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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What happened to Texas franchise-tax filings, loss carryovers, nexus, and income computation when a Texas corporation converted to a single-member LLC?
The converting corporation filed no final franchise-tax report, and its Texas business-loss carryover remained available to the post-conversion single-member LLC. The corporate parent did not acquire …
Are towing-related charges like scene time and clean time taxable in Texas, and what about the gate fee for storing a towed vehicle?
Scene time and clean time charges associated with towing a motor vehicle are not subject to Texas sales tax. But the gate fee charge, associated with motor vehicle storage, is subject to Texas sales t…
Did a cemetery association qualify for the former Texas franchise-tax exemption when its activities were not exclusively providing burial places?
No. The Comptroller reaffirmed that Section 171.059 did not exempt an association whose activities were not exclusively the provision of burial places, applying the rule that tax exemptions are narrow…
When a chemical plant expands capacity by adding a new product (moving utility lines, debottlenecking), which materials and equipment qualify for the manufacturing exemption, and what stays taxable as repair/remodeling?
Activities that result in increased plant capacity qualify for exemption whether or not they're formally distinguished from 'new construction' — the sales tax treatment is the same either way. Materia…
A custom CD-ROM manufacturer buys computer hardware to process the 3-D animations/graphics it sells on the discs. Does that hardware qualify for the manufacturing exemption, and what happens if it's later used for something else?
Equipment that directly and necessarily causes a physical or chemical change to the product being manufactured (or is essential to a quality control process) qualifies for the manufacturing exemption …
For a bundled colocation package (rack/space rental plus internet bandwidth), can the rental portion be tax-exempt while bandwidth is taxed separately, and are resold DSL circuits used only for internet access subject to telecom tax?
Yes to the first: if the rack/space rental is broken out separately from the bandwidth charge, the rental is fully tax-exempt and the bandwidth is fully taxable as a telecommunications service. On the…
Is natural gas used to power a compressor that transports naturally occurring carbon dioxide (CO2) exempt from Texas sales tax?
Yes. Natural gas used to operate a compressor that transports CO2 — whether the CO2 results from processing natural gas or other hydrocarbons, or occurs naturally in ground reserves — is exempt under …
If a Texas company sells or licenses software to a customer in Canada, does it owe Texas sales tax?
No, as long as the software is used outside of Texas and the customer takes delivery — or the software is installed — outside of Texas. If the customer takes delivery in Texas, or the Texas company in…
If a manufacturer (not the original retailer) buys back a defective appliance from a customer as a settlement, can the customer get the sales tax they originally paid refunded?
Not from the state, and not automatically from anyone. Because the manufacturer — not the original retailer — bought the refrigerator back as a settlement, the original retail sale was never voided; a…
If a company delivers, sets up, and maintains its own gas compressor units at a customer's site for a single fee, is that a taxable lease of the equipment or a nontaxable compression service?
It depends on whether the customer gets possession/control of the compressor. If there's an actual lease contract for the compressors, it's a taxable lease under Rule 3.294. But if the customer never …
At a nonprofit's one-day tax-free fundraising auction, is there a dollar cap on what can be sold tax-free, and does it matter whether the item was purchased, donated, or manufactured by the organization?
It depends on how the item came to the organization. An item donated to or manufactured by the exempt organization can be sold tax-free at any price at a qualifying one-day sale/auction (regardless of…
Could a Texas vehicle seller accept a trade-in before delivering the replacement vehicle and hold the trade-in credit without a specified time limit?
Yes. The letter stated no specified time limit for holding the trade-in credit before delivery of the purchased vehicle. But the sale transaction had to occur when the trade-in was provided, and the s…
If a school district pays for and owns an education/video system, but part of the equipment is physically located and controlled at a private company's off-site headend facility, does that off-site equipment still qualify for the school district's sales tax exemption? Could the company itself buy that equipment tax-free instead?
Yes to the first: equipment the school district purchased and holds title to remains exempt even when physically located and controlled off-site at the company's facility, per Rule 3.322(f). But the c…
Starting an air duct cleaning business in Texas, is the service taxable, and can equipment/materials be bought tax-free?
