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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In a related-party sale-leaseback used to restructure debt within a corporate group, are the lease payments taxable, and does it matter whether the leaseback is structured as an operating lease or a financing lease?
It depends entirely on how the leaseback is structured, even though the initial asset sale itself qualifies as a tax-exempt resale under Rule 3.285. If the leaseback is an OPERATING lease, the periodi…
Is bottled, purified mineral water taxable in Texas, whether sold directly or through vending machines?
No. Water, spring water, sparkling water, and mineral water are not taxable in Texas, whether sold through direct retail sales or vending machines. This includes water that has been purified through r…
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…
Is a concrete pumping charge (using a primer to slick the pump's pipe) taxable, and is concrete sawing taxable on new construction versus a remodeling job?
A charge for pumping concrete that was sold by a third-party retailer to a foundation contractor is NOT subject to sales tax. Charges for sawing concrete as part of a NEW CONSTRUCTION contract are NOT…
How does Texas sales tax and the Telecommunications Infrastructure Fund (TIF) assessment apply to toll calls, 800-number calls, and prepaid telephone calling cards sold by a switchless telecom reseller?
Telecommunications services (toll calls, intrastate 800 calls, calling card usage) that originate in Texas and are billed to a Texas telephone number or billing/service address are subject to Texas sa…
Can a pilot renting an aircraft to accumulate flight hours toward an Airline Transport Pilot (ATP) rating claim Texas's flight-training aircraft tax exemption, and what proof does the exemption require?
Yes. Tax Code Section 151.328(a)(2)(B) exempts both lessor and lessee from sales/use tax on aircraft use when the renting pilot is using the aircraft in a way designed to lead to an FAA pilot certific…
Is a fee charged to a rental car company for retrieving one of its cars that a renter failed to return taxable in Texas?
No. A charge for retrieving (not towing -- simply driving to the location and driving the vehicle back) a motor vehicle rented by a rental company but not returned is not subject to Texas sales tax.
As a Metabolife distributor, do I need my own Texas sales tax permit, and how does the tax on products I buy from Metabolife get handled?
No, home-based distributors of a direct sales organization like Metabolife are not issued sales tax permits -- Metabolife itself collects and remits tax on the suggested retail price of products sold …
Is Metabolife allowed to refund or credit sales tax directly to a distributor who overpaid tax, without the Comptroller processing a refund?
Yes. Rule 3.325(b) sets out the procedure for a purchaser (here, a distributor) to recover overpaid tax from a seller (here, Metabolife), and this procedure applies to a distributor who overpaid tax t…
Is an 'implementation assistance amendment' to a software license -- covering vendor expertise, business-needs consulting, training, and setup assistance -- taxable, or does it qualify as nontaxable consulting services?
The lump-sum implementation assistance charge IS taxable, as part of the software license's sales price. Software consulting services are presumed connected to the sale of taxable software whenever th…
As a Texas distributor for an out-of-state (Nevada) direct sales/multi-level marketing company, who is responsible for collecting and remitting Texas sales tax, and do I need my own sales tax permit?
The Nevada-based direct sales organization itself is responsible for collecting and remitting Texas tax on the products its distributors sell, regardless of where the organization is incorporated -- d…
Did a Texas motorhome qualify for the interstate motor vehicle exemption because it traveled between jurisdictions?
No. The interstate exemption required eligibility for apportioned registration under the International Registration Plan. The Texas Department of Transportation said a recreational vehicle was not eli…
Is white Portland or masonry cement exempt from Texas sales tax, or does its color affect the standard cement exemption?
Portland and masonry cement remain exempt from Texas sales tax even when made in a white form -- color does not affect the exemption. A seller of white cement is not required to collect sales tax on i…
A seller of early childhood educational products wants a full breakdown of how to tax sales to Head Start programs and other buyer categories -- which need an exemption certificate, which are automatically exempt, and which require a resale certificate?
