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 bank create former Texas franchise-tax nexus by leasing automobiles used in Texas, despite having no Texas real property, payroll, or active solicitation?
Yes. Leasing tangible personal property used in Texas created nexus for the lessor. The bank was subject to Texas franchise tax even though it had no Texas real property or payroll and did not activel…
What did Texas say about dealer tax collection, title-transfer duties, and documentary fees in 1997?
Section 152.0411 required dealers to collect motor vehicle sales tax. The letter understood the Transportation Code to require dealer handling of title transfer and registration and to permit a docume…
Is a manufacturer's purchase of reusable wood/metal shipping containers, plus the rings and fixtures used to secure product inside them, tax-exempt if the containers are returned and reused to move product between the manufacturer's own facilities? Is repair work on those containers exempt too?
No. Sales tax is due on the shipping containers, shipping rings, and shipping fixtures used to move product between the taxpayer's own facilities, and sales tax is also due on repair charges for those…
Is a consulting firm's service of physically inspecting a company's buildings, updating its CAD floor-plan/systems database, and maintaining cost-allocation codes for floor space subject to Texas sales tax?
No. All three parts of this consulting arrangement — (1) inspecting buildings and updating the floor-plan CAD database, (2) updating other building-systems layers (electrical, plumbing, etc.) in the s…
Is renting a race track to a professional driving school (to instruct drivers) or to race teams for practice sessions taxable as an amusement service?
No. The Comptroller reversed an earlier (October 29, 1997) letter that had said these track rentals were taxable. Renting the track to a driving school or to race teams for practice is not the provisi…
Is a $15 fee a business charges customers for a check returned due to insufficient funds subject to Texas sales tax as a debt/claim collection service?
No. There is no sales tax owed on charges by a bank, or by a business, for a returned/insufficient-funds check — the charge is an overdraft-type charge, not payment for a service performed for the cus…
An insurance agent also charges a separate hourly or flat fee to review a client's existing retirement and health plans and propose new plans. Is that consulting fee subject to Texas sales tax as a taxable insurance service?
No. Reviewing existing retirement/health plans and proposing new plans doesn't fall within the definition of taxable insurance services in Rule 3.355(a)(1) through (6) — the Comptroller found these ac…
Is the charge/fee to dispose of produced salt water (brine) from oil/gas exploration in a saltwater disposal well subject to Texas sales tax as a waste removal service?
No. Rule 3.356(a)(3)(B) excludes waste materials resulting from the exploration, development, or production of oil, gas, geothermal resources, or any other substance regulated by the Railroad Commissi…
Could a borrower claim a trade-in deduction after selling the old vehicle to the lender for the balloon-payment amount?
No. When the borrower sold the old vehicle to the lender for the balloon amount, that vehicle was not delivered to the new-car seller as consideration for the replacement purchase. A later purchase of…
Did a corporation need to file another public information report with its 1997 final franchise-tax report after filing one with its 1997 annual report?
No. Section 171.203(b) required the public information report once a year. Because the client had already filed a PIR with its 1997 annual franchise-tax report, it did not need another PIR with its 19…
For a contractor working on an exempt entity's job site: is a portable toilet rental tax-exempt because the contract requires it, and is the transportation/delivery charge for hauling dirt, sand, caliche, or rock to the site taxable?
Portable toilet rentals are NOT exempt, even when the contract with an exempt entity requires them — Sec. 151.311 only exempts tangible personal property incorporated into the realty or completely con…
An engineering/CAD services company asked about eight separate activities: (A) revising client drawings, (B) creating new designs, (C) scanning documents, (D) plotting, (E) computer consulting/installation/troubleshooting, (F) software training, (G) furnishing employees to clients, and (H) accepting direct pay permit numbers. Which of these are subject to Texas sales tax?
Mixed answers across all eight: (A)/(B) drafting FROM client-supplied specifications is taxable (a "draftsman" sale of tangible personal property), but genuine professional engineering — developing th…
Is a risk management consulting firm's fee-based work — exposure analysis, insurance program design/negotiation, policy review, claims reporting/management, due diligence, and statistical reporting — subject to Texas sales tax, even though the firm doesn't sell insurance or earn commissions?
Yes. Even though the firm is paid strictly in fees (no insurance sales, no commissions), its risk-management activities fall within taxable insurance inspection services (Rule 3.355(a)(2)) and insuran…
Who owed Texas use tax on an Oklahoma-leased vehicle operated in Texas, and what happened if the lessee later exercised the purchase option?
The Texas operator owed use tax calculated on the out-of-state lessor's purchase price; the lease contract itself was not taxed, and returning the vehicle produced no refund. Exercising the operating-…
Is a standard reclining chair exempt from Texas sales tax when purchased with a doctor's prescription for back support?
