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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If a Texas partnership elects to be taxed as a corporation federally, is it subject to franchise tax, and can a corporate general partner deduct the partnership's losses?
The partnership is still not subject to franchise tax, and the corporate general partner cannot use the partnership's losses. A Texas limited partnership elected under Treasury Regulation § 301.7701-3…
When a multi-level marketing company (MLMC) sells products to its own independent distributors for their personal use (not for resale), should it collect sales tax on the wholesale price the distributor actually pays, or the retail price?
The MLMC should collect tax on the amount it actually charges the distributor for personal-use purchases — not the retail price — but only if the distributor tells the MLMC at the time of ordering tha…
If a company becomes a co-plaintiff to help a plaintiff collect a court judgment, and its compensation comes out of the judgment itself rather than a separate invoiced fee, does Texas sales tax still apply to that arrangement?
Yes. Helping collect a delinquent debt or judgment is a taxable 'debt collection service' under Tax Code § 151.0036(a) and § 151.0101(a)(8), and the tax applies to whatever the company receives for th…
For an audio/visual system installer doing remodeling work, are separately stated engineering charges (system design, drawings, installation supervision) taxable when the engineering covers both the equipment itself and the ceiling wiring that connects it?
Split treatment applies. Engineering charges attributable to the equipment (which stays tangible personal property, not an improvement to realty) are part of the taxable sales price of the equipment a…
When a business refurbishes and resells used or repossessed manufactured homes — sometimes for itself, sometimes as a broker for a lending institution — how is Texas sales tax handled on the sale of the home itself and on the parts/materials/tools used to refurbish it?
Only the first sale of a new manufactured home into Texas (manufacturer to dealer) is taxable — resales of a used manufactured home are not. But parts and materials used to refurbish a home you buy an…
If a firm currently does nontaxable liquidation-related subcontracting work for Special Deputy Receivers of insolvent insurance companies, and plans to expand into marketing, reinsurance, and managerial consulting for insurance companies, will that new consulting work be subject to Texas sales tax?
Likely yes. Rule 3.355(a)(1)-(6) taxes insurance services performed pertaining to policies of insurance, and paragraphs (a)(4) and (a)(6) specifically include consultations. The Comptroller has alread…
A metal-failure-analysis forensic engineering firm that rarely works directly for insurance companies (mostly working for chemical plants/refineries, plaintiff attorneys, and defense attorneys) asks a detailed set of questions about exactly when its investigative work is taxable as an 'insurance service' — including cross-state cases where the incident, the client, or both are outside Texas.
Work performed directly for an insurance company is always taxable — collect tax automatically, no letter needed. For every other client (plaintiff attorneys, defense attorneys, direct corporate clien…
On a separated new-construction contract for an Enterprise Zone project, are a contractor's charges to the customer for its own equipment, rented equipment, equipment-with-operator, and profit markup taxable — and does the Enterprise Zone designation change any of this?
No special treatment applies just because the job is in an Enterprise Zone — the normal separated-new-construction rules apply. Charges the contractor bills the customer for its own equipment use, for…
Can a direct sales organization accept a resale certificate from one of its independent distributors, and does it matter whether that distributor works from home or runs a retail store/kiosk?
It depends on whether the distributor has a retail outlet. Home-based independent distributors are not issued Texas sales tax permits — the direct sales organization is treated as the retailer and mus…
Does a free-standing support bridge for hydrogen piping leading into a semiconductor cleanroom qualify for Texas's manufacturing equipment exemption, even though the bridge itself sits outside the cleanroom and isn't attached to the building?
Yes. The manufacturing exemption for cleanroom equipment covers piping and related equipment used in connection with manufacturing/processing/fabrication in the cleanroom, and that equipment does not …
Is the Texas Workers' Compensation Insurance Fund (successor to the Workers' Compensation Facility) exempt from sales tax on insurance services because it's a state-created entity?
No. Neither the Texas Insurance Code nor the Texas Tax Code exempts the Fund from sales tax, and Insurance Code § 12(c) actually requires the Fund to pay all taxes in the same manner as any other lice…
Do xerox-type copying machines used to sell copies as part of a commercial printing business qualify for Texas's manufacturing equipment exemption, and does it matter if the machines are acquired through a lease-purchase arrangement?
Yes to both. Copying machines used to produce copies sold as part of a commercial printing business qualify for the manufacturing exemption, and the exemption extends to leased equipment — the busines…
Is a scrap tire shredder's gate fee (charged to the hauler who brings in waste tires) taxable, and does it matter whether the shredded tire pieces end up in a landfill, get reused as landfill cover, go to a septic drain field, or get burned for energy recovery instead of a landfill?
