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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Did a pickup with a hayloader mounted on a multipurpose flatbed qualify for Texas's farm-machine motor vehicle tax exemption?
No. Section 152.001(12) covered self-propelled vehicles specially adapted for crop production, livestock rearing, feedlots, or applying agricultural materials, but excluded vehicles designed or adapte…
A company hired me (a one-off contractor, not normally in this line of work) to design and develop custom software for a factory automation system. Do I need to charge Texas sales tax on this?
No, not if you're creating the program from scratch and transferring the exclusive rights to the program to your customer. Under Rule 3.308(b)(4), charges to create a program (or modify an existing on…
Homeowners in our area received FEMA disaster grants to repair their homes, and some are trying to buy materials tax-free by using their FEMA claim number as proof of a government exemption. Are these purchases actually exempt?
No. The purchases are taxable. Texas exempts purchases made by the U.S. Government and its agencies/instrumentalities themselves — but in this situation, FEMA is not the purchaser, the individual home…
Federal government employees use government-issued credit cards at our retail stores, and some refuse to fill out the state's Tax Exempt Certificate. Do we have to require the certificate anyway, should we photocopy the card, and what backup documentation do we need for an audit?
No separate Tax Exempt Certificate is required. If the charge slip or invoice you keep shows the statement "U.S. Govt. Tax Exempt," you may treat the purchase as tax exempt based on that alone. If the…
Two Texas banks want to outsource their 'live operator' telephone customer service reps to a third-party call center company, which will staff, train, and supervise operators who use a telephonic link into the banks' own data center to answer customer questions like account and loan balances. Is this outsourcing arrangement subject to Texas sales and use tax?
No. Providing live operators who access and relay a bank's own customer account information over the phone, under a service agreement where the call center company handles staffing, training, and supe…
My company provides a menu of services to cable TV companies building or rebuilding systems — map verification, base map development, field surveying, quality control, CAD digitizing, system design, plotting, make-ready surveying, subscriber audits, and system audits. Which of these are taxable, and does it matter whether I bundle them or bill them separately?
It depends entirely on WHO creates the underlying design and what your client is really purchasing. If you collect the field data yourself and produce an original engineering design using your own exp…
Could a Texas vehicle lender recover motor vehicle sales tax as a bad-debt refund after the customer defaulted on the loan?
No. Chapter 152 contained no bad-debt or similar provision available to the lender, so the Comptroller would not refund the motor vehicle sales tax after the customer's loan default.
A state university chartered a flight for its members. Since state agencies are exempt from Texas sales tax, does that exemption also cover the federal excise tax the airline would otherwise charge on the flight?
No. Texas does not impose any tax or fee on flights at all, so there's no Texas exemption question here in the first place — but the federal government DOES impose a 7.75% transportation excise tax on…
Our cemetery association has a federal 501(c)(13) income tax exemption and relies on donations to maintain the cemetery grounds. A firm sold us erosion-control matting tax-free and later asked for our state sales tax exemption certificate, but we don't have one. Can we get exempt status, retroactively if possible, to cover the tax on those materials?
Not for the materials. Texas has no sales tax exemption tied to a federal 501(c)(13) income tax exemption, so the association doesn't have blanket exempt status and can't retroactively wipe out tax on…
How did Texas distinguish a vehicle lease over 180 days from a rental under 180 days, and could a federal credit union buy the vehicle exempt?
For a single contract exceeding 180 days, the vehicle purchase was normally taxed and the lease contract was not. For a rental under 180 days, tax applied to the rental and the rental company could bu…
Were Texas electric cooperatives exempt from motor vehicle sales tax without using a particular type of license plate?
Yes. Cooperatives formed under the Electric Cooperative Corporation Act were exempt from motor vehicle sales tax, and no particular license plate was required. The 1999 letter also allowed recovery of…
An online textbook company (Varsitybooks.com) doesn't have a Texas office, but sends employees to visit a university co-op regularly, and also pays Texas college students on commission to recommend the site to friends. Does the company have to collect Texas sales tax on its sales to Texas customers?