No. A reclining chair does not meet the definition of a therapeutic appliance or device (an item designed to alleviate pain or for use in treating/curing sickness, disease, suffering, or deformity) — …
Is replacing a race track's surface taxable real property repair/remodeling (labor and materials both taxable to the customer), or is it new construction (only materials taxed, to the contractor, under a lump-sum contract)?
It depends on the scope of work. Merely RESURFACING the existing track or a portion of it is real property repair or remodeling under Rule 3.357(a)(8) — the ENTIRE charge is taxable to the customer, a…
A building manager remodels office space (moving/removing walls, adding doors/locks, electrical work, carpet/paint) for a taxable tenant that subleases the space to a Texas state agency (TDH). Who pays sales tax on the remodeling — the building manager, the taxable tenant, or the exempt state agency — and does it matter that the state agency requested the work and is the primary beneficiary?
The remodeling charge is taxable in general, but WHO owes it depends on who is billed and who is the ultimate consumer. The building manager may issue the general contractor a resale certificate (sinc…
Are balloon angioplasty catheters and stents taxable when sold to doctors or hospitals, including when used in clinical studies, and what happens if they're sold together as a package?
Balloon angioplasty catheters are taxable when sold to doctors or hospitals, even for use in clinical studies. Stents are exempt as a prosthetic device under Rule 3.284(a)(10)(C). If the two are sold …
Were motorhomes and other qualifying recreational vehicles subject to the Harris County-Houston Sports Authority's short-term rental tax?
Yes. The Authority said motorhomes and other recreational vehicles fitting the quoted definition were self-propelled vehicles designed principally to transport people or property on public roads. Beca…
Which hearing-aid-related products (ear wax removal system, Eargene, dry aid kits/dehydrators, telephone foam pads, hearing aid batteries) are exempt from Texas sales tax, and does a prescription matter?
An ear wax removal system, Eargene (for itching), dry aid kits (dehydrators), and foam pads for the telephone are all exempt from Texas sales tax ONLY when sold to an individual WITH a doctor's prescr…
A financial-printing company itemizes typesetting, graphic design, proofing, alteration/correction, printing, and post-printing distribution/mailing/postage/storage services on customer bills. Which of these are taxable, and does separately stating them on the invoice change the answer?
Typesetting, graphic design, proofing, alteration/correction, and printing (items 1-5) are ALL taxable in total as charges for a printed item, whether billed as one price or separately. Mailing servic…
Is installing, monitoring, servicing, or repairing a burglar alarm/security system taxable as a security service, even if the system becomes part of a new-construction improvement to real property?
Yes. Installation of a security system is taxable if the installer is required to be licensed under the Private Investigators and Private Security Agencies Act, Sec. 13 — and the ENTIRE charge for sec…
A financial-document company converts customer documents into electronic format and transmits them to government regulatory agencies, and separately offers software and training so customers can format their own documents. Is the electronic formatting/transmission service taxable, does it matter if the customer is inside or outside Texas, and how is the software/training service taxed?
The electronic formatting service is taxable as data processing under Sec. 151.0035, and the transmission fee is part of its taxable sales price (Sec. 151.007(a)(2)). But Sec. 151.330(e) exempts servi…
Is an automated medication dispenser machine — leased to elderly patients with medication non-compliance problems, prescribed by their doctors — exempt from Texas sales tax?
No. The automated medication dispenser (a machine that organizes complex pill regimens, is lockable/tamper-proof, dispenses into a removable drawer, and has audio/visual reminders) is taxable — there …
Did an Arkansas seller create former Texas franchise-tax nexus when its Texas salesperson provided customer service and occasionally delivered small items?
Yes. The salesperson's Texas customer-service activity subjected the corporation to the former taxable-capital component. The salesperson's occasional deliveries went beyond protected solicitation und…
Did buyers owe Texas vehicle tax again after a dealer closed without remitting tax it had collected?
No, for sales on or after January 1, 1996, if the buyer documented payment of the required tax to the dealer. The title application and tax receipt were to show tax paid to the closed dealer but not r…
A distributor of trade show display booths sells, rents, ships, sets up, breaks down, and stores booths that travel to trade shows around the country. Depending on where a booth is first delivered/set up (Texas or out of state) and where it's later stored, which charges are taxable?
It all depends on where the booth FIRST goes after the sale. If the customer takes delivery out of state first, the initial sale and related charges are untaxed (though the customer owes Texas use tax…
Can a for-profit retail business legally sell raffle tickets to customers, with merchandise as the prize and the proceeds going into the business — and is there a sales tax angle regardless?