Yes, the shredder's gate fee to accept tires from the hauler is taxable in all four scenarios — regardless of what ultimately happens to the shredded tire pieces (landfill burial, alternate daily cove…
Could a qualified Subchapter S subsidiary and its parent S corporation file one consolidated Texas franchise-tax report?
No. The QSSS and parent S corporation each had to file a separate franchise-tax report because Section 171.001(a)(1) imposed tax on each corporation and Rule 3.544(c) prohibited consolidated reporting…
Did a vehicle-loan co-signer owe Texas motor vehicle sales tax when the buyer defaulted and the co-signer paid the loan and took title?
Yes, assuming the person was only a co-signer rather than a co-borrower or co-purchaser. A true co-signer merely guaranteed the financing and was not an original purchaser or initially liable on the n…
Is a city's fee for accepting used tires at its 'landfill' taxable, when those tires are actually just stored there temporarily and then hauled away by a contractor to a different disposal site rather than being buried at the landfill itself?
Yes. Even though the site is called a landfill, functionally it's acting as a transfer station for the tires — they're staged there until there's enough volume, then hauled elsewhere for actual dispos…
Did a foreign corporation have Texas nexus because it was the general partner of a partnership doing business in Texas?
Yes. Although the foreign corporation described itself as a passive pass-through entity with no direct Texas business, its business questionnaire showed that it was general partner of a partnership do…
How did an LLC that elected out of federal partnership treatment compute earned surplus when members had different asset bases and depreciation methods?
It used a pro forma Form 1065. The LLC had to make the federal elections required of an LLC treated as a partnership and compute asset basis as though it had not elected out of partnership treatment. …
Is a stand-alone traffic-directing charge (by a police officer or valet parker) taxable in Texas, separate from any charge for parking or valet parking the vehicle?
No. Traffic directing provided on a truly 'stand alone' basis — with no connected parking or valet parking charge — is not taxable. It only becomes an issue if the traffic-directing charge is bundled …
How did Texas treat income from in-state and out-of-state municipal bonds under the 1998 franchise tax?
For taxable capital, municipal-bond revenue entered surplus and the gross-receipts factor. For earned surplus, bond income excluded from federal taxable income because it was exempt also stayed out of…
Did a Pennsylvania online retailer create Texas franchise-tax nexus by placing link and icon code on a Texas company's server and paying sales commissions?
No, on the stated facts. The retailer's own website, headquarters, offices, property, payroll, and representatives were outside Texas. A Texas online magazine displayed the retailer's link and buy-now…
Is drilling a rathole or mousehole (holes in the rig floor used to hold drill pipe and hoisting equipment during oil/gas well drilling) subject to Texas sales tax or the separate 2.42% oil well services tax?
No. Drilling a rathole or mousehole in preparation for drilling an oil or gas well is not subject to sales tax or the 2.42% oil well services tax. However, the company performing this nontaxable servi…
Could corporations claim a Texas franchise-tax manufacturing credit for sales taxes paid by a related partnership?
The Tax Policy Director said no. Texas consistently treated a partnership as an entity rather than an aggregate of its partners, and Section 171.0021's tax-credit language controlled even if an aggreg…
Is Texas sales tax due on a separately stated, refundable $10 deposit charged on a returnable pallet — whether the underlying product is sold to the end user or to a retailer for resale?
No. A refundable pallet deposit that is separately stated to the customer and identified as refundable is not subject to sales tax, whether the sale is to the end user (with tax charged on the product…
Did buyers have to pay Texas vehicle tax again when a failed dealer collected the tax but did not remit it or transfer title?
No, when evidence showed the purchaser had paid the dealer. If the dealer was no longer in business and failed to transfer title or remit the tax, the buyer's documented payment prevented a second col…
Did on-site Texas software training create nexus for both the service subcontractor and the software company promising the training?
Yes. Corporation A provided on-site training and consulting in Texas, creating nexus under Rule 3.546(c)(2), whether it used its own staff or subcontractors. Corporation B also had nexus when its cust…
Under the 1998 physical-presence nexus test, did an out-of-state internet retailer create Texas sales tax nexus merely because its website was linked from an unrelated third party's website that happened to be hosted on a server located in Texas — and is that charge for maintaining the link itself taxable?
Under the physical-presence rule this 1998 letter applied, no — a retailer with no physical presence in Texas, taking orders through an out-of-state server, did not have Texas sales tax nexus just bec…
Could a C corporation inherit an LLC's franchise-tax credits or business loss when the LLC merged into it?
No. Franchise-tax credits could not transfer from one corporation or LLC to another through merger for either former tax component, and the survivor could not use the nonsurvivor's business loss in co…
Is a restaurant's fryer filter machine — which cleans and recirculates shortening/oil so it can keep frying food — exempt from Texas sales tax as manufacturing equipment?
