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 warehousing products in Texas for less than a week qualify as a 'necessary delay in transit,' or are the receipts subject to the throwback rule?
The Texas warehousing here is not a 'necessary delay in transit,' so the receipts are Texas sales subject to the throwback rule. Franchise Tax Rules 3.549(e)(41)(G) and 3.557(e)(37)(G) recognize no Te…
Does a nonprofit providing housing and job-training services qualify for the Texas franchise-tax charitable exemption?
No, not under the state charitable exemption. To qualify under Texas Tax Code Sec. 171.062, a corporation must devote all or substantially all of its activities to the alleviation of disease, poverty,…
Must a federally tax-exempt homeowners association still file a Texas franchise tax report, and how can it get exempt?
Being exempt from federal tax does not by itself relieve a homeowners association from the Texas franchise tax. The franchise tax is imposed on all corporations, including nonprofit corporations, so t…
How did the pre-2008 Texas franchise tax apply to a transmission and distribution utility (TDU) and a retail electric provider (REP) after electricity deregulation?
For the pre-2008 Texas franchise tax, the key effect of electricity deregulation was on gross receipts and apportionment. A transmission and distribution utility (TDU) that only moves electricity is p…
Does taking title to a vehicle and assuming or paying its debt create a taxable motor vehicle sale in Texas?
Usually yes. A new owner who pays or assumes the prior owner's vehicle debt gives consideration and owes motor vehicle sales tax. But a co-maker or co-borrower already jointly liable for the original …
If a corporation stops doing business in Texas and later resumes, does it lose its Texas franchise-tax business loss, and is that the same as a federal NOL?
No - stopping and later resuming Texas business does not by itself destroy a franchise-tax 'business loss,' but the loss can only be used while it is still within its carryforward period. The Texas fr…
Does a corporation building a pork-processing plant in a Texas Strategic Investment Area qualify for the franchise-tax capital investment credit, and possibly the jobs creation credit?
Yes. On the facts presented, the Comptroller concluded that the corporation could claim the pre-2008 Texas franchise-tax capital investment credit, and noted it might also qualify for the jobs creatio…
When the IRS audits a corporation and changes its income, must the corporation file an amended Texas franchise-tax report, and by when?
Yes. Under Tax Code Sec. 171.212(a)(1), a corporation must file an amended franchise-tax report when its net taxable earned surplus changes as a result of an IRS audit or other adjustment, and Sec. 17…
Can a corporation use push-down accounting to revalue its assets when computing taxable capital for the Texas franchise tax?
No. For the pre-2008 franchise tax, a corporation generally computes surplus, assets, and debts under generally accepted accounting principles (GAAP) (Tax Code Sec. 171.109(b)), but Sec. 171.109(m) an…
Is there a 50% limit on the base amount for the Texas franchise-tax research and development credit, and will penalties be waived where the form did not show it?
Yes - there is a base amount limit of 50% of current qualified research expenses for the franchise-tax research and development credit. A return preparer pointed out that the Texas Schedule F form and…
How did Texas tax rentals of manufactured homes, trash trailers, and trailer-mounted septic systems used at oilfield sites?
The answer depended on the equipment. Manufactured-home rentals fell under hotel occupancy tax; trash-trailer charges were part of a taxable waste-disposal service, with vehicle tax due when buying th…
An oilfield-services rental company rents out three different things -- mobile homes, trash trailers used to collect and remove jobsite garbage, and septic systems mounted on trailers. What tax (if any) applies to each, and who's on the hook if the customer doesn't pay it?
Three different taxes for three different rentals. (1) Renting a manufactured (mobile) home is subject to STATE HOTEL OCCUPANCY TAX (6%, Chapter 156), not sales tax -- rentals under 30 consecutive day…
Are a utility's connection, reconnection, damage-claim, name-change, and similar service charges taxable as part of the sales price of electricity or gas, and when did utilities have to start collecting tax on them?
Taxable, with transition relief. Charges for services like connection/reconnection, damage claims, and name changes are taxable as part of the sales price of electricity or gas when the customer's und…
A company's licensed insurance adjuster works full-time at an insurance company's office, under that company's total supervision, on an open-ended assignment -- is billing for that adjuster still taxable after the 2001 law change?
Still taxable. Even though the licensed insurance adjuster works at the insurance company's own office under its total day-to-day supervision, with the insurance company furnishing all supplies and ha…
Is a company that supplies licensed insurance adjusters to insurance companies after a catastrophe providing exempt temporary help, or a taxable insurance service?
Taxable. A company that supplies its own licensed insurance adjusters to insurance companies on a temporary basis after catastrophes is performing a taxable insurance damage-appraisal/claims-adjustmen…
If a customer redirects a software delivery into Texas for installation, is Texas sales tax due even though the customer's employees only ever use the software remotely from outside Texas?
