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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For an internet service provider selling email, web hosting, CGI access, secure server access, and disk space, which charges are taxable Texas data processing/telecommunications services, and is an out-of-state customer's billing address enough to avoid Texas tax?
It splits by service type. EMAIL is a telecommunications service, and telecommunications services that originate outside Texas are not subject to Texas sales tax. WEB HOSTING, CGI access, secure serve…
A 1997 law change removed the private-investigator license requirement for obtaining public records as of September 1, 1997 -- does that also make a pre-employment background screening service tax-exempt after that date?
No. The 75th Legislature's amendment to the Private Investigators and Private Securities Agency Act (Article 4413(29bb), § 3(a)) removed the licensing requirement for obtaining information classified …
A mobile MRI provider believed its own arrangement with medical providers was a taxable equipment lease/rental -- but is furnishing a mobile MRI unit with a technician and full operational support actually a taxable lease, or a nontaxable medical service?
Contrary to what the company itself argued, this is a NONTAXABLE medical service, not a taxable equipment lease/rental. Rule 3.294(c)(2) presumes that furnishing tangible personal property WITH an ope…
When a seismic-data library company sells exempt geophysical information but separately bills for copying it onto tapes, the tapes themselves, and shipping, are those add-on charges also covered by the geophysical-services tax exemption?
Yes for the customer's price, but the provider still pays tax on its own supplies. The sale of nontaxable geophysical/seismic data under Rule 3.342(d)(2) includes the tapes in its sales price, so the …
Does a motel's hotel occupancy tax reporting (showing how many room-nights were long-term stays) have to match, or can it be used to second-guess, the motel's separate claim that over 50% of its gas/electricity usage is residential for sales tax exemption purposes?
No, the two don't have to match, because they're governed by different statutes measuring different things. Under Tex. Tax Code § 151.054(c), a utility seller is relieved of tax liability if it accept…
Can a customer who rents an aircraft in Texas and flies it out of state sign a Texas Aircraft Exemption Certificate, Out-Of-State Registration and Use, to avoid paying sales tax on the rental?
No. Tax Code § 151.328(a)(4) exempts aircraft SOLD for use and registration in another state or nation, before any use in Texas beyond flight training and transporting the aircraft out of state -- but…
When a homeowner buys a pest/termite warranty from a warranty company, and later pays a trade fee (deductible) directly to the pest control company doing the actual work, who owes sales tax on what -- the initial warranty fee, the deductible, and the warranty company's pass-through payment to the pest control company?
It splits by who pays whom. The pest control company may accept a resale certificate from the warranty company instead of collecting tax on services it bills to the warranty company (since the warrant…
Is labor to mow, weed, edge, and trim cemetery grounds taxed the same way as ordinary residential/commercial lawn care in Texas?
No -- cemetery grounds maintenance labor is treated differently from ordinary lawn care. Building and grounds keeping, landscaping, and lawn maintenance services are generally taxable real property se…
Is installing a permanent, built-into-the-eaves insecticide spray system in a home a taxable real property service, and is the concentrate insecticide refill taxable too?
Both the installation and the insecticide refills are taxable, though the installation's tax treatment depends on which framework applies. If installing the permanently-mounted insecticide spray unit …
In a janitorial cost-plus contract where the vendor buys and amortizes cleaning equipment over three years but the equipment stays at the customer's site under the customer's access and risk of loss, should the vendor pay tax on the equipment itself, or collect tax on the amortized charge to the customer?
The vendor should collect tax on its total charge (including the separately stated amortized equipment cost) to the customer, rather than paying tax itself when purchasing the equipment -- because und…
Did a Section 332 liquidation create former Texas earned surplus or receipts for the parent or subsidiary?
No. Based on the Comptroller's understanding of Sections 332 and 337(a), the parent excluded the deferred gain from former earned surplus and receipts because it was not federal taxable income or fede…
Could a Texas corporation transfer vehicles tax-free to a newly formed LLC for only a membership interest?
Yes, if ownership did not change, the LLC continued the same business, and the corporation received only a membership interest. Sales and gift tax did not apply. Debt forgiveness, debt assumption, or …
After Texas's scrap tire recycling program was set to expire, an industry association planned to keep charging the same amount but rename it a 'disposal fee' -- would that renamed fee still be taxable as part of the price of a tire?
Yes, the renamed 'disposal fee' is still taxable as part of the sales price of the tire. Tax Code § 151.007(a)(2) defines the sales price of a taxable item as the total amount the item is sold for, wi…
Did a Texas lessee owe tax again when buying a vehicle from the lessor at the end of an operating lease?
