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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How did Texas tax a sole proprietor's motor vehicles leased to a corporation for more than 180 days versus rented for 180 days or less?
For one contract exceeding 180 days, the lessor's vehicle purchase was taxable and the lease payments were not, whether the vehicles had already been used or were newly bought for leasing. A contract …
A Texas company plans to resell satellite phone service (from a Netherlands provider, with ground stations in South America) to customers mostly based in Texas. What Texas taxes apply?
Sourced by where the call originates, not by billing address alone. A company planned to resell satellite phone service -- purchased from a Netherlands-based provider using ground stations in Venezuel…
Was a Texas motor vehicle rental exempt when the federal government or a federal employee traveling on official business rented the car?
Yes. The federal government and federal employees traveling on official business were exempt from Texas motor vehicle rental tax. The rental company was to have the renter complete a motor vehicle ren…
Did a homeowners' association qualify for the former Texas franchise-tax exemption when the development included commercial ranching property?
No. Section 171.082 required the development or project to be legally restricted to residential use. Because the development included commercial-use ranching property, the corporation did not qualify …
Were foreign military personnel attached to NATO exempt from Texas motor vehicle sales tax, and what proof supported a refund?
Yes. Foreign military personnel attached to NATO were exempt, and tax already paid was refundable. The requester had to provide the county title-application and tax receipt, identification showing NAT…
If an aircraft parts repair company does 90%+ of its work for licensed carriers but also repairs some pre-sale manufacturer components and used/military aircraft equipment, is the machinery and equipment it uses for ALL that repair work exempt from Texas sales and use tax?
Taxable -- the exemption requires EXCLUSIVE qualifying use, and this client doesn't have it. An aircraft parts repair company holding a Texas Direct Pay Permit does about 90% of its work repairing com…
Is an FDA-registered, prescription-only Vacuum Erection Technology (V.E.T.) system used to treat male impotence exempt from Texas sales tax when sold under a physician's prescription?
Exempt, when sold under a prescription. The V.E.T. (Vacuum Erection Technology) System is FDA-registered and sold only by prescription to treat male impotence. The Comptroller confirmed it qualifies a…
When a Texas company buys software hosted on an out-of-state server, with modification services performed partly in Texas and partly out of state, how is the license price and modification labor taxed based on where the licenses are used?
A layered answer that splits by delivery point, license location, and where labor happens. A Texas company (Company A) plans to buy software from an out-of-state vendor, installed on the vendor's serv…
Could an S corporation include capital losses, including excess losses after netting gains, in the former Texas earned-surplus calculation?
Yes. Rule 3.556(e)(9) included both capital gains and capital losses in the S corporation's federal-taxable-income and earned-surplus calculation. Gains and losses were netted, and any excess capital …
Can a direct-sales company reduce the sales tax it collects on prepaid discount vouchers to reflect that only about 1% of the vouchers are ever actually redeemed?
No. A direct-sales/multi-level-marketing company sells 'Discount Redemption Vouchers' to independent distributors, who resell them (often at a steep discount) to purchasers who can later redeem a vouc…
Is equipment or machinery that a contractor rents or leases to perform a realty-improvement job for a tax-exempt government or nonprofit entity itself exempt from Texas sales tax?
No -- machinery and equipment purchased, leased, or rented by a contractor is NEVER exempt, even on a job for a tax-exempt entity. A contractor was incorrectly told by another Comptroller staffer, cit…
Does the Texas sales tax definition of 'licensed practitioner of the healing arts' (the professional whose prescription can trigger a medical exemption) include nurses or licensed therapists?
No -- nurses and licensed therapists are excluded. A taxpayer asked the Comptroller for a clearer definition of 'licensed practitioner of the healing arts,' the category of professional whose prescrip…
Why did a 1998 Texas short-term motor vehicle rental carry a 15% total tax rate?
The letter attributed the 15% total to a 10% state tax on rentals of 30 days or less plus a 5% tax imposed by a redacted sports or community venue authority. The ruling body does not identify the loca…
Is a gas well foamer product ('soapsticks' or 'acidsticks') purchased by a well operator and injected downhole to stimulate gas flow subject to Texas sales tax?
Taxable. A well operator purchases a gas well foamer product (also called soapsticks or acidsticks) and injects it downhole to turn water blocking a low-pressure gas well into suds/bubbles, lowering w…
Did a Chapter 42 child-care license by itself qualify a Texas facility's van purchase for motor vehicle sales tax exemption?