Yes. Using the commissioned student representatives alone is enough to make the company "engaged in business" in Texas under Rule 3.286(G), which covers conducting business in the state through employ…
Did modifying a motorhome to restrain and carry a heart patient's oxygen equipment qualify for Texas's disability vehicle exemption?
No. The 1999 letter defined an orthopedically handicapped person as someone with limited movement of body extremities. It said the buyer did not appear to meet that definition and that modifying the m…
Our veterinary hospital buys large quantities of Dulbecco's Phosphate Buffered Saline to flush and transfer 7-day equine embryos from a donor mare to a surrogate mare (a well-established procedure called Equine Embryo Transfer). Is this product exempt from Texas sales tax?
Yes. Because the saline is used as a medium to transfer embryos between mares in a way that reduces disease transmission, it qualifies as a drug or medicine. Drugs and medicines dispensed by a license…
Did an Oregon equipment lessor have Texas franchise-tax nexus when its leased property was used by Texas lessees?
Yes. Although the Oregon corporation had no other physical presence or business activity in Texas and executed its operating leases under Oregon law, it retained ownership of equipment used by Texas l…
Could a qualified subchapter S subsidiary elect the federal-income-tax method for taxable capital even if it was not a close corporation and exceeded $1 million?
Yes. Section 171.113 allowed certain close corporations and S corporations to use the federal-income-tax accounting method instead of GAAP for taxable capital. Because the Comptroller already treated …
Who collected Texas motor vehicle tax when a business sold high-pressure cleaning equipment mounted on flatbed utility trailers?
The entire trailer-plus-equipment charge was subject to motor vehicle sales tax even when separately stated. Under the 1999 rules, a seller of at least five motor vehicles in 12 months needed a dealer…
Did a bank report mortgage loans and debt securities at gross sales price or net gain, including when inventory securities matured or were called?
Held-for-sale mortgage loans and debt securities were inventory and entered receipts at gross sales price; held-for-investment items entered only net gain. The January follow-up clarified that gross p…
We sell and install monuments, headstones, and cemetery benches that get bolted to concrete footings in burial plots. Do we charge our customers sales tax, or are we treated as a contractor who just pays tax on our own materials?
It depends on how you bill. If you charge a single lump-sum price covering both the item and its installation, you're a lump-sum contractor under Tax Code Sec. 151.056 — you pay tax on your own materi…
Did a company earn taxable Texas service income when it solicited beer orders for another corporation and received commissions?
Yes. The company solicited orders for Beck's beer, sent the orders to the manufacturer for processing and sale, and earned only a commission or fee. The Comptroller treated that solicitation for anoth…
How did Texas treat nexus and cash distributions when a REIT placed partnership interests into two wholly owned single-member LLCs?
The non-Texas LLC had no nexus if its only Texas connection was the partnership interest and it proved all activities it could perform occurred outside Texas. Both LLCs remained separate from their RE…
What federal taxable income did a non-U.S. corporation report on Texas Schedule B when it was not required to file a federal income-tax return?
None. Section 171.110(d) defined reportable federal taxable income by reference to federal taxable income computed under the Internal Revenue Code. If the non-U.S. corporation was not required to file…
Did a lease-contract broker create Texas franchise-tax nexus by hiring Texas agents to repossess and liquidate property after defaults?
Yes. The broker bought and resold short-term rights to lease cash flows and sometimes serviced contracts without owning the leased property. When defaults occurred, it hired Texas companies to reposse…
Could a single-owner LLC deduct the owner's one-half self-employment-tax deduction when computing taxable earned surplus?
No. Although the LLC was treated as a sole proprietorship for federal income tax, Texas treated the LLC itself as a taxable entity. Rule 3.562(f) required it to compute reportable federal taxable inco…
Is converting a Texas corporation into a partnership a taxable event for franchise tax, and does electing to be taxed as a corporation federally make the partnership taxable in Texas?