Yes, tax is due. Where software (treated as tangible personal property) is physically delivered and installed controls Texas sales/use tax -- not where the customer's employees are physically located …
If a retailer switches to having a third-party fulfillment house pay customer rebates (funded by manufacturer reimbursements) instead of paying them itself, does the retailer get to reduce its taxable sales price and claim a sales tax refund?
No sales tax adjustment. Rebates that a third-party fulfillment house pays to a retailer's customers -- funded by the retailer billing the manufacturers, not by the retailer's own funds -- are not con…
For an advertising agency's retainer fees, ad campaigns, ad revisions, and sales materials, what parts of the bill are taxable, and what records does the agency need to keep to prove it?
It depends on the line item. A pure monthly retainer fee is a nontaxable service. Charges for employee-fabricated property (finished art, photographs, etc.) are taxable. Preliminary art (concepts, lay…
Did Texas's tax-law definition of "person" change when the tax statutes were recodified in 1981?
No substantive change. Before the 1981 recodification, former Tex. Tax.-Gen. Ann. art. 20.01(A) broadly defined "person" to include individuals, firms, partnerships, corporations, trusts, and governme…
When a racetrack sells corporate sponsors hospitality-tent passes with closed-circuit race viewing, catered food, and rented tents/furniture, which charges are taxable, and can the racetrack buy the tent equipment tax-free for resale?
All three charges are taxable, and no resale certificate applies to the tent equipment. Admission to a racetrack's hospitality tents (with closed-circuit race viewing) is a taxable amusement service, …
When a leasing subsidiary liquidates and distributes its leased equipment to its two corporate-partner owners, is that a taxable sale, and does it matter whether the subsidiary's debt gets paid off first?
It depends on whether there's consideration. A liquidating distribution of leased equipment from a subsidiary to its corporate-partner owners is not a taxable sale if it's a true no-consideration cont…
Can a manufacturer claim a 100%-exempt sales tax refund on steam purchases by citing the "predominant use" test that applies to natural gas and electricity?
No -- wrong exemption theory, though a narrower one may still apply. The "predominant use" test in Rule 3.295/Sec. 151.317(e), which lets a taxpayer claim 100% exemption on natural gas or electricity …
Which of a property management company's typical fees are taxable -- standalone building-management services, insurance-related inspections/claims, and markup fees for rebilling contracted repair or construction work?
Mixed, by category. Standalone property management (lease administration, rent collection, accounting, ad valorem consulting, vendor/maintenance coordination, non-insurance property inspections) is no…
In Texas's deregulated electric market, is a transmission/distribution utility's delivery charge to a retail electric provider taxable, and can a municipal franchise fee passed on to the end customer be taxed too?
CORRECTION of a prior letter. A transmission and distribution utility's (TDU) delivery charge to a Retail Electric Provider (REP) is NOT a taxable service, so no resale certificate is needed or availa…
How broadly does the Tax Code Sec. 111.206 exception to the statute of limitations reach - only to a regulatory final determination, or to any refund from that period?
Narrowly. This internal Comptroller memo resolves a disagreement between the Audit Division and the Tax Policy Division over Tax Code Sec. 111.206, which creates an exception to the general statute of…
If I start a business putting on fashion shows and selling calendars/posters of the models, do I owe Texas sales tax on ticket admissions and on the calendars/posters, and do I need a tax permit?
Yes to both. Admission charged for a fashion show held in Texas is taxable, and selling calendars and posters of the models is also taxable (though you can buy the printed calendars/posters tax-free f…
How are the payments an oil-and-gas producer receives under commodity swap agreements treated for Texas franchise-tax apportionment?
The full gross amount received counts as gross receipts, not the net. An oil-and-gas producer entering non-netted commodity swaps asked how the payments it receives are treated for franchise-tax appor…
A printer using offset litho (not web offset or rotogravure) asks: does a new 2001 exemption for out-of-state-mailed printed materials apply to its process, and does it change what it must collect on jobs bought from a sister company?
No, offset litho doesn't qualify. The exemption is limited by its terms to printed materials produced by web offset or rotogravure printing processes -- items printed on offset litho don't qualify, so…
In a two-step resale chain (seller to out-of-state Company A to a Texas Company B), who is responsible for Texas sales/use tax if Company A isn't itself "engaged in business" in Texas?
The original seller's sale is exempt as a sale for resale -- Company A (the out-of-state reseller) can issue a Texas resale certificate, validated with its own state's (South Carolina) retail registra…
Can a sole-proprietor furniture manufacturer occasionally install pieces that get permanently attached to real property, without losing manufacturing tax exemptions on the equipment used to make them?