The Comptroller sorted the buyer categories into four types: (c) exempt by statute, no certification needed from the purchaser -- Head Start Programs/Delegates/Grantees, Federal/State/Local Government…
When a customer's tax consulting firm requests a blanket vendor's-right-to-refund assignment letter, must a schedule listing the specific invoices be attached at the time the assignment is sought or filed, in order to stop the refund statute of limitations from running?
No. A schedule listing the specific invoices covered by a blanket refund assignment is NOT required at the time the assignment is sought or filed with the Comptroller in order to toll (stop the clock …
Which grocery-store packaging supplies (bags, boxes, trays, shrink wrap, containers) qualify for the manufacturing/processing exemption in departments like cheese, produce, bakery, and bulk foods, and does it matter if the department is also selling exempt products?
It depends on whether the department is truly PROCESSING (exempt packaging) versus merely REPACKAGING (taxable packaging) -- and a grocery store can purchase all its packaging supplies tax-free if it'…
Which of a country club's various member charges -- handicap fees, golf association dues, driving range fees, private lessons, club repairs/rentals, and homeowners assessments -- are subject to Texas sales tax?
It's a mixed bag charge-by-charge: handicap fees are taxable only if calculated on a computer; men's golf association dues collected by the club are NOT taxable if association membership isn't mandato…
Is a construction contractor exempt from sales tax when building a rental-car service center on city-owned airport land, where the building will eventually revert to the city, on the theory that the traveling public ultimately benefits from having rental car facilities at the airport?
No. Even though the public benefits from having car rental facilities at the airport, and even though the building will become city property at the end of the 20-year lease term, the primary beneficia…
Can newspaper publishers buy digital cameras tax-free when the cameras connect to a computer that outputs film/paper for the printing press, and can a publisher who already paid tax get a refund?
Yes. Because the digital camera directly inputs data through the computer to the press that incorporates the image into the newspaper, newspaper publishers may purchase digital cameras tax-free by giv…
Is the electricity a mall pretzel shop uses to bake pretzels exempt from sales tax, given that the pretzels are baked on-site and sold hot to customers?
No, this electricity is taxable, not exempt. Even though the pretzels are baked on the premises using electric ovens, the pretzels are sold to customers in a heated state -- taken directly from the ov…
A teacher wants to order rockets from an out-of-state company for a class project. Is it better for each student to order and pay individually, or for the school to place one order and collect money from students as "donations"?
Have the school place the order. If students order directly from the out-of-state company themselves, Texas use tax is still due — there's no exemption for kids buying school supplies. But if students…
Is electricity used to irrigate fields where cattle graze exempt from Texas sales tax, and does it matter if some of that electricity might also be used for a home garden?
Electricity used on a farm or ranch to irrigate fields growing food, feed, grass, or other agricultural products sold in the regular course of business IS exempt under Tax Code Section 151.316, and gr…
I run a paintball field. Do I charge sales tax on field-use fees? Do I owe use tax on data processing done by an out-of-state company? And do I have to list shipping charges separately from the item price?
Yes to all three, with one nuance. A fee to use the paintball field is a taxable amusement service (though a genuine tournament/contest entry fee can be exempt). Yes, you owe Texas use tax on an out-o…
I run a horse breeding and show stable. Which of my supplies, equipment, fencing, buildings, and trailers qualify for Texas's farm/ranch sales tax exemption?
It depends heavily on the specific item and where it's used. Horses and horse feed are always exempt. A long list of supplies and equipment is exempt ONLY when used exclusively on the farm/ranch (not …
An out-of-state Internet retailer plans to fulfill orders by drop-shipping from a related Texas limited partnership's warehouses, and will also pay commissions to unrelated Texas retail stores that host invisible order links on their websites. Does any of this create Texas sales/use tax nexus for the out-of-state retailer?
Yes. The Texas limited partnership doing the drop-shipping doesn't itself create nexus for the out-of-state retailer (it can just take a resale certificate). But paying commissions to Texas retail sto…
Did preparing a Nevada subsidiary's incorporation documents in Texas create franchise-tax nexus for the passive holding company?