No to both. The Comptroller's Franchise Tax Administration Division approved a taxpayer's requested rulings that (1) if converting a Texas corporation into a partnership is not a taxable event for fed…
Did a treaty-country corporation with a Texas inventory warehouse owe earned-surplus tax when it filed no federal return and had no federal taxable income?
No earned-surplus tax, assuming the treaty meant the corporation filed no federal return and had no federal taxable income. The foreign corporation planned to establish a Texas inventory warehouse. Th…
Did Texas pass a law letting a corporation convert to a partnership to avoid franchise tax, and what are the franchise-tax consequences of such a conversion?
Partly true: a 1997 law created a 'conversion' transaction, and a corporation that converts to a Texas limited partnership does escape franchise tax at the partnership level — but the converting corpo…
My company contracts with insurance companies to review their claims data and identify overlooked reinsurance recoveries they're entitled to but haven't collected — we don't touch the original claims or the relationship between the insurer and the insured. Is this service subject to Texas sales tax?
Yes. Even though you don't affect the original claim or the insurer-insured relationship, reviewing claim data to determine whether an insurance company is eligible for reinsurance recovery benefits i…
Who reported oil-and-gas lease receipts after an unrecorded written transfer of all equitable and beneficial ownership rights?
The equitable or beneficial owner reported the receipts. Although legal title remained with the managing partner, the written transfer moved all rights, obligations, liabilities, benefits, and propert…
How did Texas tax trailers bought for 36-month operating leases, attached accessories, and a lessee's later balloon-payment purchase?
Trailers were motor vehicles, so the lessor paid motor vehicle sales tax when buying one for a 36-month operating lease. Accessories bought attached were included in that tax base; separately bought a…
Did a Texas professional association become subject to franchise tax because it elected federal S-corporation treatment?
No. The Comptroller looked to the entity's legal formation for Texas franchise-tax status. Assuming the entity was legally organized as a professional association under the Texas Business Corporation …
Two affiliated trucking companies want to consolidate payroll by having a third related company become the formal employer of all their employees, providing payroll and benefits for a management fee — essentially an employee leasing arrangement. Is the management fee subject to Texas sales tax as a data processing service, and does an intercorporate-affiliate exemption apply?
Payroll services are normally taxable as data processing services, but this arrangement looks like it falls under Rule 3.364's staff leasing services category instead — if the requirements of Rule 3.3…
We're restructuring ownership of several producing oil and gas leases (with production equipment already installed and in use) through a series of contributions between related companies, ending with a limited partnership selling the leases — always bundled with their production equipment, never separately — to outside purchasers for a lump sum. Are these sales subject to Texas sales/use tax?
No. None of the transactions are subject to sales tax. The true object of each sale from the limited partnership to a purchaser is the sale of a mineral lease — a nontaxable real property interest — w…
A 501(c)(3) nonprofit is accepting an assignment of a lump-sum general construction contract for a low-income housing project (financed through a partnership with for-profit limited partners who bought low-income housing tax credits), and will serve as the substituted general contractor using separated subcontracts. Can the nonprofit's subcontractors buy materials tax-free, can the nonprofit pass along exemption certificates to them, and who ultimately owes tax on the incorporated materials?
The nonprofit, as a lump-sum general contractor, is the consumer of all building materials and pays tax on them itself — no tax is collected from the project partnership on the lump-sum charge. Becaus…
When a corporation or LLC converts into a Texas limited partnership and the partnership sells its assets, who owes franchise tax, and what final filings are required?
The converting corporation files a final report; the resulting limited partnership and its sale gain owe no franchise tax, but a corporate or LLC general partner does. When a corporation (or LLC) conv…
We want to raise financing secured by five operating units within our petrochemical refinery, structured as a sale/leaseback: we'd transfer bare legal title to a lender trust and immediately lease the units back, keeping full operational control, maintenance responsibility, and a repurchase option, while continuing to own the land underneath. Is this transaction subject to Texas sales and use tax?
No. The transaction is a nontaxable financing arrangement using real property (and possibly substituted property) as collateral, not a taxable sale of tangible personal property. This holds even thoug…
Could a lease facilitator handle a lessee's trade-in without the dealer physically possessing the vehicle or title, and what records were required?