It depends on the structure. A manufacturer can form a genuinely separate legal entity (a partnership or corporation -- not just another DBA under the same sole proprietorship) to sell to and install …
When two exempt political subdivisions jointly finance and own a new office building through a loan, cotenancy, or joint venture, do construction materials stay sales-tax exempt regardless of the ownership structure, who buys them, or a modest amount of private tenant use?
Yes to all three questions. Purchases of construction materials for the office building are sales-tax exempt no matter which financing/ownership structure the two exempt entities choose (a loan betwee…
When one company charges a lump-sum guide-service fee for an adventure race and a related company separately rents out kayaks and gear, who owes sales tax on what?
Split treatment. A guide service's single charge to a race participant for the guide service itself (orienteering, hiking, trekking, running, team challenges, etc.) is not taxable. The related gear co…
How does a corporation obtain an exemption from the Texas franchise tax, and what does it have to submit?
Texas has no separate exemption application form. Under Tax Code Sec. 171.051, a corporation obtains a franchise-tax exemption by filing evidence of its qualification, and Franchise Tax Rule 3.541 giv…
Does a private company operating a city-owned prison under a management contract owe sales tax on its own purchases to run the facility, just because its customer is a tax-exempt city government?
Taxable, on these facts. A private company operating a city-owned prison under a management contract owes Texas sales tax on its own purchases to run the facility -- the city's tax-exempt status does …
If manufacturing software qualifies for Texas's manufacturing exemption, does that exemption also cover the software's installation, training, and maintenance/technical-support charges?
Mostly favorable, with one nuance on why training isn't taxed. Software used directly and exclusively by a manufacturer to produce or test tangible personal property for sale qualifies for the manufac…
Is materials/labor for building or modifying a jet engine prototype exempt as manufacturing or resale, since the prototype itself won't be sold?
As of this 2001 letter: fully taxable. A prototype is an original model or sample used as the pattern that other, later production items will copy -- it's generally not itself offered for sale, so mat…
Is a student loan origination company's fee taxable as data processing, given that its contracts include some loan-management, some debt-collection, and some data-compiling activities?
Generally nontaxable, with two specific exceptions. Guaranteed student loan origination services (approving applications, handling inquiries, disbursing proceeds, updating accounts, reporting to lende…
For the Texas franchise tax, when are dividends and interest a corporation receives from a bank counted as Texas gross receipts?
It depends on where the bank is based. For the pre-2008 franchise tax, dividends and interest from a national bank are Texas gross receipts only if the bank's principal place of business is in Texas (…
For a sports collectibles/memorabilia show, is general admission taxable, are vendor booth rentals taxable, and is a separate charge for celebrity autographs taxable?
Mixed, by charge type. General admission to a sports collectibles and memorabilia show is taxable, as an amusement service. Booth rental charges to outside vendors exhibiting at the show are NOT taxab…
How are insurers and HMOs taxed on the coverages they issue for the Children's Health Insurance Program (CHIP), and what stays taxable?
This internal Comptroller memo summarizes how insurers and HMOs are taxed on Children's Health Insurance Program (CHIP) coverages. Their CHIP coverages are exempt from general revenue premium taxes (T…
Can a partner in a licensed title agency claim the Texas franchise-tax exemption for title insurance agents subject to the premium receipts tax?
No. This internal Comptroller memo explains that a taxpayer who was one of several partners owning a licensed title agency was denied a franchise-tax exemption. The exemption for licensed insurance co…
Does an unincorporated nonprofit association have to file or pay Texas franchise tax, and must it send proof of its nonprofit status?
No. The Texas franchise tax is simply not imposed on unincorporated entities or associations, so an unincorporated nonprofit association does not file or pay it and does not need to send proof of nonp…
If a company assembles a septic tank system and sets it into a pre-dug hole on a vacant lot, but someone else later connects it to the home's sewer and electrical lines, is that a tax-exempt real-property-improvement contract or a taxable sale and installation of tangible personal property?
Taxable sale and installation of tangible personal property, not an exempt realty improvement. A subdivision developer's subcontractor assembled septic tank systems and set them into pre-dug holes on …
A private partnership leases university land, built and operates a student dormitory there for the university's benefit under a tightly restricted ground lease, and title to the building already belongs to the university's governing board -- is mold-remediation and repair work on the dormitory exempt from Texas sales tax?
Exempt. Repair, remodeling, and mold-remediation work on a university dormitory qualifies for the Sec. 151.311 exemption for improvements to realty performed for the direct benefit of an exempt entity…
If most members join a collectibles club mainly for the intangible right to buy exclusive pieces later, is the membership fee still taxable because a low-value welcome kit and newsletter come with it?
Taxable, rejecting a "true object" argument. The company argued that surveys showed new members primarily wanted the intangible benefit of exclusive club status and future purchase rights, not the low…
Are dietary/nutritional supplements like Coenzyme Q10, glucosamine, spirulina, amino acids, and various herbal and vitamin products exempt from Texas sales tax?
