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 a corporation owe Texas franchise tax just because it owns, or is affiliated with, a limited partner in a Texas limited partnership?
Merely owning or being affiliated with a limited partner does not create franchise-tax nexus, but putting people in Texas can. The Comptroller declined to rule that two Florida corporations were free …
A commercial photography studio creates images (conventional film transparencies or digital media) for advertising clients and, on request, does pre-press production work (scanning, color-adjusting, image-setting, and proofing) to prepare 4-color film and proofs for the client's printer. Which of the studio's cameras, computers, scanners, and other equipment qualify for Texas's manufacturing exemption?
The studio qualifies as a manufacturer under Sec. 151.318 because it fabricates tangible personal property (transparencies, electronic media, 4-color film, proofs) for sale. Under new Sec. 151.318(t) …
How were GNMA mortgage-backed security interest receipts apportioned when the underlying mortgagors could not be identified?
Rule 3.549(e)(13)(D) applied. The Comptroller rejected the taxpayer's argument that the private securities issuer was the payor, maintained that a GNMA security holder owned an undivided beneficial in…
Was a motor vehicle sale to the Kickapoo Indian Tribe exempt from Texas motor vehicle sales tax, and did the exemption extend to individual members?
A sale directly to the Kickapoo Indian Tribe was exempt. The letter said a federal statute exempted the Alabama-Coushatta, Kickapoo, and Tigua tribes from state sales and excise taxes. But the buyer h…
For a private club's construction/renovation contracts billed lump-sum, what kind of written statement or contract language satisfies Rule 3.286(d)(3)'s requirement that a stated price includes sales tax, and which of several possible documents (purchase order, bid, signed contract, invoice) controls for that purpose? Separately, is a CPA firm's computer-prepared payroll tax reports for the club a taxable data processing service?
For 'tax included' lump-sum billing, Rule 3.286(d)(3) requires either the tax be separately stated OR a written statement that the price includes tax; whether a given letter/purchase order/bid satisfi…
How did Texas treat lease acquisition fees, roadside assistance, credit-card rebates, and resale-inventory vehicles used as trade-ins?
A lease-document fee paid to the lessor or lienholder was outside the vehicle's taxable sales price, and roadside assistance was not taxed. A non-captive credit-card contribution was taxable considera…
When were Internet sales of tangible personal property Texas franchise-tax receipts under the former delivery and throwback rules?
The sales method did not matter. Tangible personal property sold online or otherwise was a Texas receipt when shipped or delivered to a Texas buyer. Property delivered from Texas to an out-of-state pu…
When a direct sales organization's independent distributor has overpaid sales tax (e.g., on products kept for personal use, sold out of state, or discounted below suggested retail price), how should the distributor get that overpaid tax refunded or credited -- directly from the Comptroller, or from the direct sales organization itself?
From the direct sales organization itself, not the Comptroller. Because the Comptroller treats the direct sales organization as the seller (requiring tax to be initially collected on the suggested ret…
When a retailer sells on credit, is sales tax due on the full accounts receivable balance right away, or only as payments are actually collected over time?
It depends on the retailer's own accounting method. If the retailer uses ACCRUAL basis accounting, the ENTIRE tax on the credit sale is due and must be reported at the time of the sale. If the retaile…
A sawmill sells railroad ties to railroad companies and also manufactures lumber generally. Are the railroad ties exempt from sales tax, and separately, do lubricants used in the sawmill's manufacturing machinery qualify for the manufacturing exemption?
Yes to both, with certificates required either way. A railroad company can give the sawmill an exemption certificate to buy railroad ties tax-free under Sec. 151.331 (rolling stock/locomotive fuel and…
Two companies provide liability-investigation services to attorneys representing plaintiffs and defendants in injury cases -- not directly to insurance companies -- and argue that because they don't work on 'first-party' claims (an insured's own claim under their policy) and any insurance involved is only incidental to determining liability between litigants, their services shouldn't count as taxable insurance services. Is that right?
No. The companies are providing taxable insurance services whenever they're paid to investigate a loss pertaining to a policy of insurance, regardless of who hires them or whether the claim is a first…
Did receiving financial assistance from a development corporation qualify a business for the former Texas enterprise-zone deductions?
No. Section 171.1015 required both designation as an enterprise project by the Texas Department of Economic Development and qualifying investment in an approved enterprise zone. Receiving financial as…
Someone selling mail order products from home (supplied by a California company) asked whether they need a Texas sales tax permit, and how local tax is determined when the business operates out of a home or apartment.
Yes, a sales tax permit is required, and the seller is responsible for collecting and remitting state and local sales tax on Texas sales (sales shipped outside Texas are exempt). The home itself is th…
Why can't an independent distributor of a direct sales/multi-level marketing company simply give the company a resale certificate and buy products tax-free, the way an ordinary reseller would?
