoses used on large fuel tanks (250-1,000 gallons) that supply fuel exclusively to farm or ranch equipment, or to motor vehicles not lice…
Do substation equipment items (breakers, switches, transformers, capacitor banks, regulators, relays) used to step down high-voltage electricity for distribution qualify for the manufacturing exemption?
Yes. Breakers, switches, transformers, capacitor banks, regulators, and relays located in an electric utility's substation and used to step down high-voltage electricity (69kv/138kv/230kv) to distribu…
When a financial institution only holds a security interest in equipment (never taking title or possession), are its 'financing lease' interest charges subject to Texas sales tax?
No sales tax is due on the separately stated finance/interest charges. A lease or rental under Rule 3.294(a)(2) requires transferring POSSESSION (even if not title) of tangible personal property — but…
In Houston, how are telecommunications service charges, rented telecom equipment, PBX maintenance, and related software upgrade/training charges taxed, and at what combined state-plus-local rate?
Telecommunications services (trunking/SMR, air time, local phone service, dispatch service, and tower access billed as part of the service) are taxable at the combined Houston rate of 7.25% (6.25% sta…
Does replacing an old golf course sprinkler/irrigation system with a completely new one, laid in new trenches, count as nontaxable new construction?
Yes. A golf course, per TR 1263, is not as a whole an improvement to realty — rather, it's made up of a number of separate improvements to realty, each analyzed on its own. Installing a brand-new in-g…
When is a staff leasing arrangement exempt from Texas sales tax, and what happens if the leased employees perform otherwise-taxable services like data processing, security, or collections?
A staff leasing arrangement is exempt from sales tax only if it meets ALL of Rule 3.364(b)'s conditions: at least 75% of the assigned employees were previously the client's own employees for at least …
My insurance brokerage sometimes charges clients a fee instead of taking a sales commission, and we serve both Texas and out-of-state clients -- when is that fee taxable as an 'insurance service,' and what happens with multi-state customers?
Insurance placement and servicing work is not a taxable insurance service when your only compensation is the commission you'd normally earn on the policy (or a fee charged purely in place of that comm…
Is a bioresorbable surgical implant like Seprafilm IM -- an internal adhesion barrier that dissolves in the body over time -- exempt from Texas sales tax as a prosthetic device?
Yes. Texas exempts prosthetic devices from sales tax, and its rule specifically includes devices implanted in the body -- so a bioresorbable membrane like Seprafilm IM, which is surgically implanted t…
My satellite TV provider let me prepay a year of service for $154.95 instead of $354.95 using an 'instant credit certificate,' but then charged me sales tax on the full $354.95, calling the credit a gift certificate -- is that right?
No. Texas sales tax is measured on the actual selling price you actually pay, and an 'instant credit certificate' that immediately reduces your bill at the time of purchase is a discount, not a gift c…
My Texas-based internet business builds websites, broadcasts information online, and resells domain name registrations to customers both in and out of state -- which of these are subject to Texas sales tax, and how do I handle out-of-state customers?
Building and maintaining a website is a taxable data processing service, sourced to wherever the customer actually receives the benefit (not where your server sits) if the customer gives you an exempt…
I sell to a Mexican retailer who wants to buy tax-free for resale in Mexico -- what documentation do I need beyond a standard Texas resale certificate, and does a blanket certificate expire over time?
Beyond a properly completed Texas (or Border States Uniform) resale certificate, Rule 3.285(d)(2) requires you to also keep a copy of the buyer's Mexican Registration Form showing their RFC (Mexican f…
I design store signage and trim on a computer using 3D drafting software, then fabricate and install it in new stores -- am I taxed as a contractor or as a manufacturer, and does my design equipment qualify for the manufacturing exemption?
You're taxed as a contractor, not a manufacturer, because you affix the signage and trim you fabricate to realty under a new construction contract. Tax is due on your cost of materials (lump-sum contr…
I run a lockbox/remittance service that automates payment posting for doctors' offices -- is that a taxable data processing service in Texas?
Yes -- taxable. The Comptroller ruled that the ABC charges for this automated accounts-receivable payment-posting service fall within the definition of a taxable data processing service under Rule 3.3…
Our nonprofit 501(c)(3) garden club association prints instructional brochures and sells them at no profit to local garden clubs in Texas -- do we owe sales tax on those sales?
No -- the sale is exempt from Texas sales tax. The Comptroller ruled that brochures published or distributed by a nonprofit 501(c)(3) organization are exempt from sales tax under Texas Tax Code Sec. 1…
Does sales tax apply to a commercial greenhouse and laboratory used to grow, propagate, and sell orchids from seed?
No sales tax is due. The Comptroller confirmed that machinery and equipment -- including a qualifying building or structure -- used exclusively to process, pack, or market agricultural products by the…
Is replacing a temporary fire sprinkler system with a new one during finish-out of a never-occupied strip-center lease space taxed as new construction or as nonresidential remodeling?
It's new construction, not remodeling -- because the lease space had only been roughed-in and was never finished out or occupied, installing the new fire sprinkler system counts as new construction ev…
My local sales tax rate changed partway through a multi-year equipment lease -- do I owe the old rate or the new rate for the rest of the lease, and what happens when the lease is renewed?
For a fixed-term operating lease (like a 5-year lease), the sales tax rate is locked in at the rate in effect when the lease was signed (consummated) -- it does not change even if the local tax rate g…
I'm a Texas private investigation/security firm with clients and jobs both inside and outside Texas -- which of my investigation and security services are subject to Texas sales tax?
It depends on where the investigation is performed and where its object/benefit is located, not on where the client is based: investigations of people, places, or facilities located outside Texas are …
Is installing an awning or canopy taxable as new construction, or as a sale of tangible personal property, under Texas sales tax rules?