No. A Chapter 42 license alone was not enough. The facility also had to qualify to provide the specified 24-hour residential care for children, including the described groups that did not need special…
Are parts and labor for a restaurant's fire suppression unit (attached to fryers and grills) exempt from Texas sales tax as manufacturing equipment?
It depends on exactly what the fire suppression unit is attached to. A restaurant was being billed for parts and labor on a fire suppression unit -- some units needed full replacement (not up to code)…
Is a garage or covered parking space that comes bundled into an apartment lease (with no separate parking charge) taxable as a 'motor vehicle parking and storage service'?
Yes, taxable -- and the Comptroller's position is reinforced by the legislative acceptance doctrine. An apartment owner argued that garages and covered parking bundled into a unit's lease (with no sep…
For a company with both Texas and California offices sharing software licenses across state lines (via servers in either state, or a single floating license), how is each scenario taxed by Texas?
Three separate scenarios, each turning on where the software was purchased and where it's actually used. SITUATION 1 (software delivered to and purchased in Texas, later a California license added): t…
Is sales tax due on merchandise (like employee-discounted logo shirts, or safety training videos/workbooks sold to dealers) even when it's sold below the seller's actual cost?
Yes, taxable on the actual price charged, regardless of the seller's cost. A company asked two questions: (1) whether it needs to charge tax when it sells company-logo golf shirts to employees at 15% …
Were oil-and-gas lease receipts partnership receipts when a corporation transferred title by executed but unrecorded documents and kept collecting payments as agent?
Yes. Properly executed transfer documents vested ownership of the oil-and-gas leases in the partnership for franchise-tax purposes even if they were not recorded. The corporate general partner could c…
Is sandblasting sand (or similar raw materials like rock, gravel, dirt) taxable when purchased, and does it matter whether the sand has been sorted, washed, or crushed?
Depends on whether the material is 'processed' -- and specifically, crushing or mixing is what triggers tax, not sorting or cleaning. This is a CORRECTED letter (the Comptroller's original August 7, 1…
Is a third-party restaurant delivery service's own delivery fee taxable, when the service isn't the seller of the food itself?
Not taxable -- because the delivery company isn't the seller of the food. This is a CORRECTED letter (the Comptroller withdrew an earlier August 11, 1998 response on the same question). A restaurant d…
Did Texas motor vehicle rental tax apply to airport franchise fees, separately stated insurance, and collision damage waiver charges?
The assumed airport franchise fee was the rental company's expense and part of the taxable rental price. A separately stated true insurance charge was not taxed. But a collision damage waiver was not …
Is drug testing/screening (pre-employment, random, or post-accident) subject to Texas sales tax?
Depends entirely on the PURPOSE of the screening, not the type. Drug screening is NOT taxable unless it's performed for insurance-related purposes. Pre-employment and random drug screenings are NOT ta…
Did a passive Delaware corporation owe Texas franchise tax because it held a Texas certificate of authority and had a Texas mailing address?
Yes. The corporation's only asset was a limited-partnership interest, and it had no employees, operations, or tangible property. Even so, Section 171.001 taxed a corporation authorized to do business …
Could a person who was already a Texas resident and also a resident of another state claim Texas's new-resident vehicle tax?
No. Although a person could be a resident of more than one state for this tax, someone already resident in Texas was not eligible for the new-resident provision. The letter identified registering to v…
Is a Texas-executed aircraft lease exempt from Texas sales tax when the lessee will fly the aircraft straight to Canada and operate it there as a commercial carrier, paying Canadian sales tax on entry?
Potentially exempt two different ways, but airworthiness/pilot paperwork alone doesn't prove it. An aircraft lease is executed in Texas; the lessee will fly the aircraft straight to Canada and operate…
Is a reclining chair with built-in massage and heating pads exempt from Texas sales tax when purchased with a doctor's prescription?
Exempt, but only with a proper prescription -- a standard recliner never qualifies. A reclining chair with built-in massage and heat pads qualifies as a therapeutic device and can be purchased tax-fre…
Can a cable/telecom subcontractor buy the cable and hardware it permanently installs inside customers' buildings (schools, apartments, offices) tax-free for resale, when the cable is billed as part of a taxable telecommunications/cable service rather than sold separately?
Depends on whether care, custody, and control of the cable transfers to the actual service customer -- a fact-specific, location-by-location test. A cable/telecom subcontractor installs fiber/coax cab…
What determined whether a service member bringing an overseas-purchased vehicle to Texas received ordinary use tax or new-resident treatment?
