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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Does a company that locates and negotiates preferred provider network contracts for health plans owe Texas administrative services tax or sales tax on the contingent commissions it earns?
No. A company that locates and negotiates contracts with preferred provider networks on behalf of health care and occupational injury plans, earning a contingent commission based on savings, owes neit…
When a tax-exempt nonprofit organization hires a for-profit carnival operator to run an event, who owes sales tax on the amusement -- the carnival operator or the exempt entity?
It depends on two things: whether the contract between the exempt entity and the carnival operator is a joint venture (sharing both profits and losses, which makes ticket sales taxable), and if not, w…
Does a front-end loader used to blend materials and support cooling during processing qualify for Texas's manufacturing equipment sales tax exemption?
No. The Comptroller ruled that a front-end loader used to blend seed and product and to support the deaeration and cooling process is treated as intraplant transportation equipment or equipment used i…
How did the former Texas throwback rule source receipts from medical products shipped from Texas, including exports?
Delivery to a Texas buyer produced Texas receipts. Delivery to another state produced non-Texas receipts unless the seller was not subject to tax there, in which case the receipts threw back to Texas.…
Does an engineer hired by an insurance company to investigate a homeowner's damage claim have to charge the insurance company sales tax on the investigation?
Yes. The Comptroller ruled that an engineer's investigation of an insured's claim -- inspecting a dwelling and reporting on damage and its cause -- is a taxable 'insurance service,' so the engineer mu…
Is a machinery moving company's charge to relocate equipment within or between facilities subject to Texas sales and use tax?
No, not by itself. A machinery moving company's charge for simply relocating a machine or piece of equipment within a plant or between facilities is not taxable, but the entire charge becomes taxable …
Is selling stock in a corporation that operates a country club subject to Texas sales tax when stock ownership is required for membership?
Yes, generally -- if owning stock is required to get a special privilege, status, or membership classification in a private club that provides amusement services, the sale of that stock is taxable. Th…
When a direct-sales or multi-level-marketing company gives away free prizes or awards at a home party, who owes the tax -- the company or the person who receives the prize?
The company giving away the prize owes the tax, not the recipient. Pulling an item out of tax-free resale inventory to give away as a prize is a taxable divergent use, so the company (or the distribut…
Does metal-leveling equipment qualify for the Texas manufacturing sales tax exemption when the leveling process changes the metal's tensile and yield strength?
Yes. Because leveling increases the metal's tensile and yield strength to meet the customer's specifications, the Comptroller found the process causes a physical change and qualifies as 'processing,' …
Does a private insurance carrier owe Texas sales and use tax on crop loss adjusting services it buys, even though the underlying crop insurance is federally reinsured?
Yes. Texas sales and use tax applies to crop loss adjusting (claims appraisal) services that a private crop insurance carrier buys from an outside adjusting company, even though the underlying crop in…
If an industrial supply company runs a customer's on-site tool crib and charges a management fee plus product costs, is that management fee taxable?
Yes, in most cases. The Comptroller ruled that if the industrial supply company is a retailer of all the sales made through the tool crib (not acting as the customer's purchasing agent), then its mont…
Who owned the interest earned while a Texas county held collected motor vehicle sales tax?
The state. Based on an enclosed Attorney General opinion and related case law, Tax Policy said interest earned while the county held motor vehicle sales tax belonged to Texas and had to be remitted to…
Who owed Texas use tax on a vehicle bought outside Texas and leased for use in Texas, and what happened at buyout?
The operator owed Texas use tax when the out-of-state-purchased vehicle was brought into Texas for use. Tax was based on the owner's purchase price, with credit for similar tax legally paid to another…
Is sales tax due on assets transferred into a new corporation or partnership as part of a statutory merger or a tax-free IRC 351 reorganization?
No. Assets transferred as part of a statutory merger, or transferred to a newly formed corporation or partnership for its initial capitalization, are not subject to Texas sales tax, as long as either …
Does a company owe Texas sales or use tax on loose product samples and sample binders or books that it produces or buys to help its sales representatives solicit customers?
Yes. The Comptroller ruled that loose samples and sample binders or books distributed in Texas are taxable, because their only use is to demonstrate the products they represent, not to be sold themsel…
Does a film and video production company owe sales tax on special-effects paint, blank tape stock, and duplicate tapes (dubs) it has made for clients?