Yes, cleaning air ducts is taxable as a real property service under Rule 3.356 — the total charge (trip/service charge, materials, stand-by charges, etc.) is taxable. Equipment you buy to perform the …
When a nonprofit hospital operates through a 50/50 limited partnership with a for-profit entity, whose charity care counts toward the partnership's sales tax exemption under the Sec. 151.310(e) charity-care requirement — the partnership's own charity care, or charity care provided separately by the individual partners?
Only charity care that the hospital partnership itself provides counts — charity care given separately by either partner (the tax-exempt partner or the for-profit partner), outside the partnership, do…
Are rate modifiers a Texas-based insurer buys to underwrite worker's compensation policies for insureds in other states taxed as data processing services or as insurance services, and does out-of-state use reduce the tax?
Rate modifiers are the purchase of data processing services, not insurance services. A Texas-based insurer's purchase is taxable to the extent the benefit of use is in Texas — the purchaser can issue …
Starting October 1, 1999, are information services and data processing services in Texas only taxed on 80% of their value, and how should that be reported on the sales tax return?
Yes. Effective October 1, 1999, new Tax Code Section 151.351 (added by Senate Bill 441) exempts 20% of the value of information services and data processing services, so only 80% is taxable. On a $1,0…
Is Texas sales tax due on drill team uniform items (leotards, tights, boots, hats) purchased through group orders for students at a public school?
It depends on who buys them. If the school purchases and pays for the uniforms itself for its own use (like band or sports team uniforms it owns), the purchase is tax-exempt. If individual drill team …
How does Texas sales tax apply to network installation services — evaluating a client's computer setup, installing or configuring hardware/software you didn't sell, initial computer setup, employee training, modifying existing software, and hardware repair?
It varies by service. Evaluating a client's computer configuration and writing a report is not taxable, unless the advice is really information on where to get the best price, which IS taxable as an i…
How did Texas tax mobile cranes supplied with or without operators, and when did the owner need a motor vehicle rental permit?
A crane mounted on a conventional truck chassis before purchase was taxed as a motor vehicle with an accessory. Supplying it with an operator was not a rental because the customer lacked exclusive use…
A new business will offer computer-aided drafting (CAD) production, CAD training, computer consulting, customization/deployment recommendations, and custom programming, all billed hourly and without selling any hardware or software. Which of these services are subject to Texas sales tax?
Mixed. Computer-aided drafting production is taxable. General consulting not tied to a taxable-item sale is not taxable. CAD training is not taxable if separately stated. Customization, deployment, an…
Is Texas sales tax due on labor to build or repair fences, gates, cattle guards, and roads on a farm or ranch?
It depends on new construction versus repair. Labor to newly construct fences, gates, cattle guards, or roads as an improvement to realty is NOT taxable, whether billed lump-sum or separately from mat…
How did a Section 338(h)(10) stock sale affect the target's former Texas tax bases, loss carryforwards, and the seller's receipts?
Texas did not recognize the deemed asset sale in the target's taxable capital or taxable-capital receipts, but did recognize it in earned surplus because that component began with federal taxable inco…
Did a Texas lienholder owe motor vehicle sales tax when it repossessed and took title to a vehicle after an interstate carrier defaulted?
No. The Comptroller said repossession was not a retail sale, so the lienholder owed no motor vehicle sales tax when taking title. The policy applied whether the lien appeared on the certificate of tit…
What former Texas franchise-tax relief applied when a corporation's gross receipts for both tax components were below $150,000?
For reports due on or after January 1, 2000, Senate Bill 441 provided that a corporation owed no franchise tax if gross receipts from its entire business were each below $150,000 for both taxable capi…
How does a direct sales/multi-level marketing organization collect Texas sales tax on its independent distributors' sales, and are sales the distributor makes to customers in Mexico exempt?
The direct sales organization -- not the distributor -- is responsible for collecting and remitting tax on distributor sales, since distributors of direct sales organizations aren't issued their own s…
In a sale-leaseback/cash-advance arrangement -- where a customer sells an appliance to a business and then leases it back while receiving a cash advance, backed by a refundable security deposit and a separate rental fee -- which parts of the transaction are subject to Texas sales tax?
