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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Which horse, farm-equipment, trailer, and pickup sales were tax-exempt at a Texas farm auction?
Horse sales were exempt unless part of an amusement service. Qualifying equipment had to be used exclusively for listed farm or ranch purposes, and trailers had to be designed and used primarily as fa…
A retailer sells its credit-card receivables to a financial institution but is contractually obligated to buy back (with recourse) any accounts that go uncollectible — can the retailer still claim a sales tax bad debt deduction on those charged-back accounts?
Yes. A retailer that assigns or factors its receivables to a third party (like a financial institution financing its credit card) may claim a bad debt deduction on accounts that get written off due to…
Is the 'assets minus debts minus stated capital' formula used to compute earned surplus, and do already-paid expenses count as debts?
That formula computes surplus for the taxable-capital component, not earned surplus, and expenses already paid are generally not debts. A taxpayer completing the short (no tax due) form was unsure how…
For the Texas franchise tax, can a leveraged ESOP's unpaid-shares contra account be netted against surplus, and is an ESOP counted as one shareholder for the officer/director compensation add-back?
The unpaid-ESOP account nets against surplus only if it is a statutory debt, and an ESOP is one shareholder if the shares are held in its name. A corporation with a leveraged ESOP asked how to report …
Does the Texas franchise tax allow the phased-in IRC Section 179 expense deduction in computing earned surplus, and which year's amount applies to a 2000 report?
Yes - Texas allows the IRC Section 179 phase-in for earned surplus, and the amount depends on the corporation's federal accounting period. Tax Code Sec. 171.001(b)(5) ties the Texas definition of the …
Does microwave equipment that relays a TV news truck's signal back to the television station qualify for the manufacturing exemption?
No. Microwave equipment used to relay a signal from a television news truck to the station does not qualify for exemption under either Tex. Tax Code § 151.318 or § 151.3185, whether the signal is ulti…
After the Governor declared Tarrant County a disaster area, is labor to repair damaged property in the area exempt from Texas sales tax?
Yes. Once the Governor declares an area a disaster area, labor to restore real or tangible personal property damaged within that area by the condition that caused the disaster declaration is exempt fr…
The new OTC drugs and medicines exemption covers diabetic test strips — does it also cover the lancets used in diabetic monitoring machines?
No, not automatically. Lancets are not exempt as over-the-counter drugs or medicines on their own. They do qualify for exemption, however, if sold under a doctor's prescription.
A company sold half its employees to a new, commonly-owned company and now leases those employees back at cost plus a markup — is that lease of employees exempt from sales tax as staff leasing?
This arrangement appears to qualify as exempt staff leasing under Rule 3.364, but only if the leasing company meets the legitimate staff-leasing-company requirements in Rule 3.364(a)(5), and the clien…
A contractor doing improvement-to-realty work for a tax-exempt entity (an airport) rents equipment for the job — is that equipment rental taxable, even though the airport's own purchases would be exempt?
Yes, equipment rented or leased by the contractor for use in performing the contract is taxable — the exempt-purchaser status of the airport doesn't flow through to the contractor's own equipment rent…
A Laredo communications center lets customers make collect long-distance calls and also buys items online on customers' behalf for in-store pickup — how is each service taxed, and do local taxes apply the same way to intrastate versus interstate/international calls?
Charges to customers for using a phone to make collect long-distance calls are taxable telecommunications services either way, but the tax rate depends on the call type. Intrastate collect calls (with…
Some insurance companies (especially out-of-state ones) refuse to pay Texas sales tax on medical case management services performed for a Texas resident — is that tax actually owed, and who's on the hook if it isn't collected?
Case management services are taxable as insurance claims adjusting/claims processing services under Tex. Tax Code §§ 151.0039 and 151.0101(a)(9) and 34 Tex. Admin. Code Rule 3.355(a)(5) and (b). Rule …
Is sales tax due on a mail-in rebate a retailer pays through a third-party clearinghouse, even though the rebate coupon says 'sales tax is not refundable'? And does a manufacturer's rebate tied to a specific retailer's receipt work the same way?
For the retailer-funded rebate: no additional tax analysis needed to exclude it — a cash discount rebated to the customer after the sale by the retailer is excludable from the tax base, even when a th…
A company operates private phone systems in office buildings and hotels, buying telecom service wholesale and reselling it to tenants/guests -- plus charging separately for wiring, phone jacks, moving/installing phones, and equipment maintenance. Which of these charges are taxable, which can be bought tax-free for resale, and does bundling vs itemizing change anything?