Yes. The lessor's original purchase was the first taxable transaction, even if the lessee paid that tax for the lessor. The lessee's later operating-lease buyout was a second taxable sale, and tax app…
A semiconductor fabrication EQUIPMENT manufacturer uses various gases to test and clean its machines in a cleanroom, then packages the finished machines for shipping -- are the test/clean gases exempt, does the packaging materials exemption apply, and does the broader cleanroom exemption for semiconductor manufacturing cover this manufacturer's own cleanroom?
It splits by step. The gases used in steps 1 through 5 (vacuum leak testing, flow regulation testing, characterization testing, marathon reliability testing, and purge cleaning) -- all performed BEFOR…
Is the fee a wood-products manufacturer charges a land-clearing contractor to remove and process cleared trees/wood taxable, and does it matter whether the land is for new residential construction or where the wood is actually processed?
Generally taxable, with a residential-construction exception. The fee a wood-products manufacturer bills a land-clearing contractor to remove trees/wood materials is taxable as a real property service…
How did a parent LLC account for an investment in a subsidiary LLC under the former Texas franchise tax?
Texas treated an LLC as a corporation for the former franchise tax. A parent LLC used the cost method for its subsidiary investment under the taxable-capital component. For earned surplus, it excluded…
Is an independent insurance/risk-management consultant -- who reviews clients' insurance policies for coverage adequacy and risk retention -- required to hold a sales tax permit and charge sales tax, even though the consultant doesn't think this work fits within the tax code?
Yes -- services provided by risk managers are taxable, and risk managers must apply for a sales tax permit and collect sales tax on their service charges. The taxpayer, newly self-employed reviewing c…
Does a mold or die used to make wax patterns (which are then used to cast metal parts for resale) qualify for Texas's manufacturing exemption if it has a useful life longer than six months?
Yes, exempt -- and useful life is no longer the deciding factor for items purchased after January 1, 1995. Molds, dies, and patterns used by a manufacturer qualify for the manufacturing exemption rega…
Does Section 151.353's court reporting services exemption cover the transcription of depositions even when performed by someone other than the licensed court reporter who took the deposition, and is medical dictation transcription taxable?
The transcription is exempt ONLY if performed by a licensed court reporter as part of court reporting services under § 151.353(b) -- the exemption doesn't extend more broadly to transcription work per…
Which interstate trucks and trailers qualified for Texas motor vehicle tax exemption beginning September 1, 1997?
Beginning September 1, 1997, qualifying interstate trucks and trailers of the size and weight eligible for International Registration Plan plates were exempt. A Texas-plated tractor or truck needed ap…
A joint venture bills an insurance company a single charge covering many different accounting/administrative functions -- some classified as taxable insurance services, others as taxable data processing, and some seemingly nontaxable -- does the 5% threshold for taxing an entire bundled charge apply function-by-function, or to the whole contract?
The 5% guideline applies to the AGGREGATE of all taxable services performed under the contract, not separately to each type of taxable service. Citing Hearing 30,261, the Comptroller classified severa…
If a company guts a previously-occupied shopping center down to a shell and does finish-out work to prepare it for new tenants, is that finish-out taxed as nontaxable new construction (like a brand-new building's initial finish-out), or as taxable remodeling?
It's taxable remodeling, not exempt new construction. Rule 3.357(a)(5)'s definition of "new construction" includes the INITIAL finish-out work of a structure -- but that exemption applies only to a st…
Are ATM transaction fees, home banking service fees, pay-by-phone charges, and free software given to bank customers taxable in Texas -- for both a bank's own customers and non-customers using its ATMs?
None of these banking fees are taxable to the customer -- because Tax Code § 151.0101 lists only fifteen specific taxable services, and "banking services" is not one of them. This covers: (1) free sof…
How did Texas treat a Nevada loan-participation subsidiary, its Texas nexus, and dividends paid to a Texas bank?
On the original facts, Texas found the Nevada subsidiary had nexus because the Texas bank and other Texas servicers performed services for it. Dividends formally declared from earnings were respected;…
A contractor building a new manufacturing plant under a lump-sum contract asked a comprehensive set of questions: who can issue manufacturing exemption certificates, how lump-sum vs. separated contracts are taxed differently, what a direct payment permit is, and what Texas's sales tax rate and permit procedures are -- what's the full picture?
This letter is a comprehensive contractor tax primer. (1) Only the MANUFACTURER itself -- never a contractor or subcontractor -- may issue an exemption certificate for qualifying manufacturing machine…
A GPS vehicle-tracking company runs a test program with an insurance company, paying the cellular carrier directly and then allocating/re-billing the charges to the insurer and individual drivers at cost with no markup -- is this a nontaxable reimbursement, or does it make the tracking company a taxable cellular service reseller subject to security-service tax and the Telecommunications Infrastructure Fund (TIF) assessment?
Neither "reimbursement" nor "resale" was quite the right frame -- the underlying service itself is taxable. The company's core offering (GPS tracking with electronic tracking of a vehicle's location, …
Does a country club housed in a building bearing a Texas Historical Commission marker qualify for the sales tax exemption on amusement services (dues/initiation fees) available to a Recorded Texas Historic Landmark?