The purchase of the appliance from the customer qualifies as a purchase for resale (buyable tax-free with a resale certificate). The refundable security deposit is NOT taxable. But the rental/lease ch…
Can a high-volume home-based independent distributor of a direct sales company (Metabolife International) get their own Texas sales tax permit to streamline exempt out-of-state sales, instead of paying tax up front and waiting for a refund from the company?
Yes, under a specific administrative policy set out in this letter: an independent Metabolife distributor with total sales exceeding $24,000 a quarter may apply for a Texas sales tax permit. Once perm…
Is sales tax due on equipment (microscope, vials, droppers, bottles, forceps, and collection vessels) sold to farmers and ranchers for performing fecal egg counts to check livestock for parasites?
Mostly exempt. Under Sec. 151.316, farm/ranch equipment used exclusively on a farm or ranch in agricultural production is exempt -- so the microscope, cleaning supplies, slides, flotation solution, dr…
Can a retailer exempt a sale as an export at the time of the transaction because it ships directly to a customs broker, and how soon can it refund tax to a purchaser once a licensed customs broker certifies the goods were exported?
No, a retailer cannot exempt the sale at the time of the transaction -- proof of export must come first (either a pedimento de importaciones, which takes one to three weeks, or a stamped certification…
Two aircraft were swapped in back-to-back sales a day apart -- Company A sold a Beechcraft King Air to Company B, and the next day Company B sold an IAI Westwind 1124 to Company A. Does the occasional sale exemption apply to these transactions, and does it matter that Company B holds an active Texas sales tax permit?
These are two separate transactions taxed on their own merits, not one combined deal. Company A's sale of the King Air may qualify as an exempt occasional sale under Sec. 151.304(b)(1) if Company A do…
What amount was subject to Texas motor vehicle sales tax when a lessor sold a vehicle retired from an operating lease to a retail buyer?
The taxable value was the amount the retail buyer paid the lessor-owner. A separate amount the lessee paid the lessor under the operating lease was not part of the retail sale and was excluded. Fair m…
If a Texas corporation converts into a limited partnership, does it still owe Texas franchise tax, and does a federal check-the-box election matter?
The corporation must settle its franchise tax through the conversion, and after conversion the partnership is not subject to it. A Texas S corporation converting to a Texas limited partnership stays l…
How does a corporation that is the general partner of a Texas limited partnership apportion its franchise tax, and are its out-of-state affiliated limited partners subject to the tax?
The out-of-state limited partners are not taxed, and the general partner apportions using either the net or an eligible gross method. An Ohio manufacturer was the general partner of a Texas limited pa…
A materials vendor sold fencing materials for a zoo exhibit to a construction contractor. The zoo's bid documents said the owner was tax-exempt and taxes should NOT be included in the contract price, but the contractor's purchase order listed 'Sales tax: Included' and told the vendor not to charge Texas sales tax because the contractor 'pays direct.' The contractor now wants to deduct that 'included' tax amount from what it owes the vendor, claiming the vendor collected it. Can the contractor do that?
Not just by pointing to the purchase order's 'Sales Tax: Included' language. The vendor's own invoice showed a price with no indication tax was included, and the vendor issued no tax receipt -- so des…
When a mailing list broker charges for lists that mix Texas and out-of-state addresses, is the sale taxable based on the percentage of Texas names on the list, and does that change if the list is sold to an out-of-state customer?
Yes to the percentage test: under Rule 3.342(b)(3), the taxable portion of a mailing list sale is based on the percentage of names on the list located in Texas. But an information service (like a mail…
If a company reorganizes its Texas operations into a Texas limited partnership that elects under the federal 'check-the-box' rules to be taxed as a corporation and joins the company's consolidated federal tax return, does Texas's Intercorporate Services exemption cover services the company provides to that limited partnership?
Yes. A limited partnership or limited liability partnership that makes a check-the-box election under Treas. Reg. 301.7701-3 to be treated as a corporation, and reports its income as a C corporation o…
Are pass-through charges a Competitive Local Exchange Carrier collects from customers -- municipal charges, expanded local calling service surcharges, number portability service charges, FCC-approved customer line charges, and federal presubscribed interexchange carrier charges -- subject to Texas sales tax?