Yes. The dealer did not need physical possession of the trade-in, and an authorized lease facilitator could handle title documents under a vehicle-specific power of attorney. But the dealer's records …
Rule 3.288(f) says we can never accept a direct payment exemption certificate from a contractor performing a lump-sum contract, but Rule 3.357(b)(2) says the lump-sum-vs-separated distinction no longer matters for repair/remodeling/restoration work. Can we accept a direct pay certificate for repairing, remodeling, or restoring nonresidential real property under a lump-sum contract?
Yes. When you repair, remodel, or restore real property, you're acting as a taxable service provider rather than a "contractor" improving realty — so your total charge is taxable whether billed lump-s…
Could an oil and gas taxpayer use Rule 3.553 reserve methods for its full-cost pool, and when could proved producing reserves be used?
No. Rule 3.553's four reserve-estimation methods applied only to amortizing intangible drilling costs, not the full-cost pool including leasehold costs and equipment. The ad valorem method required ce…
Our contracts with the Texas Department of Transportation require us to build and equip a fully-equipped lab, for the exclusive use of State Engineers, at our own privately-owned hot-mix plant facility. Are the materials to build and equip that lab subject to Texas sales tax, even though the lab sits on our own private property?
No. Even though the lab is built at your privately-owned plant facility, materials to build and equip it may be purchased tax-free by giving your suppliers exemption certificates, because the lab is c…
Did Texas motor vehicle tax or limited sales tax apply to truck-mounted concrete pumps sold as a unit or installed on a customer's truck?
A heavy-duty truck and installed concrete pump sold together in one transaction were entirely subject to motor vehicle sales and use tax, with no portion under limited sales tax. If the seller sold on…
Our client sells nationwide Internet-based e-mail/fax subscriptions through a toll-free number, using hand-held devices manufactured overseas by OEMs (who license our client's audio-coupling software into the devices) and sold through unrelated third-party Texas retailers. Our client has no office or server in Texas. Does this create Texas sales tax nexus, is the e-mail/fax service itself taxable, and how do we figure out which local tax rate applies?
Yes, nexus exists, on two independent grounds: the client's licensed software resides in hand-held devices used by Texas customers (creating nexus in every local jurisdiction those devices are used), …
Are repair, refurbishing, and rebuilding services performed in Texas on equipment owned by a company with both Texas and Mexican maquiladora operations subject to Texas sales tax?
Depends on the equipment's own exemption status and where it's used, not on where the repair happens. A company with a Texas manufacturing/warehouse location and Mexican maquiladora operations (holdin…
Did buying raw agricultural materials in Texas and picking them up with company employees and a truck create franchise-tax nexus?
No. The client bought raw agricultural product from a Texas seller, sent three employees and a company truck from Missouri to pick it up, and hauled all of it to the Missouri processing plant. It owne…
Are purchases made by federal employees using government-issued charge cards (like GSA SmartPay/IMPAC or a Department of Interior MasterCard) exempt from Texas sales and use tax?
Yes, exempt, under a three-part test. This combined record includes a short November 1998 letter confirming that an earlier April 2, 1998 ruling extends to a new Department of the Interior MasterCard,…
A company lets customers come to its office to hold video conferences using its own equipment and phone lines, billing them for facility use plus re-billed long-distance charges. Is this equipment rental plus a telecom pass-through, or something else entirely for tax purposes -- and can the company buy its own phone service tax-free?
The company isn't renting equipment and separately re-billing phone charges -- it's providing a single taxable TELECOMMUNICATIONS SERVICE, and the ENTIRE charge to customers (facility/equipment use pl…
For a company that leases PCs and other equipment routed through Texas for tagging and staging before final delivery to offices in and out of Texas, is Texas sales tax due on equipment ultimately installed and used at out-of-state offices?