No -- the club's building does not qualify. Rule 3.298(g)(1)(F) exempts amusement services (like a country club's dues and initiation fees) only when provided exclusively in a place designated as a "R…
When one lump-sum contract adds new square footage onto two existing, partially-demolished buildings while also redoing their remaining structures, how should the new-addition work be split from the remodeling work for sales tax purposes?
The contract must clearly separate the two categories, because they're taxed differently. Work on the existing building slabs -- including new siding, new fronts, and the plumbing/electrical/HVAC serv…
How did Texas tax a vehicle brought into the state by a new resident in 1997?
Historically, Texas generally charged a new resident a flat $15 instead of the 6.25% sales or use tax if the vehicle had first been registered to that resident elsewhere. New and used vehicles otherwi…
Are crew uniforms and their monthly cleaning exempt from Texas sales tax when purchased for the crew of a ship operating in interstate coastal commerce?
No. Crew uniforms and the monthly cleaning of those uniforms do not qualify for the Tax Code § 151.329 exemption for machinery, equipment, and consumable items used to operate certain ships and vessel…
When a Texas printer/fulfillment house mails direct-mail advertising for an out-of-state customer to addresses both inside and outside Texas, how much of the charge is subject to Texas sales tax?
Only the pieces mailed to Texas addresses are subject to Texas tax; pieces mailed by the third-party mailer to addresses outside Texas are not taxed, even though the seller (a Texas business) billed a…
Did a foreign corporation create Texas franchise-tax nexus by serving as general partner of Texas limited partnerships?
Yes. Assuming the three limited partnerships did business in Texas, the California corporation's role as their general partner created Texas nexus under the former franchise tax. It had to file an ini…
How did Texas tax a concrete pump bought with a truck, bought separately, or leased with the truck?
A one-vendor purchase of a truck with the pump attached was fully subject to motor vehicle tax. If the chassis and pump came from separate vendors, the chassis was subject to motor vehicle tax and the…
If Texas adopted the 1996 Internal Revenue Code definition, would 1997 federal changes count when determining S-corporation status?
Conditionally, yes. The Comptroller said that if pending legislation changed Texas's statutory IRC definition to the Code in effect for 1996, provisions specified in that Code but effective in 1997 wo…
If a lessor leases a building along with tangible personal property inside it (like computer equipment) for one combined rent with no separate charge for the equipment, is any part of the rent subject to Texas sales tax?
No. Under Comptroller's Rule 3.294(k)(1), when a lease of real property (a building) also includes the lease of tangible personal property located in that space -- here, computer hardware and software…
Did out-of-state contractor licensing or ownership of Texas partnerships create nexus for a holding company and its subsidiaries?
The holding company and two subsidiaries were not doing business in Texas so long as partnership employees did not act as their agents in Texas and no other Texas connections existed. Two different su…
How did Texas treat a Nevada loan-participation subsidiary and dividends paid to its Texas bank parent?
Texas found the Nevada subsidiary had nexus because the Texas bank and other Texas servicers performed services for it. Dividends formally declared from earnings were respected. The Texas-domiciled ba…
How did the former Texas franchise tax apply to an S corporation?
Texas generally taxed an S corporation like any other corporation doing or authorized to do business in the state. Under the 1997 system it computed taxable-capital and earned-surplus components, appo…
How were receipts from a software support, maintenance, and enhancement plan apportioned under the former Texas franchise tax?
Texas treated the plan as licensing a computer program because nearly all costs related to upgrades, extensions, and enhancements rather than telephone support. Renewal charges were therefore apportio…
Could a federal S corporation opt out of S-corporation treatment for the former Texas franchise tax?
No. Texas had no separate state election to accept or reject S-corporation status for franchise-tax purposes. Most treatment matched other corporations, but an S corporation could elect the federal in…
Are services to run temporary electrical drops and power temporary trailers at a new construction job site taxable in Texas?
No. Services to run temporary electrical drops (so subcontractors can plug in power tools) and to connect electrical power to temporary trailers at a new construction job site are not taxable. The com…
When was the initial former Texas franchise-tax report due after a company with nexus obtained a certificate of authority?
The Comptroller restated a prior determination that the company had Texas nexus and was subject to franchise tax, but this letter did not repeat the underlying nexus facts. After receiving authority t…
Does a coffee manufacturer's own grinding machine, placed in a grocery store for the store's customers to use on already-shipped coffee beans, qualify for the Texas manufacturing exemption?
No -- this letter corrects an earlier (January 10, 1997) ruling from the same office. A coffee storage/grinding machine that a coffee manufacturer places inside grocery stores, for the stores' own cus…
Where were royalty receipts from trademarks, franchises, and licenses sourced under the former Texas franchise tax?