It depends on the item. The blue paint used exclusively for blue-screen special effects can be bought tax-free with an exemption certificate (though separately billed painting labor is still taxable),…
Does the manufacturing exemption cover a microwave oven used to cook or heat food for sale?
It depends on who operates the oven. A microwave or convection oven used by a restaurant (or similar business) to cook food that it then sells qualifies for the manufacturing exemption, but a microwav…
Is a 'Maps on Demand' service that delivers maps and proximity information over the internet subject to Texas sales tax?
Yes. The Comptroller ruled that a 'Maps on Demand' service delivering maps and proximity data over a web page is taxable in Texas, and the entire charge -- including the monthly minimum and any per-ac…
Does a university have to charge sales tax on the fee it bills dorm students each semester for network port access to the campus computer system?
Yes. The semester fee a university charges dorm students for network port access to the campus computer system is taxable as a sale of information services, and the university must collect sales tax o…
Is a mandrel used to wind fiberglass filament and resin into pipe and tanks exempt from Texas sales and use tax, and what about the disposable rollers used to apply resin?
Mandrels purchased after January 1, 1995, and used to wind fiberglass filament and resin into pipe and tanks are totally exempt from Texas state and local sales and use tax, and the buyer may give sup…
Why could a Texas vehicle owner face local property tax after already paying motor vehicle sales tax?
The taxes were separate. Motor vehicle sales tax applied to the purchase price. Cities and counties could also impose local property tax, generally on business-use vehicles and sometimes on personal-u…
Did out-of-state salesmen who could bind the company on order terms remove Public Law 86-272 protection and Texas throwback?
Yes. Because the salesmen could bind the company on order quantities, some prices, payment terms, delivery dates, and refusals, the company had nexus in every state where it sent them. It was not prot…
Does a wholesaler that only makes exempt resale of natural gas during pipeline transportation need a Texas sales tax permit, and can it use a resale certificate without a permit number?
No. A wholesaler that only makes exempt sales of natural gas resold during pipeline transportation does not need a Texas sales tax permit solely to report those exempt sales, but must still issue a re…
Where were information-service receipts sourced for the former Texas taxable-capital and earned-surplus components?
They were sourced where the services were performed. The Comptroller classified the client's activity as information services and applied that performance-location rule to both taxable capital and ear…
Is electricity used at a food-processing facility exempt from Texas sales tax as manufacturing use when the facility's own vending machines are what ultimately sell the packaged food?
No, the electricity is taxable. Because the facility is owned by the same entity that owns the vending machines the food is ultimately sold through, the Comptroller treated the electricity as being us…
Does a multi-level marketing or direct sales company have to collect and remit Texas sales and use tax on sales made by its independent distributors?
Yes. Under Rule 3.286(a)(3) a direct sales/multi-level marketing company is treated as the retailer, its independent distributors are its agents for nexus purposes, and the company -- not the distribu…
Is an optional escrow fee charged so customers can claim a software's source code if the seller goes out of business subject to Texas sales tax?
Yes. The Comptroller ruled that the escrow fee is part of the total sales price of the taxable software, so it is subject to Texas sales/use tax both when first charged and each year it is renewed.
How were separately contracted software modifications, upgrades, and maintenance receipts sourced under former Texas franchise tax?
Separate modifications and maintenance were services sourced where performed, while separately stated upgrades were sourced to the payor. If one upgrade-and-maintenance contract did not reasonably sta…
How were separately contracted software modifications, upgrades, and maintenance receipts sourced under former Texas franchise tax?
Separate modifications and maintenance were services sourced where performed, while separately stated upgrades were sourced to the payor. If one upgrade-and-maintenance contract did not reasonably sta…
Is the labor to install new equipment in a refinery or chemical plant taxable, and does an October 1995 capacity-expansion exclusion change the answer?
It depends on the facts: installation labor on qualifying manufacturing equipment that is not an improvement to realty was exempt in 1995 under Sec. 151.3111, but the same labor was taxable in 1994 be…
Is a consultant's fee for auditing EDP controls, helping a client pick new computer hardware/software, or writing a software vendor's white paper subject to Texas sales tax?