Exempt. The Comptroller confirmed a lengthy, specific list of vitamin, herbal, and nutritional supplement products -- Coenzyme Q10; MSM; glucosamine sulfate; various combination herb/vitamin/mineral p…
A contractor paid tax in full on a lump-sum new-construction contract to install a manufacturing process line -- can it now claim a manufacturing exemption refund on the qualifying equipment, even though the contract was lump sum?
No refund available for new construction, but repair/remodel work is different. The manufacturing exemption is categorically NOT available for equipment installed under a lump-sum contract for NEW con…
For a barge bare-rental business run through one entity and a related towing-services business run through a separate entity, which charges -- surveys, inspections, repairs, cleaning, brokered personnel, cargo contracts, and boat supplies -- are taxable, and does splitting billing between the two entities create tax problems?
A detailed, multi-part answer. Barge damage surveys are taxable to the customer when passed through as part of the bare barge rental price (Sec. 151.007(b)), regardless of whether they're specifically…
Must a direct sales/multi-level marketing company collect and remit Texas state and local sales tax on the sales its independent distributors make, and how should it account for local tax rates that vary by distributor location?
Yes. Under Rule 3.286 and Tax Code § 151.024, a direct sales organization (including a multi-level marketing company) is automatically responsible for collecting and remitting Texas state and local sa…
Is a direct sales/multi-level-marketing company responsible for collecting and remitting Texas sales tax on its independent distributors' sales, and how should it account for varying local tax rates?
Yes, automatically -- no special agreement needed. A direct sales organization (including a multi-level-marketing company) is responsible under a longstanding Comptroller rule (Rule 3.286, backed by T…
For customer-owned property like a trade show exhibit booth, what distinguishes taxable 'assembly' labor from nontaxable 'set-up' or 'installation' labor?
The distinction turns on function, not label. 'Installation' — placing property in position without changing its form so it works as intended (e.g., hanging a picture or chandelier) — is not taxable, …
When a single medical device kit bundles a tax-exempt prosthetic component with non-exempt equipment (needles, guide wires, sheaths), is the whole kit taxable or exempt?
It depends on cost, not just contents. When a single-charge kit bundles an exempt item with taxable items, the predominant cost determines the whole kit's taxability: if the taxable items cost more th…
Does a massage therapist who provides lymphatic compressive therapy need a sales tax permit to buy the bandages used in the treatment, and are those bandages tax-exempt?
No exemption, and no resale certificate. Bandages a massage therapist buys and applies while performing lymphatic compressive therapy are taxable purchases — the therapist is the end user/consumer of …
Is a monthly retainer fee an advertising/marketing agency charges to reserve staff and account-management time subject to Texas sales tax?
No. A monthly retainer fee that a marketing/advertising services company charges clients to reserve account-management staff time (not tied to any specific taxable service) is a charge for an intangib…
For Texas franchise-tax apportionment, what do 'location of payor' and 'legal domicile' mean, and are they the same for taxable capital and earned surplus?
The definitions are the same for both taxable capital and earned surplus apportionment. Under Franchise Tax Rule 3.549(b)(7), the 'location of payor' is the payor's legal domicile. Under Rule 3.549(b)…
When a corporation restructures its employees into a partnership's general-partner entity to satisfy an employee stock purchase plan requirement, is that arrangement an exempt staff-leasing arrangement or a taxable one?
The proposed arrangement did NOT qualify for the staff-leasing exemption. Even though the company met two of the three Rule 3.364 conditions (including the new-business exception), its own contract st…
Is oilfield 'swabbing' — running cable and rubber cups down a well to remove hydrostatic water and start/restart production — a taxable service in Texas?
It depends on the specific downhole task. Swabbing done to start or restart a well — running cable with rubber cups to remove hydrostatic water, even with incidental sand or paraffin — is a nontaxable…
Is a $1,500 assessment added to a country club member's required stock equity subject to Texas sales tax, and does it matter whether membership stock is later resold by the departing member or by the club itself?
Likely taxable, based on the facts given. A country club's assessment added to a stockholding member's required equity is generally treated the same as the sale of that mandatory membership stock, whi…
Is electricity used to treat wastewater from a residential community exempt from Texas sales tax, and does it matter whether a third-party treatment company or the landlord itself buys the electricity?
It depends on who buys the electricity. Treating wastewater is a nontaxable service, so the manufacturing exemption under Tax Code § 151.318 doesn't apply to the electricity used to power that treatme…
Which manufacturing-adjacent equipment qualifies for Texas's manufacturing sales tax exemption — hand tools, quality-control gauges, mold-design equipment — and which doesn't?
Mostly no exemption. Disposable epoxy applicator bottles and hand-operated calipers (digital or not) are hand tools and do NOT qualify for the manufacturing exemption, regardless of whether the readou…
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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.