It depends on whether the canopy becomes an improvement to the realty. If it does, the installation labor counts as new construction and is not taxable, but the materials are taxable (per the lump-sum…
I'm a carpet company recarpeting an apartment complex, and the job includes the manager's office and lobby along with the apartments themselves -- is the labor to recarpet the office/lobby taxable, or does it count as part of the tax-exempt residential job?
It depends on how the office/lobby is billed and how big it is relative to the whole job. If the office/lobby recarpeting labor is separately stated from the apartment recarpeting labor, it is always …
Are checks that a bank or credit union sells to its customers subject to Texas sales tax, and who has to collect it?
Yes -- checks are taxable tangible personal property under Sec. 151.010, so the sale of checks delivered to a purchaser in Texas is taxable. Who must collect and report the tax depends on how the bank…
If I perform scheduled, periodic maintenance on real property and incorporate materials into it, am I a contractor for tax purposes -- and does it matter whether the property is residential or nonresidential?
Yes, you're a contractor either way. Under Rule 3.291(a)(3), a person who repairs, restores, or remodels residential real property and incorporates tangible personal property into it is a contractor, …
We sell a color Doppler weather radar system (antenna, computer, and enhanced software) to TV stations for live severe-weather coverage -- is it exempt from Texas sales/use tax?
Yes, exempt. The Comptroller ruled that a color weather radar system -- sold as a package consisting of an antenna, a computer, and enhanced software, with the computer used for no other purpose -- qu…
My direct payment permit is being canceled because the Comptroller says I didn't buy $800,000 of taxable items this year, even though I did — I just didn't accrue that much use tax on it. Will my permit be canceled?
No, the permit will not be canceled. The Comptroller had initially notified the company that its direct payment permit would be canceled because it appeared not to meet the $800,000 annual taxable-pur…
I'm a regulated telecommunications provider that buys basic local exchange network access so jail inmates can make collect outbound calls -- can I buy that access tax-free?
Yes -- this purchase is exempt from sales tax. The Comptroller confirmed that because the firm is a regulated provider of telecommunications services (verified through Public Utility Commission regist…
Is a Texas motor vehicle painting/repair shop's charge for painting materials, consumables (masking tape, sandpaper, solvents, etc.), and supplies taxable, and can the shop buy them tax-free for resale?
It depends on how the shop bills. Motor vehicle repair labor itself is not taxable, but tangible personal property furnished in the repair is. If the shop separately states labor and parts/materials o…
Who is responsible for collecting and remitting sales tax on parking garage fees -- the building owner, or the property management company that runs the garage?
The property owner, not the property management company, is responsible for collecting and remitting sales tax on motor vehicle parking services provided in the building's parking garage. Under Rule 3…
Is chilled or heated water taxable in Texas, and does adding anti-corrosion chemicals to a closed water system change that?
No -- water is not taxable in Texas, whether it's sold chilled or heated, and adding chemicals to prevent corrosion in a closed system doesn't change that. The Comptroller reasoned this is the same as…
My predominant use utility study was rejected by the Comptroller -- what did it need to include, and why was mine found deficient?
The study was rejected as deficient. Rule 3.295(e)(1) requires a predominant use study to show all exempt and nonexempt uses of the utility, the times of usage, the energy used, twelve consecutive mon…
Is the electricity my golf club charges to recharge members' own golf carts, stored in the club's cart barn, taxable?
Yes, taxable. The electricity used to recharge golf carts that belong to members (not the club) is taxable, because the cart barn storage space is sold as part of a taxable club membership -- an amuse…
I operate a landfill and am reorganizing into a separate management company -- is operating the landfill itself taxable, and does adding a transfer station change that?
Operating and managing the landfill itself -- receiving trash already delivered to the dump site, separating, compacting, and covering it -- is not a taxable service, because it is not the removal or …
Is avionics installation, equipment addition, and interior modification/remodeling work on a privately owned aircraft taxable under Texas sales and use tax, and how is a lump-sum repair/remodeling contract taxed?
No sales or use tax applies to the charge for the repair/remodeling service itself -- the Comptroller ruled this work (avionics installation and interior modification/installation) on a private aircra…
I run an FAA repair station that services aircraft components for airlines -- are the machinery, tools, manuals, wire, chemicals, hardware, and shipping supplies I use exempt from Texas sales tax?
Mostly exempt. Tax Code 151.328(d) exempts machinery, tools, supplies, and equipment used or consumed exclusively in repairing, remodeling, or maintaining aircraft, aircraft engines, or aircraft compo…
I run a computer backup service and also install software and do on-site hard disk maintenance for small businesses -- which of my fees are subject to Texas sales/use tax, and at what local rate?
All of it is taxable. The monthly service fee for data storage/backup, the software installation charges, the on-site maintenance fee, and the file-restoration fee are all subject to Texas sales and u…
I bottle and resell water in returnable bottles that I get back from customers and refill -- can I buy those bottles tax-free as packaging/manufacturing supplies?
No -- the purchase is taxable. The Comptroller ruled that returnable water bottles do not qualify for the packaging-supplies exemption. Rule 3.314(b)(1) exempts items like boxes and pallets, but (b)(3…
I have an operating lease on a printing press that started before 10/1/95 -- can I cancel it and sign a new letter agreement so the equipment qualifies for the manufacturing exemption going forward?
Yes. The Comptroller confirmed that canceling the existing lease and replacing it with a new lease (via a letter agreement attached to the canceled lease, same terms, taking effect on the cancellation…
Can a utility company rely on an exemption certificate from an apartment complex owner or property management company to exempt utility service from sales tax, without checking whether the property actually qualifies?
Yes, in most cases -- a utility company may accept and rely on a complete exemption certificate from an apartment complex owner or property management company without demanding proof that the property…
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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.