Because Tax Code Section 151.024 authorizes the Comptroller to treat the direct sales organization itself -- not the individual salesperson/distributor -- as the retailer responsible for the tax, spec…
A manufacturing facility that handles powder ingredients asked about the taxability of an equipment enhancement: silos, scale hoppers, filters/receivers, piping/fittings/valves, instrumentation, a motor control center, and a bag dump station with a convey air compressor. Which of these qualify for the manufacturing exemption?
Mostly taxable, with narrow exceptions tied to quality control. Silos (storage of raw powder) are taxable. Scale hoppers are exempt ONLY if they actually measure the recipe amounts used in the mixers …
A retailer demolished most of an existing 49,887-square-foot store -- removing the floor slab, all electrical, all plumbing, the fire protection system, the roof, and the entire parking lot -- but kept one side wall, the rear wall, and the steel columns/joists, then expanded the footprint to 59,666 square feet. Is this project taxed as new construction or as taxable remodeling?
Mostly remodeling, with one new-construction carve-out. Total demolition means removing the ENTIRE structure except the slab -- since this project kept a side wall, rear wall, and the steel columns/jo…
Can caterers, party planners, florists, and bridal consultants who rent tables, linens, china, vases, and candelabras to re-rent to their own customers use a resale certificate instead of paying tax on the rental?
It depends on whether the renter serves prepared food. Food service operators -- restaurants, caterers, party planners, bridal consultants, and others who serve prepared food -- may NOT purchase, leas…
Did contributing Texas real estate to a partnership and liquidating two single-member LLCs change their taxable earned surplus when federal law recognized no gain or loss?
No, if the stated federal nonrecognition held. Two single-member LLCs would contribute Texas commercial property to a Virginia limited partnership for a combined 99% interest, then liquidate and distr…
Can a Texas movie theater buy admission tickets tax-free for resale, and does the same rule apply to the gift certificates, envelopes, and passbooks it buys?
Movie tickets may be purchased for resale under Rule 3.298(f)(1), so a theater that already paid tax on tickets can get a refund by issuing its supplier a resale certificate (limited to a four-year st…
Could a single-member LLC deduct the owner's one-half self-employment-tax adjustment when computing taxable earned surplus?
No. Rule 3.562(f) allowed income and deductions relating to the LLC but barred compensation deductions for the owner, who was not an LLC employee for federal purposes. The one-half self-employment-tax…
If a Texas defense contractor's gas and electricity use is exempt because it makes defense/national-security electronics for the U.S. Government, does the exemption also cover indirect uses like offices, cafeterias, and restrooms?
No. The Section 151.317(c)(2)(A)(vi) exemption applies only to gas and electricity actually used in performing the listed defense-related activities (manufacturing precision-guided weapons, radar, nig…
Does a Texas company that performs artificial insemination of cattle on ranches owe sales tax on its semen, insemination labor, and the AI supplies/equipment it uses to perform the service?
No. Charges for semen and insemination labor are not subject to sales tax at all, and Tax Code Section 151.316's farm/ranch exemption covers AI supplies, AI equipment, animal care products, liquid nit…
Did moving a vehicle's turn-signal control to the right side of the steering column qualify for Texas's disability vehicle exemption?
Yes. Moving the turn-signal control to the right side of the steering column was a qualifying modification for the driver with left-side paralysis. The modification had to be required at the time the …
If a Texas retailer gift-wraps an exempt item like a Bible for an extra charge, is the gift-wrapping charge taxable?
No. Gift wrapping is not itself a taxable service, and a charge for gift-wrapping an item follows the tax treatment of the item being wrapped. Because Bibles and other books are exempt from Texas sale…
Can a Texas Internet service provider buy telecommunications services (like leased lines) tax-free for resale, even though part of its Internet access revenue becomes exempt from sales tax starting October 1, 1999?
Yes. Telecommunications services purchased to provide Internet access, data processing, or information services still qualify as a sale for resale under Tax Code Section 151.006(1), because each of th…
How does Texas apply state, city, and MTA (Metropolitan Transit Authority) sales tax to cellular roaming charges, including calls that originate or terminate outside Texas?
A call is subject to Texas tax only if it both originates in Texas AND is billed to a telephone number/billing or service address within Texas. Intrastate calls (originating and terminating in Texas) …
Did a Texas floor-plan lender owe motor vehicle sales tax when it repossessed a defaulting dealer's vehicle inventory and took title?
No. Repossession was not a taxable transaction, so the floor-plan lender owed no tax when it took title to the defaulting dealer's vehicles. Motor vehicle sales tax was due on the lender's later sales…
How did a Texas bank treat mortgage-security principal payments and interest on federal funds for the former franchise tax?