No Texas tax on the out-of-state-installed equipment -- correctly handled. A Texas-headquartered company leases computer equipment (including PCs) from an out-of-state lessor permitted to collect Texa…
Is a Texas travel group's lump-sum charge (event ticket plus hospitality access) for an out-of-state amusement event, like the Ryder Cup, subject to Texas sales tax?
No Texas sales tax is due. A group organized to attend the following year's Ryder Cup golf tournament in Massachusetts charged each member a lump-sum fee covering an event ticket and access to hospita…
For a software company that labels its programmers' department 'Research and Development,' does the computer equipment those programmers use to write mass-market software for sale qualify for the Texas manufacturing exemption?
Yes, exempt -- the department label doesn't control. A software company organizes development into marketing, research & development, and production departments, with the 'R&D' department's programmer…
Is a table whose sole purpose is to support an electric rotisserie or mixer exempt from Texas sales tax as manufacturing equipment?
Taxable. A business asked whether a table whose sole purpose is to support an electric rotisserie or mixer would be exempt as manufacturing equipment. The Comptroller said the table is taxable, citing…
Does a 'Vapor Scrubber' that controls pollution while a finished product is in storage (after manufacturing is complete) qualify for the Texas manufacturing pollution-control exemption?
No, not exempt (as of this 1998 letter, but see the currency alert below). Pollution control equipment located within the actual manufacturing process area still qualifies for the Tex. Tax Code Sec. 1…
Is a school choir's sale of 'Music Cards' -- which give the buyer a discount on future CD/audio tape purchases -- subject to Texas sales tax?
Not taxable -- the card itself is an intangible. A school choir contracted with a company to sell 'Music Cards' as a fundraiser: buyers pay a set price per card, the choir keeps a portion, and the car…
If a manufacturer generates its own electricity on-site using natural gas engine generators, does the natural gas used to make that electricity qualify for the same manufacturing sales tax exemption as purchased electricity?
Yes, exempt. A plastic injection molding company already had a sales tax exemption on purchased electricity (backed by an engineering study showing 95% use in the molding process) and planned to start…
For a fine-art and antiques handling company, which of its services (airport supervision, packaging/crating, moving, installation, and storage) are subject to Texas sales tax?
Mixed, service by service. A company that handles and stores fine art and antiques asked the Comptroller to confirm the taxability of five services. Airport supervision of art transfers is TAXABLE as …
Did a foreign corporation create Texas franchise-tax nexus when its only asset and activity was an interest in an LLC doing business in Texas?
No. The foreign corporation's sole asset was a membership interest in an LLC doing business in Texas, it conducted no other activity, and it had no Texas certificate of authority. The Comptroller conc…
Does a funeral home or cemetery need to charge sales tax on an outer-burial container sold as part of a preneed or at-need funeral contract?
Depends on whether services come with it. A funeral home or cemetery should NOT charge sales tax on an outer-burial container -- whether sold preneed or at-need -- if it also provides services like th…
Can a city split its taxable Solid Waste fee into a separate, untaxed 'Environmental Fee' covering community cleanup and environmental services?
No -- the whole fee stays taxable. A city proposed splitting its taxed Solid Waste fee into two components: a Waste Fee and a separate Solid Waste Environmental Fee (funding cleanup days, illegal-dump…
Did a licensed Texas emergency shelter qualify for the residential child-care motor vehicle sales tax exemption?
Yes. The Texas Department of Protective and Regulatory Services said a licensed emergency shelter qualified under the Human Resources Code to provide the described 24-hour residential care. The facili…
Is rebuilding the tee boxes on an existing golf course taxable remodeling, or nontaxable new construction, for Texas sales tax purposes?
Taxable remodeling, not new construction. A country club completely demolished and rebuilt the tee boxes on its golf course and asked whether that counted as nontaxable new construction since the tees…
Is a vacuum-truck company's charge for hauling and disposing of drilling mud and saltwater from oil and gas production wells subject to Texas sales tax?
No, not taxable. Hauling and disposal charges for waste are generally taxable real property services in Texas, but Rule 3.356(a)(3)(B) carves out materials resulting from oil, gas, or geothermal explo…
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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.