Yes. Each of these pass-through charges becomes part of the sales price of the telecommunications service and is taxed the same way the underlying service itself is taxed, when passed through to the r…
How did a corporation report the former Texas franchise tax after changing its accounting year-end from January 31 to December 31?
No additional filing was required solely because the corporation changed its year-end. For the 1999 report, taxable capital used the new December 31, 1998 year-end and January-December 1998 gross rece…
Did an electric parking brake, entry-assist handle, and quick-release steering device qualify a vehicle buyer with arthritis for Texas's disability exemption?
The electric parking brake qualified because the customer's arthritis prevented her from setting a manual brake and required the modification. The entry-assist handle and quick-release steering device…
Did business contributions to expand a nonprofit day-care center qualify for the former Texas employee child-care franchise-tax credit?
No, not on the facts provided. The proposed donations would expand a center that was not shown to operate primarily for children of employees of the contributing corporations. A corporation could inst…
In an oil refinery's crude distillation unit -- where a furnace, distillation tower, and stripper each perform one step of separating petroleum into fractions -- is the whole crude unit treated as a single item of manufacturing equipment under House Bill 3211, and which pipes, pumps, and fittings qualify for the manufacturing exemption?
The crude unit as a whole is NOT a single item of manufacturing equipment -- H.B. 3211's Sec. 151.318(f) treats an integrated group of machines working together as separate items, so the furnace, dist…
A city owns a golf course but hires an independent private company to operate it under a management agreement giving the company exclusive use and day-to-day control of the facility. Are the green fees the company charges golfers exempt from Texas sales tax as a municipal amusement service, or taxable?
Taxable. Golf courses are amusement services under Rule 3.298, and amusement services are exempt only when EXCLUSIVELY provided by a municipality (Sec. 151.3101(a)(1)). Because the city contracted wit…
A nonprofit college runs a federally mandated proficiency testing program for pathology laboratories, charging labs a single subscription fee that bundles the testing service with disposable test-specimen materials the college buys and ships in. Is the college's subscription fee a taxable sale of the specimen materials, or a nontaxable service charge -- and does the college owe Texas use tax on specimens it ships into Texas from out of state?
The subscription fee itself is not taxable: the 'true object' of the program is the testing/accreditation service, not a sale of the specimen materials, so the college (not the labs) is treated as the…
A member of an online buying club (SITE ONE) purchases distressed/discounted merchandise from manufacturers using membership access, then resells it. Is the club's membership fee taxable, and what are the member-reseller's own sales tax obligations on the merchandise it resells over the Internet?
The club's membership fee IS taxable -- SITE ONE is selling a taxable information service (price lists, manufacturer information) and should collect tax on the fee from Texas members (effective Octobe…
A seller of specialized instruments (thin film deposition monitors, gas analyzers, leak detectors, gauges, and optical measurement products used in semiconductor cleanrooms and other manufacturing) asked which of these items its manufacturer-customers can buy tax-free with a manufacturing exemption certificate.
It depends on how each item is actually used. Equipment used directly to make or cause a physical/chemical change in the product qualifies. So does equipment a manufacturer uses for quality control te…
When an insurance carrier reimburses a service provider for travel, meals, and hotel expenses incurred while performing a taxable service, is that reimbursement itself part of the taxable sales price, even though it's separately stated and feels like a pass-through cost rather than a fee for the service?
Yes. Expense reimbursements like travel, meals, and hotel costs are taxable as part of the total price of the taxable service, even if separately stated on the bill -- Tax Code Sec. 151.007(a) defines…
A jewelry manufacturer converting a former map-making facility into its plant added a silver-dust pollution control system: new concrete pads, dedicated electrical switchgear, and extra HVAC units to cool the air moving through the dust collector. Which of these items and which labor charges qualify for Texas's manufacturing/pollution-control equipment exemption?
Mixed results. New concrete pad materials are taxable, but the LABOR to build the new pads is exempt new-construction labor under Rule 3.357(a)(5) since there was no prior improvement to remodel. The …
Were transaction fees for processing nationwide telephone calls at a Texas operator center Texas franchise-tax receipts?