No, on the facts presented. The Nevada subsidiary would primarily be a passive holding company, hold its board meeting outside Texas, and own a 99% limited-partnership interest in a Texas limited part…
Were computer components delivered through Texas border facilities Texas receipts when the ultimate customers were maquiladora operators in Mexico?
It depended on where the buyer took possession or control. Delivery to a Texas freight forwarder hired by the purchaser was not a Texas receipt when the forwarder delivered the goods to the purchaser …
Were computer components delivered through Texas border facilities Texas receipts when the ultimate customers were maquiladora operators in Mexico?
It depended on where the buyer took possession or control. Delivery to a Texas freight forwarder hired by the purchaser was not a Texas receipt when the forwarder delivered the goods to the purchaser …
Our direct sales organization has given distributors conflicting information about whether they owe sales tax on products bought from us. Who actually owes the tax, and does it matter whether a distributor has a retail store versus sells from home?
The direct sales organization is responsible for collecting and remitting sales tax on products sold to its distributors — the idea that distributors don't owe tax to the organization is incorrect. A …
Did an Illinois S corporation create Texas franchise-tax nexus merely by owning an interest in a Texas LLC that did business in Texas?
No. The Texas LLC filed and paid its own franchise tax, while the Illinois S corporation's only income came from its LLC interest. The Comptroller said mere ownership of a membership interest in an LL…
Did a flatbed truck qualify for Texas's farm-machine motor vehicle tax exemption when a feeder occupied only part of its bed?
No. A qualifying farm machine included a self-propelled vehicle specially adapted to distribute feed or fertilizer. A flatbed or other truck with only a feeder attachment on its bed did not meet that …
I'm a fixture contractor installing cash register stations, clothing racks, display cases, and gondolas in a newly built retail store — the store owner supplies all materials and I just assemble and install them. Is my labor taxable?
Yes. Even though the fixtures are bolted to the floor of a brand-new store, they remain tangible personal property — not improvements to realty — because they don't lose their identity as personal pro…
We want to split our sales company into a separate delivery-truck company (owned by the same family, run as a limited partnership) so that the delivery charge isn't part of our taxable sales price. Does spinning off a related delivery entity — and using either of two proposed joint-invoice formats — keep the delivery charge out of Texas sales tax?
No. Splitting delivery into a related entity and jointly billing the customer through either proposed invoice format still leaves the delivery charge taxable, because the seller is still the one billi…
Did out-of-state sales solicitation and warranty repair make an ATM manufacturer subject to tax there for Texas throwback purposes?
For taxable capital, yes: sales representatives promoting goods and subcontractors performing contracts or warranty repairs were activities that made the corporation subject to taxation in the other s…
How did a money-transmission processor apportion service charges when Texas agents began transactions and New Jersey personnel completed them?
The corporation included the entire customer service charge in gross receipts and could not subtract the amount retained by Texas agents as a cost. Texas receipts included the fair value of services t…
One of our distributors resold product to a customer in Michigan, and a separate distributor sells to a retail store with its own storefront in a mall. In both cases the distributor already paid us Texas tax up front on the product. How do we handle refunding or crediting that tax without double-paying the state?
In both cases, the company can recoup the tax by taking a credit on its own current sales tax return (adjusting reported taxable sales) rather than filing a separate refund request. For the out-of-sta…
We run a distribution warehouse that stores finished products made elsewhere, and we use gas-fired air conditioning to cool the space. Does that natural gas qualify for Texas's manufacturing utility tax exemption?
No. Cooling a warehouse that only stores already-finished products (not manufactured on site) is a taxable commercial use under Tax Code Section 151.317, not exempt processing. The exemption only cove…
Could a dissolving corporation claim the former enterprise-zone deduction on its final Texas franchise-tax report?
Yes, if the corporation maintained its Texas Department of Economic Development enterprise-project designation during the final report period. A December 31 dissolution produced a January 1-December 3…
We electronically scan our resale and exemption certificates instead of keeping paper copies. Does the Comptroller still require us to keep the original hard copies for audit purposes?