It depends on the date. Before October 1, 1997, the filter machine, its parts/accessories, and repair labor were exempt because the shortening it processed became part of the fried product. Effective …
Are a professional recruiting firm's placement fees, and its separate contract-labor billings for secretarial/consulting help, subject to Texas sales tax?
Placement fees for recruiting are not taxable. Contract labor billings may be taxable, though, depending on whether the arrangement qualifies as an exempt 'employee' or 'temporary help service' under …
Is a remanufactured drilling rig, built exclusively for use by a foreign customer, exempt from Texas sales tax if it's stored in Texas for up to six months after completion while the customer decides on its foreign destination?
No. Sales tax is due when title transfers at completion. Because the customer plans to store the rig until needed rather than remove it forthwith, the rig can't be treated as for exclusive use outside…
If a company designs its products, buys the raw materials and packaging, and controls production, but has a third-party subcontractor actually assemble the goods, can the company still buy its packaging materials tax-free as a manufacturer?
Yes. Because the company designs the product, supplies the raw materials and packaging, and controls the production process — even though a subcontractor's employees do the physical assembly — the Com…
What did a September 1, 1997 Texas law change do to dealer tax collection on motor vehicles over 11,000 pounds?
The letter said dealers were no longer required to collect motor vehicle sales tax on units with gross weight over 11,000 pounds, effective September 1, 1997. It believed the separate Transportation C…
When a hotel — building, land, and all its furnishings (artwork, silverware, linens) — is sold for one lump-sum price and then immediately leased back out as a hotel for a single lease amount, is any of that subject to Texas sales tax? What about tangible property a partner trades with the partnership before the sale closes?
The lump-sum sale and the lump-sum leaseback are both treated as real property transactions and are not subject to Texas sales or use tax — the furnishings are incidental to the realty (and the sale m…
How did Texas's child-care licensing agency describe an emergency shelter for purposes of the Comptroller's residential child-care vehicle exemption analysis?
The licensing agency explained that a Chapter 42 emergency shelter was a residential child-care facility licensed for 24-hour care and could serve children with no special needs, emotional disturbance…
Did a qualified Subchapter S subsidiary file separately from its parent, and how did it compute taxable earned surplus?
The QSSS and its parent S corporation had to file separate franchise-tax reports because Section 171.001 taxed each corporation and Rule 3.544(c) barred consolidated reporting. But the Comptroller did…
Is the sale of software source code exempt from Texas sales tax when the buyer will fold it into another software program and resell the combined product?
Yes. Because the source code becomes a component part of another software program that will be sold at retail, the seller may accept an exemption certificate under Rule 3.300(d)(2) instead of collecti…
Is a DEXA (dual energy x-ray absorptiometer) machine, used by a doctor to diagnose osteoporosis and measure bone mineral density, exempt from Texas sales tax as an orthopedic appliance?
No. A doctor must pay sales tax on a DEXA machine and cannot issue an exemption certificate for it under Rule 3.284(a)(9), because the orthopedic appliance exemption covers devices used to correct or …
Was a vehicle transfer to an investor lessor followed by a required end-of-term repurchase a nontaxable sale-leaseback financing arrangement?
Yes. Because the initial lessor was required to repurchase the vehicles at the end of the lease, the contract qualified as a conditional sale or lease-purchase agreement and the overall transfer was a…
Did six single-member Texas LLCs treated as divisions of a Colorado corporation file separately, and did ownership alone tax the parent?
Each Texas-organized LLC had to file its own franchise-tax report even though federal law treated all six as divisions of their sole corporate member; consolidated or combined reporting was not allowe…
Which Texas agency handled used auto dealer licensing in 1997, and did a seller-financing dealer also need a Comptroller tax permit?
The Texas Department of Transportation's Motor Vehicle Division handled used auto dealer licensing. A dealer that financed the motor vehicles it sold also needed a tax permit from the Comptroller and …
Are fees paid to a third-party adjusting company that inspects plumbing damage claims and coordinates repairs under a national class action settlement taxable 'insurance services' in Texas?
No. Because the adjusting company's services are performed under a court-supervised class action Settlement Agreement rather than under an insurance policy, they don't count as taxable insurance servi…
How were zero Texas receipts, an apportionment ratio over 100%, and weekend due dates handled on 1997 Texas franchise-tax reports?
On Form 05-147, zero Texas gross receipts meant entering zero in Item 23 and leaving lines 17-22 blank. Texas receipts could not exceed receipts everywhere, so the apportionment factor could not excee…
Is a charge for training customers on how to use software subject to Texas sales tax?
It depends on whether the training is bundled with the sale of the software or billed separately. Training provided in connection with the sale of the product is part of the taxable sales price under …
How did a same-day multi-entity restructuring affect OldSub's final report, business-loss carryforward, merger credit, and transitory subsidiaries?