No, none of the three described services is taxable on its own. Reviewing a client's EDP controls and writing a confidential audit report is not taxable, and neither is a needs-assessment/vendor-selec…
Does Texas sales tax apply to charges for staking (surveying) an oil or gas well before it is drilled?
Mostly yes. The boundary surveying and acreage/unit-designation work used to stake an oil or gas well are taxable surveying services, but the narrower charge for determining the actual placement of th…
Which parts of a phone-based information, advertising, and voice-mailbox service are taxable telecommunications services in Texas, and which parts are not?
Charges for playing recorded advertisements or messages to callers who dial in are not subject to Texas sales tax, but charges for computerized telephone polling, call transfer/routing, and electronic…
Is telephone or on-site technical support for software and hardware subject to Texas sales tax, and does it matter whether the same company sold the property?
Yes, if the property being supported is located in Texas. Telephone technical support for tangible personal property (hardware or software) is taxable when the property is in Texas, and exempt under T…
Is cleaning a petroleum storage tank subject to Texas sales tax, and does it matter whether the tank is above ground, below ground, or over 500 barrels in capacity?
It depends on whether the tank counts as an improvement to real property. Cleaning a below-ground tank, or an above-ground tank holding more than 500 barrels, is treated as nontaxable real property re…
Is a charge for 'on hold' tapes with marketing messages played to callers waiting to be connected, plus related equipment, subject to Texas sales tax?
Yes. Charges for 'on hold' tapes containing marketing messages played to callers while they wait to be connected, and for the related equipment, are subject to Texas sales tax. A single charge coverin…
Does electricity used in a vacant apartment unit count as residential use that is exempt from Texas sales tax?
Yes, effective October 1, 1995, when Section 151.317 of the Tax Code was amended, the Comptroller began treating electricity used in vacant apartments as residential use exempt from sales tax -- excep…
Is electricity used to power the pumps at a saltwater disposal well exempt from Texas sales tax as electricity used to transport a material extracted from the earth?
Electricity used to power the pumps at a saltwater disposal well is exempt from Texas sales tax only if the saltwater being transported is naturally occurring produced saltwater. Once that saltwater i…
Is a separately stated charge for inspecting and testing a commercial building's fire alarm system subject to Texas sales tax?
No. A fire alarm system in a commercial building is considered an improvement to realty, so separately stated charges for inspecting and testing that system are not subject to Texas sales tax, even th…
Does a contractor owe Texas sales tax on the profit and overhead portion of a cost-plus construction contract, with or without a guaranteed maximum price?
Cost-plus contracts (with or without a guaranteed maximum price) are treated as separated contracts under Tax Code § 151.056, so the contractor collects sales tax on materials charged to the job owner…
Is a cane-like device designed to help Parkinson's disease patients overcome motion block exempt from Texas sales tax?
Yes. The STEPP-ALERT, a cane-like device with a multi-colored flap that helps Parkinson's disease patients experiencing motion block phenomenon, qualifies as a therapeutic device and may be purchased …
When an exempt organization owns part of a joint venture that buys taxable items for a joint venture facility, how much of the purchase price can be bought tax-free with an exemption certificate?
An exemption certificate can only cover the percentage of a taxable item's purchase price equal to the exempt organization's percentage ownership interest in the joint venture that owns the facility w…
Does a multi-level marketing/direct sales company have to collect and remit Texas sales and use tax on sales made through its independent distributors?
Yes. Because a company's independent distributors act as its agents under Texas Tax Code § 151.024 and Rule 3.286(a)(3), the company (not the individual distributors) must collect and remit Texas sale…
Does a Texas mobile home dealer owe sales tax on the tools, equipment, and materials it uses to repair or refurbish manufactured homes held for resale?
Yes, in most cases. A Texas mobile home/manufactured housing dealer that repairs or refurbishes homes held for resale owes sales tax on the vehicles, jacks, nail guns, hand tools, and most other equip…
Does a tax-exempt religious organization owe Texas sales tax on books it publishes and sells, mostly at religious services and meetings?
No. The Comptroller ruled that a nonprofit religious organization exempt under IRC 501(c)(3) does not owe Texas sales tax on the sale or distribution of books it publishes, where the books were writte…
Does a county owe sales tax on debt-collection legal services performed by a law firm, and is the law firm's reimbursed expenses treated as taxable debt collection or sales tax?