Generally yes for signature-bearing records — the Comptroller requires resale/exemption certificates and other documents requiring a signature to be kept in original or microfilmed form so the signatu…
We're adding a fourth floor to a 3-story building and need to modify the existing elevator to reach it. Is extending the elevator to the new floor new construction, and is modifying the existing elevator equipment in the first-floor shaft area new construction or taxable remodeling?
Split answer. Installing new elevator tracks and support structures on the brand-new fourth floor is new construction (not taxable). But adding or modifying equipment like jacks and pumps in the exist…
Our company provides a huge bundle of contracted facilities-management services to malls and shopping centers — janitorial, HVAC upkeep, roof/electrical/plumbing repair, painting, parking lot work, landscaping, equipment repair, snow removal, pest control, and more — all separately itemized on our invoices. Which of these services are taxable, and how do we handle sales tax on the supplies and parts we buy to perform them?
It splits into two legal categories with very different rules. Rule 3.356 "real property services" (janitorial/custodial work like restrooms, building lighting, landscaping, parking lot lights, snow r…
My client is an FAA/JAA-certified repair station that overhauls jet engines and other aircraft parts for commercial airlines and the military, using one shop with both engine and non-engine work happening under a single utility bill. Is the electricity and natural gas used there exempt?
Partially, and it depends on a predominant-use study. Natural gas and electricity used specifically in off-wing processing, overhaul, or repair of a jet engine (or its parts) for a certificated or lic…
Did subleasing office space create nexus and establish other-state taxability that prevented Texas throwback?
Yes. An investment company's sublease of former Texas office space was leasing Texas property and created nexus for taxable capital and earned surplus. In the separate throwback scenario, a Texas sell…
Did four New Mexico LLCs have Texas franchise-tax nexus when Texas-resident members performed administration, financing, and purchase decisions in Texas?
Yes. Although the four LLCs operated exclusively in New Mexico, had no Texas receipts, and were taxed under New Mexico law at the member level, their Texas-resident members performed administrative se…
Did a service member stationed in Germany qualify as a new Texas resident when bringing home a foreign-purchased vehicle?
No. A service member who maintained Texas as his home of record was not a new resident for this rule. The 1999 letter imposed ordinary use tax on a Texas resident's foreign-purchased vehicle brought i…
We lease Internet-access equipment (computers, modems, printers, etc.) to assisted care living facilities so residents can go online, charging a per-resident fee plus an installation fee. Do we owe sales tax on our charges to the facility, and can we buy the equipment tax-free for resale?
You collect Texas sales tax (8.25% in this case) on both the installation charge and the per-resident/monthly facility fee — but you don't owe any additional local tax for other cities/counties you de…
Our telecom company is leasing fiber-optic cable (which will run through conduit we own) from a leasing company, under a lease that says both parties intend the fiber to remain tangible personal property, is cancellable, and lets the leasing company repossess the fiber on default. We're having a third party install the leased fiber. How is the fiber classified for sales tax, and is the installation charge taxable?
The telecommunications fiber is classified as tangible personal property, not a real property improvement — based on the lease terms showing both parties intend it to stay personal property, the lesso…
I run a home-based S-corp doing computer animation and multimedia work for clients, using purchased computers, printers, scanners, and modems. Does my business qualify as tax-exempt, and can I buy my equipment tax-free?
Producing computer animation for sale counts as manufacturing, so equipment used ONLY to produce animated images that will be sold — computers, printing devices (including ink cartridges), and scanner…
I want to buy a complete coin-operated photo booth (camera, computer, and laser printer that produces a black-and-white photo on paper) and pay sales tax on the coin/bill income it generates instead. Does the booth itself qualify for a manufacturing exemption when I purchase it?
Yes. A complete coin-operated photo booth that produces/manufactures a printed photo qualifies for exemption from sales tax as manufacturing/processing equipment under the Sec. 151.318 manufacturing e…
My client publishes 10-20 page industry reports (mostly narrative articles, less than 10% statistics) by subscription, sent by mail, e-mail, Internet, or fax at varying frequencies. Do these qualify as nontaxable magazines, and does the delivery method or frequency change the answer?