Yes. The corporation processed calls from across the United States at its Texas operator center and charged a transaction fee. Because the processing service was performed in Texas, the fee was a Texa…
A direct-sales company gives a home-party 'hostess' credits based on the volume of orders she collects (a percentage of merchandise total, plus bonus credits for hitting order-count and dollar thresholds), which she can apply toward her own order including the sales tax due. Do these hostess credits reduce the taxable sales price of the goods she buys, or are they just a form of payment?
The hostess credits do NOT reduce the taxable sales price -- tax is still computed on the full regular retail value of the goods. The credits are treated as consideration the hostess earned in a barte…
How did 1999 Texas legislation affect dentist professional associations and corporations with less than $150,000 in gross receipts?
Senate Bill 1085 allowed dentists to organize as professional associations effective September 1, 1999, and the letter said professional associations were not subject to franchise tax. Separately, Sen…
A direct sales organization selling vitamins through independent Texas distributors needs a Texas sales tax permit. What state and local sales tax rates apply, and how should the organization collect and account for local taxes across all of its distributors' sales?
The direct sales organization -- not its distributors -- is responsible for collecting and remitting sales and use tax on all Texas distributor sales, under Rule 3.286. On top of the 6.25% state rate,…
A direct payment permit holder already paid sales tax to its vendor on past purchases. Can it now retroactively issue a direct payment exemption certificate for those same past purchases so it can get a full refund of the tax and instead accrue and pay the tax itself directly to the state?
No. A direct pay permit holder must choose, at the time of each purchase, between giving the supplier a direct payment exemption certificate or having tax paid directly to the supplier -- once tax has…
A taxpayer sought a refund of sales tax it charged clients (employers) for case management/risk management consulting services, on the theory that because those clients were 'nonsubscribers' to Texas Worker's Compensation, the services couldn't be taxable insurance services. Is that refund claim valid?
Largely no -- an internal Tax Policy Division memo to the Comptroller's refund-review staff concludes the taxpayer's reliance on the 'nonsubscriber' label is misplaced. Being a Worker's Compensation n…
Will a state-prescribed Texas sales tax exemption certificate that a customer completes electronically, signs with an electronic signature pad, and stores only in electronic form pass muster in a Comptroller audit?
Yes. The Comptroller's audit division accepts certificates with electronic signatures, in addition to certificates that have been scanned, faxed, or microfiched -- so a system that creates a non-alter…
Was net gain from selling trademarks, goodwill, source code, patents, and other intangibles to a California corporation a Texas receipt?
No. The Comptroller treated the trademark, customer base, workforce in place, goodwill, source code, patents, and intellectual property as capital-asset intangibles. Net gain from their sale was a gro…
Are periodicals and writings sold by a church exempt from Texas sales tax, and does that exemption extend to formats other than print, like video tape, audio tape, or computer disk?
Yes. Tax Code Section 151.312 exempts periodicals and writings published and distributed by a religious, philanthropic, charitable, historical, scientific, or similar nonprofit organization. Effective…
A phone customer noticed their bill includes an FCC line charge, which they understood to be a federal charge tied to the number of incoming lines, within the total that Texas sales tax is calculated on. Since it looks like a federal tax/fee, should Texas sales tax apply to it?
Yes. The FCC line charge isn't a federal tax on the customer -- according to the FCC, it applies to all subscribers regardless of long-distance usage and is simply another way for the phone carrier to…
Did an aircraft owner have Texas franchise-tax nexus when it leased planes to a carrier operating flights involving Texas?
It depended on the carrier's Texas activity. The aircraft owner was subject to franchise tax if its planes were leased to common carriers providing intrastate Texas transportation or maintaining Texas…
A commercial monitoring company separately bills clients for security-system monitoring and fire-alarm-system monitoring, subcontracting the actual monitoring to its parent company. Are separately stated charges for monitoring a fire alarm system taxable the same way as security system monitoring charges, and what about the telecommunications lines used to run both?
No -- separately stated charges for monitoring FIRE alarm systems are NOT subject to Texas state and local sales tax, while separately stated charges for monitoring SECURITY systems ARE taxable. On th…
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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.