OldSub had to file a final report and could use its existing business-loss carryforward against its own final taxable earned surplus. Any remaining loss disappeared and did not transfer to NewSub2. Ne…
Are the dies a printer uses for diecutting, foil stamping, embossing, and engraving exempt from Texas sales tax as manufacturing equipment, regardless of how long the dies last?
Yes. Diecutting, foil stamping, embossing, and engraving are processing activities, so dies used in them are exempt as accessories to exempt processing equipment under Rule 3.300 — with no requirement…
Could an S corporation using the federal-income-tax method value a management contract at zero for taxable-capital surplus when its balance sheet showed $2 million?
Only with documentation. The balance sheet's $2 million value appeared to be the asset's cost unless the corporation proved that the management contract had zero federal-income-tax value when recogniz…
Are a company's natural gas meter chart calculation, chart audit, consulting, and training services taxable as data processing, given that a computer is used to help calculate the final figures?
No. After an on-site audit review, the Comptroller reversed its earlier position: chart calculations, chart audits, consulting, and training are not taxable data processing services because they depen…
Did Texas's 1997 sports-arena car-rental tax exemption apply when a state agency was billed directly, and what if an employee used a personal charge card?
A state agency was exempt when billed directly because the new venue-tax statute incorporated Chapter 152's public-agency rental exemption. The letter found no exemption for an individual state employ…
Can a general contractor holding an owner's direct payment permit pass that permit or exemption certificate on to its subcontractors and vendors?
No. A direct payment certificate is nontransferable — only the permit holder named on it may issue it. The general contractor that receives it from the owner uses its own resale certificate when buyin…
How did a federal Section 338(h)(10) stock acquisition affect the target's former Texas earned-surplus and taxable-capital franchise-tax calculations?
For the former earned-surplus component, the target included the Section 338(h)(10) deemed asset-sale amounts and apportioned receipts according to the assets sold. Texas did not recognize the electio…
When rebuilding fire-damaged spaces in a strip center — where two spaces will have all walls and the roof replaced, leaving only the foundation — is the work taxable nonresidential repair, or untaxed new construction?
It depends on whether the spaces share a common foundation, wall, or roof with the rest of the complex. If they do, replacing the walls and roof is still nonresidential real property repair and remode…
Can a property management company buy materials and services tax-free on behalf of an exempt entity it manages property for, and from what date does that entity's tax exemption take effect?
A property management company acting as the exempt entity's designated agent under a written management agreement may issue exemption certificates on the entity's behalf, and the entity's exemption ap…
Could a dealer buy new medium-duty Chevrolet trucks tax-free for resale when its law and franchise agreement did not authorize it to sell them as new?
No. Under the recent legislative change described in the letter, only a dealer authorized by both law and franchise agreement to offer the particular vehicle as new could acquire it tax-free for resal…
Is a county's fee for letting the public access county documents and records through a computer link a taxable information service in Texas?
No. Rule 3.342(d)(3) excludes information that must be furnished under the Texas Public Information (Open Records) Act, Government Code § 552, from the definition of a taxable information service — so…
Were an S corporation and its wholly owned qualified subchapter S subsidiary treated as one taxpayer or as separate corporations for former Texas franchise tax?
They were separate Texas franchise-tax entities even though federal income-tax law treated the QSSS as a division of its S-corporation parent. Section 171.001 imposed tax on each corporation, and Rule…
Is a country club's optional 'buyer's club' membership fee (which gives members a discount on Pro Shop purchases) subject to Texas amusement services sales tax?
Yes. The buyer's club membership fee is taxable as an amusement service because Rule 3.298(b) taxes fees charged for a special privilege, status, or membership classification in a private club — and t…
Did Texas impose more tax when a tax-paid vehicle was re-leased, and what happened when an out-of-state leased vehicle was brought into Texas?
Re-leasing a vehicle whose lessor had already paid Texas tax caused no additional motor vehicle tax because the lessor's purchase, not the lease, was taxable. An out-of-state vehicle brought into Texa…
Is an extended warranty/service contract on residential real property taxable in Texas?
Generally no — an extended warranty on existing residential real property is not taxable in Texas. But there are exceptions: an extended warranty tied to a pest control service, or to repair/remodelin…
For a company that prewires new homes for audio/video and security systems, sells stereo equipment after the builder sells the house, and installs and monitors security systems: what's taxable, and does prewiring alone count as a security service or as ordinary contractor work?
It depends what's bundled together. Prewiring ALONE (before any keypad/alarm equipment goes in) is treated under the ordinary contractor rule (Rule 3.291) — materials taxable, labor not, depending on …
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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.