A multi-part breakdown for a private telephone system operator reselling telecom service to tenants/guests. The operator must collect sales tax on its ENTIRE charge to tenants/guests for telecommunica…
Is a regional education service center exempt from Texas sales and use tax the same way a school district is, and does that exemption extend to the center's employees?
Yes for the center itself, no for its employees. Regional education service centers — and all other regional education service centers statewide — are exempt from paying Texas sales and use taxes, bec…
Was an over-the-counter drug or medicine exempt from Texas sales tax in 2000 just because it had an NDC (National Drug Code) number, even if the number didn't appear on the label?
As of this March 2000 email response, yes — an OTC drug or medicine with an NDC number was exempt from Texas sales tax even if the number wasn't printed on the label. STAR has since attached a currenc…
Could a corporation use the remainder of a 1996 Texas franchise-tax business loss on its 2000 final report after using part on its 2000 annual report?
Yes. Section 171.110(d) allowed a business loss to offset net taxable earned surplus for up to five taxable years after the loss year. On the facts presented, a loss created on the corporation's 1996 …
When a company charges donors a separate fee to notify a recipient (by letter or by e-mail) that a charitable gift was made in their name, is that notification fee taxable in Texas?
It depends on how the notification is sent. A separately stated charge to notify the recipient by e-mail is a taxable telecommunications service under Rule 3.344. A separately stated charge to send th…
When did a strategic-investment-area project qualify for Texas's former capital investment credit, and could pre-2000 costs enter the credit calculation?
Property first placed in service in a strategic investment area on or after January 1, 2000 could qualify, and eligible expenditures incurred before that date could be included in the credit computati…
Is a golf course's 'trail fee' — charged to a member who brings and uses his own golf cart on the club's cart paths — subject to Texas sales tax?
Yes. A country club's trail fee, charged to a golfer for using his own privately owned cart on the club's cart paths, is taxable as a sale of an amusement service under Rule 3.298(b).
Did a Texas pharmacy need a doctor's prescription on file to sell diabetic test strips and lancets tax-free, and did that change in 2000?
As of this March 2000 letter, yes — diabetic test strips and lancets were exempt therapeutic devices only when sold to an individual with a licensed practitioner's prescription on file; without one, t…
What property could reduce the Texas sales-tax base or motor vehicle tax base as a trade-in?
A dealer could allow a trade-in credit for a motor vehicle or customer-dismantled vehicle parts against a sale of tangible personal property. But when the dealer sold a motor vehicle, only another mot…
When a Texas-permitted seller (Company A) drop-ships an item to a Texas customer (Company C) on behalf of a reseller (Company B), who is responsible for collecting the Texas use tax?
Texas use tax is owed on the sale, but the drop-shipping seller (Company A) doesn't have to collect it as long as it gets a properly completed Texas resale certificate from the reseller (Company B). W…
Is a security guard service — hiring a guard from a security company to walk a business's premises at night — subject to Texas sales tax?
Yes. Charges for providing security services to property or persons located in Texas are subject to Texas sales tax, so the security company was correct to charge sales tax on its hourly guard-service…
Is a tenant's late rent fee subject to Texas sales tax as a taxable 'debt collection service,' and does it matter that a property management firm collects the fee on behalf of the property owner?
A tenant's late fee for paying rent late (a straightforward contractual sanction, not yet a delinquent-account collection effort) is not a taxable debt collection service under Rule 3.354, so the tena…
When a retailer sells its credit-card receivables to a financial institution, can the retailer claim a sales tax bad debt deduction for accounts the institution later writes off — and does it matter whether the sale to the institution is a true recourse arrangement or a discounted factoring sale?
It depends on which one the arrangement actually is: a retailer that factors receivables with a genuine recourse provision can claim a bad debt deduction on accounts written off as a result of that re…
When could a homeowners' or property owners' association qualify for the former Texas franchise-tax exemption, and was there a fixed percentage of lots that had to be sold?
An association could be considered only if it was a nonprofit corporation organized and operated primarily for residential property, the development was legally restricted to residential use, and indi…
Does the Texas exemption for labor and materials to repair large commercial vessels (Rule 3.297(b)(2)) cover charges for renting equipment like scaffolds used during the repair?
No. Rule 3.297(b)(2)'s exemption covers labor and consumed materials (like sand for sandblasting or solvents) used to repair a commercial vessel over eight tons, but it does not cover equipment — incl…
A 501(c)(3) organization planned to sell taxable items at a Texas convention spanning two days. Does that use up both of its allowed one-day tax-free sales for the year, or does it still count as just one?