A service member with Texas as the home of record owed the ordinary use tax described in the letter. To receive the new-resident alternative, the title applicant had to be a new Texas resident and the…
How did a QSSS and parent S corporation report separately for the former Texas franchise tax, including parent investment and dividends?
The QSSS and parent were separate Texas taxpayers. The QSSS filed using its own income, deductions, assets, and liabilities, while Rule 3.556 computed earned surplus as if separate federal S-corporati…
Are materials used to repair and repave private streets owned by a homeowners association (built to city specs but never dedicated to the city) subject to Texas sales tax?
Materials are taxable; labor is not. A contractor repairs streets in a gated residential community that were built to city specifications and inspected/approved by the city, but were never actually de…
Are litigation-support services -- process serving, obtaining records via deposition on written questions, courthouse research, filing motions, taking witness statements, and appearing in court on an attorney's behalf -- subject to Texas sales tax?
Not taxable. A litigation-support company described seven categories of services it provides to attorneys and others: (1) obtaining and serving subpoenas/deposition subpoenas; (2) preparing and servin…
Is a 'Fastbreak Bar' meal-replacement snack bar exempt from Texas sales tax as a food product?
Exempt. A company's product (referred to as a Fastbreak Bar) is marketed and labeled as a meal replacement. Because of that marketing and labeling, the Comptroller confirmed the product is a nontaxabl…
Could a corporation deduct a federal net operating loss in Texas earned surplus, and how did the separate Texas business-loss carryforward work?
A federal net operating loss was not deductible because earned surplus began with federal taxable income before NOL deductions. Texas instead allowed a business loss—any negative amount after apportio…
Did Texas apply motor vehicle tax or limited sales tax to highway motorcycles, dirt bikes, and all-terrain vehicles?
A motorcycle designed for highway use was taxed under Chapter 152, with a qualifying motor vehicle trade-in reducing taxable value and dealer resale acquisition allowed tax-free. Dirt bikes and all-te…
After a midyear corporate buyout produced two federal short-period returns, did the acquired corporation file separate Texas franchise-tax reports?
No additional Texas reports were required. Assuming the acquired C corporation remained a separate legal entity doing business in Texas and continued its calendar year, both former tax components used…
When a company provides compressors to customers along with transportation, installation, and maintenance, is that a taxable rental of equipment or a nontaxable service?
A taxable equipment RENTAL, not a nontaxable service -- based on who bears care, custody, and control. A taxpayer asked the Comptroller to review two vendors' contracts (COMPANY A and COMPANY B) to de…
Is labor to install, upgrade, repair, or maintain computer hardware taxable in Texas -- and where can a computer repair business point skeptical customers for proof?
Taxable -- and the letter points to the exact rule text a business can show disputing customers. A computer repair business asked for documentation proving that labor/service charges for warranty upgr…
Could a Texas maquiladora exemption certificate be used to rent motor vehicles or trailers without motor vehicle rental tax?
No. The maquiladora exemption belonged to Chapter 151 limited sales tax, which generally covered tangible personal property other than motor vehicles. Chapter 152 governed motor vehicles and contained…
Is a motor vehicle rental tax-exempt when rented directly to a Texas agency or to a state employee on official business?
Direct rentals to a Texas state agency were exempt. STAR later superseded the letter's blanket denial for employee rentals: an employee on official business may issue an exemption certificate when the…
For an independent distributor of prepaid 'Discount Redemption Vouchers,' does the distributor need a sales tax permit, what's the tax base on non-fundraiser sales, and are fundraiser sales through booster clubs/churches/civic groups tax-exempt?
Three-part answer covering permits, tax base, and fundraiser exemption limits. An independent distributor purchases prepaid 'Discount Redemption Vouchers' from a direct-sales parent company (COMPANY A…
How did Texas tax an insurer-declared total-loss vehicle before repair and a later sale after the vehicle was repaired?
Before repair, a vehicle declared a total loss by an insurer was taxed under Chapter 151 limited sales tax rather than Chapter 152. After repair, later sales were again subject to motor vehicle sales …
When refinery units purchased from another company are dismantled and re-erected at a new location owned by the buyer, does incorporating them into realty count as nontaxable new construction or taxable remodeling?