Principal repayments on available-for-sale debt securities were excluded from both Texas and everywhere receipts. Interest on federal funds was excluded under the federal-obligation rule only if the f…
Did Texas motor vehicle tax apply when trucks and trailers were transferred to newly formed corporations for stock and then to new partnerships for interests?
No. A vehicle transfer to a newly formed corporation for no consideration other than its stock was not taxed, and neither was a transfer to a newly formed partnership for no consideration other than a…
If a 501(c)(3) nonprofit is the general partner (not the sole owner) of a limited partnership that hires a contractor to build affordable housing, how much of the construction materials can be bought tax-free?
Only a proportional share. The Comptroller treats the limited partnership the same as it would treat the individual partners -- so the exempt general partner's percentage ownership interest in the par…
If an electric cooperative buys items tax-free under a valid exemption certificate but then uses them in a way that isn't actually exempt (divergent use by a for-profit entity), how is the tax calculated -- on the fair market rental value or the original purchase price?
The default is fair market rental value (FMRV): under Rule 3.287(e), tax is due on the ongoing fair market rental value of items purchased under a valid exemption certificate but used in a divergent m…
Did a foreign investment corporation create Texas franchise-tax nexus by hiring a Texas company to provide investor-relations services?
Yes. The foreign corporation invested only for its own account, but contracted with a Texas company whose employees received and answered inquiries from investors and potential investors. Those Texas …
How did a bank report swap proceeds, repurchase-agreement securities, and federal-fund transactions under the former Texas franchise tax?
Swap gross proceeds were receipts when no capital asset or invested principal was involved, sourced to the payor; an unknown exchange buyer triggered a 6.5% Texas factor. A repo sale recorded as a lia…
Does an independent distributor of a Texas direct sales organization need their own sales tax permit to sell that company's products at a trade show?
No. Direct sales organizations, not their independent distributors, are responsible for collecting and remitting sales and use tax on Texas sales made by distributors, and sales tax permits are not is…
Could a reused hand-control extension installed on a new vehicle's emergency brake qualify the sale for Texas's disability exemption?
Yes, assuming the new vehicle itself was modified. The customer needed a hand control for the emergency parking brake because he had limited or almost no movement in his left leg. Reusing an extension…
Does Texas treat a direct sales organization's distributor with a physical retail store in a mall or shopping center the same way it treats a home-based independent distributor, for sales tax permit and resale-certificate purposes?
No. Home-based independent distributors of a direct sales organization are never issued sales tax permits and may not give a resale certificate -- they pay tax on the suggested retail price, with a re…
For a bank's Texas franchise tax, are 'available-for-sale' securities treated as inventory, and how are proceeds from called or matured securities counted as gross receipts?
Yes — available-for-sale securities are generally treated as inventory, and proceeds from calls or maturities are gross receipts to the extent they are revenue under GAAP or federal tax rules. For a b…
For a Texas-based interstate trucking company, does it matter whether repair parts are bought in-state or out-of-state, and whether they go on the tractor (truck) versus the trailer?
Yes, both distinctions matter. Repair/replacement parts (including tires and tubes) bought OUTSIDE Texas and affixed in Texas to the self-propelled vehicle (the tractor/truck) of a licensed, certifica…
Is an annual fee a company charges its independent sales agents to access their own personal sales data on a company web page a taxable service in Texas?
Yes. The storage of a sales agent's sales information on a web page is a taxable data processing service, even though the company isn't providing general Internet access and the agents aren't download…
Can a warehouse get a refund of tax on the electricity it uses to refrigerate and store already-finished products, based on a predominant-use exemption certificate claiming the electricity is used in manufacturing/processing?
No. Warehouses generally provide a storage commodity/service rather than sell tangible personal property, so their electricity use generally does not qualify for the manufacturing/processing exemption…
Did a Texas customer owe motor vehicle sales tax again when refinancing required selling the vehicle through a dealer and buying it back?
Yes. Assigning the vehicle to the dealer and moving it through dealer inventory was a sale, and reassigning it to the customer under the new financing contract was another taxable transaction. The fac…
Is power-washing a restaurant's kitchen vent hood taxable in Texas?
It depends on what the vent hood legally is. If the vent hood is affixed to the building as an improvement to realty (part of the ductwork), cleaning it is a taxable real property service under Rule 3…
Is concrete cutting, coring, drilling, and repouring taxable in Texas, and does it matter whether the job is new construction, residential, or nonresidential repair/remodeling?
Charges for cutting/coring concrete tied to a repair or remodeling job on NONRESIDENTIAL real property are fully taxable, including any repouring charges afterward. But labor charges for the same cutt…
Which vehicle transfers in a multistep corporate, partnership, and LLC restructuring were exempt from Texas motor vehicle tax?