No. Legal services performed by an attorney to recover debts for a client are not taxable as debt collection services, and a county, as an exempt governmental entity, does not owe sales tax on those l…
Are batteries for a blood pressure monitoring device exempt from Texas sales tax?
Batteries for a blood pressure monitoring device can be purchased tax exempt in Texas, but only if the device itself was purchased exempt under a doctor's prescription, and the batteries are bought fr…
Does electricity used in a vacant apartment unit count as residential use that is exempt from Texas sales tax?
Yes. The Comptroller determined that Section 151.317 of the Tax Code, as amended, defines residential use of electricity to include electricity used in vacant apartments -- except electricity used by …
Was a guaranteed vehicle buyback-price agreement subject to Texas motor vehicle sales tax?
It depended on the seller. A guaranteed buyback agreement purchased directly from the vehicle dealer was included in taxable value and subject to motor vehicle sales tax. An agreement purchased from a…
Is steam exempt from Texas sales tax the same way ice is exempt?
No. The Comptroller ruled that steam does not qualify for a sales tax exemption. Although steam, like ice, is water in an altered state, the Tax Code only grants specific exemptions to ice (Tax Code 1…
How did Texas tax a trust's acquisition of long-term operating leases, related vehicles, and beneficial interests?
The dealer owed tax when it first leased the vehicles. Assigning the lease contracts to the trust was an untaxed intangible transfer. The trust could take vehicle title for resale without tax only if …
What did a Texas seller need on an auto-auction document to support a vehicle's acquisition for resale?
The submitted auction document was acceptable if it included the purchasing dealer's general distinguishing number and signature. The seller had to retain its copy for four years from the sale date.
Can a business renting out mobile office trailers use a resale certificate instead of paying sales tax on repair parts and repair labor for that rental inventory?
Yes. A business may issue a resale certificate instead of paying sales tax on repair or replacement parts bought for mobile office trailers held for rental, and may also issue a resale certificate to …
Does a nightclub or bar owe mixed beverage gross receipts tax or limited sales tax on the cover charges it collects from customers?
It depends on why and when the cover charge is collected. Cover charges collected from customers under 21, and all cover charges collected after 11:00 p.m., are subject to limited sales tax. Cover cha…
Are Kudos whole grain bars exempt from Texas sales tax as a food product, or taxable as a snack item?
The Kudos whole grain bar is exempt from Texas sales tax as a cereal product and food product, reversing the Comptroller's earlier position that it was a taxable snack bar.
A company provides mobile surgical units (installed in vehicles), disposable supplies, and sometimes a technician, to patients directly or to hospitals/physicians. How is this taxed for Texas sales, use, and motor vehicle tax purposes?
It depends on what's provided. If the company supplies a technician or surgical support along with the equipment, that's a non-taxable service, but the company still owes tax on supplies/equipment tha…
Why does our direct sales/multi-level marketing company (COMPANY A) have to collect sales tax on the suggested retail price of items sold to its distributors, when the distributors already pay sales tax to COMPANY A before reselling the inventory?
Because Rule 3.286(a)(3) treats a direct sales/multi-level marketing company as the "retailer" responsible for collecting and remitting Texas sales tax on the suggested retail price, rather than treat…
Is labor to repair real or personal property damaged by a disaster exempt from Texas sales tax even if the damage occurred outside an area officially declared a disaster area?
No. Once the Legislature enacted Tax Code Sec. 151.350, the exemption for disaster-repair labor applies only to property damaged within an area officially declared a disaster area by the Governor or t…
A fabric awning manufacturer/installer asked whether it's a manufacturer or a contractor, how to tax mixed-use supplies like screws and grommets, whether awning storage and reinstallation is taxable, and whether it still qualifies for the manufacturer utility tax exemption.
It depends on the facts of each job. If custom awnings are attached to a building with the intent to become a permanent improvement to realty, the installer is acting as a contractor (not selling tang…
A company picks up used oil field tubing at a customer's wellsite and gives the customer a book credit, then cleans, grades, and repairs the pipe and sells it back to the same customer. Are these transactions taxable, and can resale/direct-pay certificates be used?
Yes, tax can be due, but it depends on how the deal is structured. The pickup of the pipe (with a book credit given) and the later sale of the cleaned pipe back to the customer are treated as two sepa…
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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.