Texas sourced the intellectual-property owner's royalty revenue to the payor's location for both former franchise-tax components. Rule 3.549 expressly used that rule for taxable capital. Although the …
When used refinery equipment bought in Texas is dismantled, inspected, refurbished, and shipped out of the country over several months, does the export exemption still apply, and are the dismantling/inspection/refurbishing services themselves taxable?
The purchase of used refinery equipment for export is exempt from Texas sales tax, and local tax on the sale is refundable to the buyer once proof of export is provided under Rule 3.323. Rule 3.323(c)…
When a city agrees with a municipal utility/management district to impose city sales tax and hotel occupancy tax in its extraterritorial jurisdiction (ETJ), when does the new city sales tax actually take effect?
Even though the City of Galveston and Galveston County Municipal District Number One had already held public hearings and signed an agreement to impose both the Galveston municipal hotel occupancy tax…
Is a subscription publication made up mostly of attorney-written trial reports exempt from Texas sales tax as a magazine, even though it looks and is delivered like one?
No. Even though the publication has every physical characteristic of a magazine -- paperback, illustrated, published at regular intervals, containing stories/articles/essays and ads, sold by subscript…
An electrical contractor's customer used a sales tax recovery firm to seek a refund of tax paid on several jobs, claiming a manufacturing exemption -- which of the contractor's charges (moving equipment, repairing manufacturing equipment, upgrading a building's electrical system, partial demolition) actually qualify?
It depends on the specific work, and the Comptroller broke it down by job type. (1) Simply moving equipment between plants, setting it in place, and hooking it up to the existing electrical system is …
Did a publicly traded company have to send its Public Information Report to a director paid for board service?
No. The Comptroller said the publicly traded company did not need to send a copy to a director who was paid for board services. Section 171.203 targeted people who might be listed after their relation…
Is a waste management company's flat monthly fee for supplying and servicing portable toilets (port-a-potties) at a manufacturing plant taxable, and if so, which local tax applies?
Yes, taxable. A waste management company's flat monthly fee to supply portable toilets at a manufacturing plant and clean them out twice a week is taxable as the rental of tangible personal property -…
Were Texas rental receipts exempt when a vehicle was modified for a renter with an orthopedic disability?
No. The purchase exemption for a specially modified vehicle bought by an eligible individual did not extend to gross rental receipts. The rental business had to collect and remit rental tax, although …
If a business charges customers to play a no-stakes black jack table (chips have no monetary value, dealt by a live dealer), does it owe Texas sales tax on the charge?
Yes. Charging customers to play black jack -- even a for-fun table where the chips have no monetary value and a live dealer runs the game -- is taxable as an amusement service. The business must get a…
A firm charges insurance adjusters for accident-scene photos, travel time, mileage, diagrams, measurements, traffic-signal timing, witness canvassing, and obtaining police reports -- which of these itemized charges are subject to Texas sales tax?
All of it is taxable -- confirming that the firm was "correctly charging tax on the total amount charged," though under three different legal categories. (1) Photo charges are taxable as the sale of a…
Is a ranch's two-way radio repeater system and handheld radios, used to keep in contact with employees working the ranch, exempt from Texas sales tax as farm/ranch equipment?
No. A ranch's two-way radio repeater tower system and handheld radios -- used to keep in contact with employees working various areas of the ranch -- are not exempt from Texas sales tax. Although usef…
What guidance did this Texas Comptroller letter give about dissolving a limited partnership?
The letter did not decide a franchise-tax issue or explain a dissolution procedure. It directed the requester to Title 105 of Vernon's Texas Civil Statutes and specifically to Section 2.03 of former A…
Did a Texas-resident servicemember owe Texas vehicle tax when registering an out-of-state purchase in Texas?
Yes. A Texas-resident servicemember registering the vehicle in Texas owed motor vehicle tax, with credit for sales tax paid to another state. The letter's separate $15 new-resident amount is obsolete …
Is a line drawing sold to a t-shirt manufacturer, for use in its manufacturing process, taxable as graphic artwork, or can the seller accept an exemption certificate instead?
Graphic artwork -- including a line drawing -- is generally taxable under Rule 3.312. But because this line drawing is being sold to a shirt manufacturer that will use it in its manufacturing process,…
When do statutory mergers, partnership contributions, debt assumptions, and lease transfers trigger Texas motor vehicle tax?
Statutory mergers of previously Texas-titled vehicles and genuine no-consideration capital contributions generally caused no motor vehicle sales tax, while debt assumed or forgiven in exchange for a v…
Which accounting periods applied to taxable capital and earned surplus on an initial former Texas franchise-tax report?
The corporation's normal December 31 year-end did not satisfy the taxable-capital timing test, so taxable capital used the month-end nearest the first anniversary of doing business in Texas. Earned su…
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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.