The Comptroller flagged a legality problem, not just a tax one: raffles are generally understood not to be legal in Texas except for certain nonprofit groups, so a for-profit business should check wit…
In a three-party drop-shipment chain (Seller Corp. sells to out-of-state Buyer Corp., but ships directly to Buyer Corp.'s Texas customer, Other Corp.), what documentation does Seller Corp. need to avoid collecting Texas tax, can it accept Buyer Corp.'s home-state resale certificate instead of a Texas one, and does an affidavit from Other Corp. (about tax it separately paid) relieve Seller Corp. of liability?
A valid resale certificate from Buyer Corp. relieves Seller Corp. of the duty to collect Texas tax — this certificate can be a Texas resale certificate, a multi-jurisdiction certificate, or Buyer Corp…
Is a membership-based press release distribution service — which edits members' news releases, reformats them in wire-service style, and electronically transmits them to media outlets — subject to Texas sales tax, even though it uses telecommunications and data processing to do it?
No. Editing, reformatting, and distributing press releases to media is not a taxable service — Rule 3.321(a)(5) specifically exempts public relations services, media placement services, creative conce…
How did Texas treat temporary paper license plates and window-tint stickers for sales tax, and what changed in 2025?
The temporary-paper-tag analysis is obsolete: House Bill 718 replaced dealer-issued temporary buyer, dealer, and converter tags with TxDMV metal plates on July 1, 2025. Historically, transferred red-l…
If software is purchased for use on a server located in Texas, is the purchase taxed as tangible personal property (with a multistate benefit-of-service allocation available), or as a data processing service?
The software purchase is taxable as tangible personal property (TPP), not as data processing — Tex. Tax Code Sec. 151.009 defines TPP to include a computer program. Because it's TPP rather than a serv…
For a race car owner: is a full sponsorship fee (sponsor gets exclusive use/decoration of the car for a year) taxable, is a partial sponsorship fee for just a decal taxable, is parking/storing other owners' race cars taxable, and must sales tax be charged on repair labor as well as parts?
A FULL sponsorship fee (exclusive use of the car for a year) is a taxable rental of the race car. Displaying a sponsor's DECAL alone (no other use of the car) is NOT a taxable service. A PARTIAL spons…
Did a corporation become subject to former Texas franchise tax by providing consulting services in Texas during 1994 and 1995?
Yes. Providing consulting services in Texas meant the corporation was doing business in the state under Section 171.001. If its Texas activity occurred only during 1994 and 1995, the letter said it wo…
Could a seller-financing dealer claim a Texas tax credit after selling a vehicle note to a bank and later repurchasing it under full recourse?
No. Selling the note to the bank made the remaining motor vehicle sales tax due. If the dealer later repurchased the note under the full-recourse agreement, the Tax Code provided no credit for that bu…
Is a natural gas line that fuels an underground farm irrigation system exempt from Texas sales tax as agricultural equipment?
Yes. The materials for a natural gas line used exclusively to fuel a qualifying underground irrigation system on a farm or ranch qualify for the agricultural exemption as a component part of that irri…
Could a corporation exclude accrued vacation reserves from taxable-capital surplus as debt when vacation would be paid at each employee's future pay rate?
No. Because vacation pay would be calculated at each employee's salary when the vacation was taken, the accrued amount was an estimate rather than a legally enforceable obligation measured in a certai…
Did an independent contractor living in Texas and taking sales orders create former franchise-tax nexus for a corporation with no Texas assets?
Yes. The Texas independent contractor created nexus and required franchise-tax reports even though the corporation had no Texas assets. The corporation was subject to the former taxable-capital compon…
How did a corporation apportion its share of a Texas partnership's receipts under the former taxable-capital and earned-surplus components?
For taxable capital, the corporation generally included its share of partnership net profit, although it could use its share of gross receipts if GAAP treated them as revenue. Net-method receipts were…
Could a Texas dealer charge a $50 documentary fee for handling title and registration, and when was the tax due?
Yes. The 1997 letter said a dealer could charge a $50 documentary fee when it handled the title application and registration. The dealer had to remit the tax within 20 days after the sale, and the Com…
When a single lump-sum construction contract covers both a tax-exempt city-owned building and a private, taxable hotel, how does a Texas contractor split the sales tax exemption?
The contractor owes sales tax on all purchases or rentals of tangible property and taxable services related to the privately-owned hotel, but may buy tax-free the incorporated materials, certain servi…
Is Texas sales tax due on the full price of an item, or the discounted price, when a customer redeems a manufacturer's cash-savings check at a retailer?
Sales tax is due only on the discounted price, not the full price. A $3.00 savings allowance check issued by a manufacturer and redeemed by a retailer toward a purchase is a discount coupon under Rule…
Can a contractor building an exempt government facility buy waste-hauling services tax-free when jobsite clean-up is required by the contract?
Yes. A contractor may issue an exemption certificate for waste removal services when improving realty for an exempt entity, if the contract specifically requires the contractor to remove the waste. He…
Does the federal preemption on local taxes for direct-to-home satellite TV programming also cover local sales tax on the satellite equipment itself?