New construction -- lump-sum labor charges are not taxable. A refinery operator bought refinery processing units from another company, planning to completely dismantle them, move them to a different l…
Can a multi-level-marketing company let its mall-kiosk distributors buy tax-free with a resale certificate, the way a home-based distributor can't?
Yes -- distributors with a real retail outlet (a store or kiosk) can get their own sales tax permit and use a resale certificate, unlike home-based distributors. A multi-level-marketing company sellin…
Does Texas sales tax apply to a sale-leaseback financing of pipeline separators and meters that stay attached to an existing pipeline?
No -- because the separators and meters are attached to and part of a transmission pipeline that Texas treats as real property, the sale-leaseback of them is a real-property transaction, not a taxable…
Does a Texas Water Control and Improvement District need a sales tax permit or number to buy things tax-free?
No -- a Water Control and Improvement District is exempt from Texas sales tax on its purchases as a political subdivision of the state, and it does not need a sales tax number to use an exemption cert…
Can I buy a mattress tax-free in Texas just by getting a doctor's prescription for it?
No -- a doctor's prescription alone doesn't make a mattress tax-exempt; the mattress itself must be specifically designed to alleviate pain or treat a medical condition, not just an ordinary mattress.…
How did the former Texas throwback rules treat out-of-state delivery to a Texas buyer, independent solicitation, and foreign-country sales?
Delivery to another state was non-Texas unless throwback applied, and the buyer's Texas incorporation did not change that. Independent solicitation in the destination state created taxable-capital nex…
Is engineering and design work for a piping-system prototype a taxable sale of tangible personal property, or a nontaxable professional service, in Texas?
Nontaxable services -- the design, engineering, and management charges are not taxable, though the company still owes tax on the materials and equipment it uses to build the prototype itself. An engin…
Is HVAC remodeling work on a leased Texas airport terminal exempt from sales tax, and does it matter who pays for it or whether the space is used by the public?
It depends on who's paying and who benefits: HVAC remodeling work in areas the public actually uses for air travel is exempt as repair/remodeling of public-use property, but work benefiting only priva…
Could a corporation amend its 1994 franchise-tax report to claim the temporary credit for sales tax paid on qualifying manufacturing equipment?
Yes, assuming the equipment qualified and the corporation had a valid filing extension. An amended report claiming the temporary credit could be filed within four years of the report due date, includi…
Did a domestic nonprofit corporation have to file and pay Texas franchise tax before the Comptroller approved its exemption?
Yes. Nonprofit formation alone did not create franchise-tax exemption. Sections 171.001 and 171.051, with Rule 3.541, required a domestic nonprofit corporation to apply and provide evidence of qualifi…
As an independent distributor for a direct-sales company, am I responsible for Texas sales tax if the parent company isn't collecting it?
The direct sales company itself is legally responsible for collecting and remitting the tax -- but if it fails to do so, the distributor may still owe the tax and can pay it directly to the state. An …
Is a manufacturer's own aluminum casting mold taxable, and does it matter whether the mold is separately billed or the customer owns it on paper?
As of October 1, 1997, the mold used to make these particular castings no longer qualifies for the manufacturing exemption -- but the answer depends heavily on the time period and on whether there's a…
Can a Texas farmer or rancher buy an advertising sign tax-free using a farm exemption certificate?
Yes -- a farmer or rancher can purchase a sign used to market their products (for example, a 'hay for sale' sign) tax-free by giving the seller an agricultural exemption certificate instead of paying …
Did filing a final federal return and liquidating operations dissolve a Texas corporation for franchise-tax purposes?
No. Although the corporation had liquidated two years earlier and filed a final 1996 federal return, Comptroller records still showed an active Texas charter. It remained responsible for franchise tax…
Was a for-profit corporation exempt from Texas franchise tax because it performed services formerly provided by government agencies?
No. Section 171.001 applied to corporations doing business or authorized in Texas, and the former law contained no exemption for a for-profit company performing services for federal, state, county, or…
Can a direct payment permit holder switch to a new inventory accounting system by depleting old tax-paid parts first (FIFO) before reporting tax on new usage?
No -- the Comptroller rejected the proposed First-In-First-Out (FIFO) transition method for depleting old tax-paid inventory before reporting new tax under a direct payment permit. A brewery with a di…
Did maintaining a company office in Texas create nexus for both former franchise-tax components?
Yes. Rule 3.546(c)(15) treated maintaining a Texas place of business as taxable-capital nexus. Rule 3.554(d)(18) treated an office paid for directly or indirectly by the company and formally attribute…
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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.