Qualifying Texas-titled transfers in a statutory merger were exempt, and lien assumptions in that merger were not consideration. Transfers to a new corporation for stock and to a new partnership for i…
What investments qualified for the former Texas enterprise-zone deduction, and could property placed in service before project designation count?
A designated enterprise project could deduct qualifying investment that was federally depreciable, placed in service and used in the normal course of business in the enterprise zone, and not removed e…
Is a fee charged for a fast (under 3-minute), on-the-spot credit approval/denial decision a taxable credit reporting service, even if the vendor never furnishes the retailer any actual credit report or credit history document?
Yes. Even though the vendor doesn't assemble or hand over a credit history or credit report, the vendor is still performing a taxable credit reporting service as defined in Tax Code Section 151.0034 -…
Did a Texas vehicle buyer have to pay sales tax again when a licensed dealer collected the tax, went out of business, and failed to remit it or transfer title?
No. Payment to the licensed dealer satisfied the buyer's obligation even though the dealer failed to remit the tax or transfer title. An invoice itemizing the tax was acceptable proof, title could tra…
Did the former Texas taxable-capital throwback rule apply when goods were shipped from Texas to a state where the seller was not taxable?
Yes. When a corporation shipped tangible personal property from Texas to a purchaser in another state where the corporation was not subject to taxation, Rule 3.549(e)(41)(I) treated the sales as Texas…
What installment-sale gain entered a dissolving LLC's final Texas earned-surplus report after it distributed the note to its members?
The final report included installment-sale gain reported on the LLC's federal return for the period through dissolution. After the LLC distributed the installment note receivable to its members, later…
Did Company A's activities, including use of its name at Texas mall kiosks, remain protected from the former franchise tax by Public Law 86-272?
No. The Comptroller concluded that Company A was subject to both taxable capital and earned surplus because its activities—including use of the Company A name at kiosks in Texas malls—were not protect…
Did Texas allow the federal Section 179 maximum-deduction phase-in when computing the 1999 franchise-tax report?
Yes. Because Section 171.001(b)(5) defined the applicable Internal Revenue Code by reference to the 1996 calendar-year code, and Public Law 104-188's 1996 changes included a phase-in of the Section 17…
After a 1999 spin-off required two short-period federal returns, did the corporation file one or two Texas franchise-tax reports for 2000?
One. The corporation's 2000 annual Texas report covered January 1 through December 31, 1999 for earned surplus, even though it filed one short-period federal return in the former consolidated group an…
Can a private investigator selling surveillance work to a television station use a resale certificate instead of charging sales tax, on the theory that the TV station resells the information to the public as part of its programming?
No. The private investigator is performing a taxable security service under Tax Code Section 151.0075 (services requiring a Private Investigators and Private Security Agencies Act license), not an inf…
Were employees titled vice president treated as officers for the former compensation add-back if they could not legally bind the corporation?
No, if the corporation could factually establish that the employees lacked legal authority to bind it to third parties by contracts or other legal documents. If the corporation had included those empl…
Could a Texas lessor issue a resale certificate for a body and liftgate installed on an apportioned truck leased for interstate use?
Yes. Because the completed truck was a lease vehicle registered tax-free for apportioned interstate use, the lessor could issue a resale certificate to the company that sold and installed the body and…
If a company leases manufacturing equipment to a lessee who later incorporates it into a building (realty), does that later incorporation destroy the lessor's resale certificate, and when exactly does an operating lease's 'sale' happen for tax-reporting purposes?
No, incorporation into realty by the lessee does not destroy the lessor's resale certificate or trigger a 'divergent use' problem, because the equipment is still being used as claimed on the exemption…
What proof let Texas vehicle buyers transfer title without paying tax twice after a dealer collected but failed to remit the tax?
An itemized sales invoice showing tax paid to the licensed dealer was acceptable proof. That payment satisfied the buyer's obligation even though the dealer failed to remit it or transfer the vehicle,…
Was a short-term replacement vehicle taxable as a Texas motor vehicle rental when the manufacturer paid while the customer's car was repaired?
Yes. The customer received exclusive use of a motor vehicle for consideration for 180 days or less, so the arrangement was a taxable rental. It remained taxable whether the manufacturer paid during or…
If an out-of-state software company places an unstaffed backup server computer in Texas, does merely owning that computer create nexus requiring the company to collect and remit Texas sales tax?
Yes. A New Hampshire-based software company's ownership of a computer physically located in Texas -- even one used only as a backup server, with no Texas employees, and only an outside Internet compan…
Is monthly storage of RVs, campers, and boats at a converted airport storage yard taxable in Texas, and does it matter if a boat is sitting on a boat trailer?
RVs and campers are motor vehicles, so their monthly storage charges ARE taxable. But boats are NOT taxable to store, even when the boat is sitting on a boat trailer -- Texas's storage tax applies onl…
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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.