No. The Telecommunications Act of 1996 preempts local taxing jurisdictions from imposing sales tax on direct-to-home satellite programming itself, but that preemption does NOT extend to sales of the s…
Is a wireless subscription background-music service (like Muzak) taxable, and how does that differ from installing a security alarm system?
A wireless subscription music service (like Muzak) — where the provider installs sound equipment, transmits music by subscription, and later removes the equipment when the subscription ends — is a non…
What franchise-tax filings were required after a corporation's Texas certificate of authority was forfeited and its account became inactive?
The Comptroller returned the submitted initial report because the corporation's franchise-tax account was inactive after its certificate of authority was forfeited. If it did business in Texas after J…
Is additional Texas motor vehicle tax due when an expired operating lease is replaced by another lease of the same vehicle?
No additional motor vehicle tax arose when the same lessor re-leased the same vehicle after an operating lease expired, even to a different lessee, because no new retail sale occurred. Other parts of …
Is a mobile chapel taxed as a mobile office or as a motor vehicle, and how does a church claim a sales tax exemption on it?
A mobile chapel meets the definition of a mobile office, not a motor vehicle, so it is taxed under the limited sales tax statute rather than motor vehicle tax. An exempt entity, like a qualifying chur…
Is wrapping/packaging material taxable when a retailer (not a manufacturer) buys it, and is sales tax due on prepaid telephone calling cards?
Both are taxable to the retailer. Tissue paper used to wrap items for sale and clear video cases are taxable purchases for a retailer — only manufacturers may claim the wrapping-and-packaging exemptio…
When an S corporation acquires a Texas limited partnership through general-partner and limited-partner LLCs, which entities owe Texas franchise tax?
Only the LLC acting as general partner owes franchise tax; the controlling S corporation and the limited-partner LLC do not. A Delaware S corporation planned to acquire a Texas mining limited partners…
Could an independent Texas dealer buy a new vehicle tax-free for resale and use a resale vehicle as a trade-in?
No. The letter said only a dealer authorized for that make could acquire the new vehicle tax-free for resale. An independent dealer owed tax on the new vehicle, and trading a used vehicle acquired tax…
When a Texas software company licenses a computer program and does custom programming, is out-of-state delivery exempt, and when is software consulting taxable?
A software license and related customization services delivered to a customer IN Texas are taxable, but the same software (including upgrades) shipped by the seller to a point OUTSIDE Texas is exempt …
Is an insurance agent fee charged under Texas Insurance Code Article 21.35B subject to Texas sales tax?
No. An agent fee authorized under Texas Insurance Code Article 21.35B — charged in connection with an insurance application or policy issuance, and not in lieu of a commission — is not subject to Texa…
Is a fee for producing a microwave path feasibility analysis report subject to Texas sales tax?
No. Charges for producing microwave path feasibility analysis reports — compiled from personal observation, computer tabulations, terrain profiles, mathematical data, CAD depictions, color photos, des…
How were dividends and interest, including income from federal obligations, treated under the former Texas franchise-tax components?
Taxable capital included dividends and interest, even federally tax-exempt interest, in surplus and everywhere receipts; Texas receipts depended on the payor's legal domicile. Earned surplus included …
Does natural gas used to maintain a pilot light on a chemical plant's flare stack qualify for the Texas manufacturing exemption, and is a predominant-use study needed?
Yes, the gas qualifies for the manufacturing exemption from sales tax. Because the gas runs through its own meter and is used only to maintain the flare stack's pilot light, no predominant-use study i…
Are shipping/handling charges and membership fees a direct-sales (multi-level marketing) company charges its independent distributors subject to Texas sales tax?
It depends on what's included. Shipping and handling charges for items sold to independent distributors for resale at the suggested retail price are not separately taxed (the cost is already baked int…
Does an oilfield waste bioremediation company owe sales tax on the treating agents, chemicals, and equipment it uses, and does it need to charge its clients sales tax?
The company does not charge its clients sales tax on the bioremediation service itself, and doesn't need a sales tax permit as a nontaxable-service provider. But the company must pay sales or use tax …
What taxable value applied when a Texas lessee exercised an operating-lease purchase option?
The taxable value was the amount the lessee paid the lessor—$5,000 in the example—regardless of market value. A later resale for a different amount did not change the buyout tax, and a lessor holding …
Was gain from selling subsidiary stock to an Ohio corporation a Texas receipt for former taxable-capital apportionment, and did a Section 338(h)(10) election change the result?
The gain was included in everywhere receipts but not Texas receipts because securities sales were sourced to the payor's legal domicile and the buyer was an Ohio corporation. The seller had to calcula…
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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.