No, they're not exempt magazines — they're a taxable information service, because the reports don't meet the Sec. 151.320(b) statutory definition of a magazine (a usually-paperbacked publication appea…
My company leases electronic radio tags that customers attach to expensive, theft-prone items, and I track those items by radio frequency within a service area if they're stolen. Am I subject to Texas telecommunications utility assessments, and do I owe sales tax on my tracking service?
You're not subject to the Universal Service Fund or Telecommunications Infrastructure Fund (TIF) assessments — those apply to carriers, not to a tracking service like this. But your tracking service m…
I build and host websites. A potential client (a for-profit business) is getting part of its website funded by a federal grant, and I'll be invoicing the grant administrator directly for 75% of the design cost, with the business itself paying the other 25% plus quarterly server hosting fees. How much of this do I charge Texas sales tax on?
Charges for website development and for hosting/storage are both subject to sales tax, and the full amount billed to the for-profit business is taxable — including its 25% share of design and the quar…
How were three tiers of related-party product sales sourced when Texas inventory was drop-shipped to U.S., Canadian, and overseas customers?
Each related entity transferring title for consideration recognized a gross receipt. Because the first two buyers did not take possession, the transactions were drop shipments and ultimate customer de…
My company processes prescription drug claims (all processing work done in Arizona) for both insurance carriers and self-insured employer plans, with members and carriers/plans located in different combinations of in-state and out-of-state. When is this claims-processing service subject to Texas sales tax?
It depends on two things: whether the coverage is a real insurance policy (versus a self-insured plan) and where the covered member lives — not on where your processing company is located. Processing …
I'm a home-based independent distributor for a direct sales company, and I believe I overpaid Texas sales tax on products I later shipped to out-of-state customers. The company told me to seek a refund directly from the Comptroller's office. Is that right, and how does the refund process actually work?
No, that's incorrect — you should request the refund from the direct sales company itself, not the Comptroller. The direct sales organization is the one required to collect and remit sales tax from it…
What records did a Texas selling dealer need to keep when a lessor, rental company, or dealer claimed a retired-vehicle fair market value deduction?
Section 152.063 required the sales invoice, payment instrument or cash receipt, and receipt for the title application and motor vehicle sales tax. No statute or formal rule required more, but the Comp…
How did Texas treat salvage-vehicle sales, late tax on vehicles brought into Texas, and new-resident claims by existing Texas residents?
The 1999 letter put unrepaired salvage-title, salvage-certificate, and insurer-total-loss vehicle sales under limited sales tax; after repair, later sales returned to motor vehicle tax. It required ou…
My firm sends technicians to cell tower sites to test antennas and transmission lines for radio frequency loss (using an electronic network analyzer), and we just report our findings to the carrier — we don't do any hands-on repair work. Is this testing service taxable in Texas?
No. Testing cell tower antennas and transmission lines to measure frequency loss, and simply reporting the findings to the carrier (with no hands-on repair or construction work performed by your firm)…
I sell rubber stamps as a distributor for a Utah-based direct sales (home-party) company that requires distributors to collect sales tax from customers on shipping charges. Is that correct, and does it matter whether I'm buying product to resell versus for my own use?
It depends on why the distributor is buying the product. When a direct sales company ships product directly to an end customer who ordered from a distributor, tax must be collected on the shipping cha…
My out-of-state mail-order/Internet client has no employees, salespeople, or locations in Texas, but plans to exhibit a booth (no sales, no installs) for about seven total hours at a one-time, four-day educational industry conference in Texas, and separately sells downloadable digital content (clipart, music, possibly software) to Texas customers online. We believe this limited, non-recurring conference display doesn't create substantial nexus under Quill and Complete Auto. Is that right?
No — the Comptroller found nexus on two independent grounds. First, based on prior Comptroller hearing precedent, even a single, non-recurring exhibit/display booth at an industry conference (with no …
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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.