It uses up both. A Texas-exempt 501(c)(3) organization gets two one-day, tax-free sale days per calendar year (and the same allowance applies to each bona fide chapter), but selling over a two-day per…
When a business that provides a taxable service separately bills a client for its own travel expenses (airfare, meals, hotel), are those reimbursed expenses part of the taxable sales price?
Yes. Travel expenses billed by a provider of a taxable service are part of the taxable sales price and are subject to Texas sales tax — Tex. Tax Code § 151.007(a) does not allow the sales price of a t…
Are membership dues paid to a professional/trade association subject to Texas sales and use tax?
No. Membership dues paid to a professional association are not subject to Texas sales and use tax.
If a Texas seller ships or personally delivers a taxable item to a customer outside Texas, is Texas sales tax due — and what proof should the seller keep?
No Texas sales tax is due when a Texas seller ships or delivers a taxable item to a location outside Texas. The seller should keep documentation proving the out-of-state delivery — a shipping invoice …
When a country club bills its golf members a monthly assessment to pay for a capital improvement (like a new cart path), is that assessment subject to Texas sales tax — for both equity members (who've vested capital in the club) and non-equity members?
Yes for both. A capital improvement assessment billed to a private club's golf members is taxable regardless of whether the member is an equity member (who has vested capital and voting rights) or a n…
A meat packaging plant uses a hot-water pasteurization cabinet, acetic acid sprays, dust-removal acid wash, sanitizing chemicals, conveyors, and a cooler as part of USDA-mandated processing. Which of these qualify for Texas's manufacturing/pollution-control sales tax exemption?
It's item-by-item, not all-or-nothing. The hot water pasteurization cabinet and acetic acid used to kill bacteria qualify for the exemption, and sanitizing/cleansing chemicals used on the processing a…
Can a Texas local taxing jurisdiction impose local sales tax on direct-to-home satellite television programming?
No. The federal Telecommunications Act of 1996 preempts local taxing jurisdictions from imposing sales tax on direct-to-home satellite programming, so no local sales tax is due on satellite programmin…
When a restaurant building is subleased to a franchisee together with a separately billed charge for the restaurant equipment, is sales tax due on the equipment rental charge?
No. Under Rule 3.294(k)(1), if a real property lease/rental contract also includes the lease or rental of tangible personal property (like restaurant furniture or equipment) as part of the same agreem…
Is filter fabric used under railroad ballast an exempt railroad supply, and is the labor to install it in an existing track repair taxable?
The filter fabric itself is exempt, the same as the ballast, rails, cross ties, plates, and spikes it's installed alongside — it qualifies as a supply essential to the operation of locomotives and tra…
Are pool tables and shuffleboard tables in a bar subject to Texas sales tax, and does it matter whether they're coin-operated?
It depends on how customers pay. Amusement services like pinball games, pool tables, and shuffleboard provided through coin-operated machines that the consumer operates directly are exempt from sales …
A radiator repair shop wants to charge customers an environmental disposal fee. Is that fee taxable, and does it matter whether the radiator being repaired belongs to a motor vehicle or to other equipment?
The environmental disposal fee is taxable only if the underlying radiator repair itself is taxable — it's treated as just another cost of the repair, folded into the taxable sales price under Sec. 151…
What local sales tax rate does a lump-sum contractor pay on materials for a new construction project, when the contractor buys those materials from a Houston vendor?
A lump-sum contractor performing new construction is the consumer of the materials incorporated into the building and pays sales tax based on the VENDOR'S location and delivery point — not the job sit…
Is 'fishing' (retrieving lost tools or equipment from a wellbore) a taxable service under Texas's oil and gas well service rules?
It depends on when the fishing happens. Rule 3.324(d)(1)(C) generally makes fishing for rods or tubing a taxable activity, but Rule 3.324(d)(4) carves out an exception: fishing services are NOT taxabl…
Did an electric utility's securitization issuer owe pre-2008 franchise tax on transition charges or short-term earnings, and did the letter decide property tax?
The described issuer excluded transition-property transactions, transition charges, and short-term earnings on accumulated bond funds and the initial cash requirement from taxable capital and taxable …
How is scaffolding erection and dismantling labor taxed for a Texas contractor across five different scenarios: periodic maintenance, a taxable service, new construction, re-renting scaffolding as the rental company, and erecting/dismantling a customer's own scaffolding?
There is no single answer — it depends entirely on what's actually being sold. As a general rule, contractors performing real property services are the 'consumer' of scaffolding they use and must pay …
A company plans to hold a Texas seminar training pharmacists on preparing compounded pharmaceutical products, and will provide notebooks and workbooks as part of the training. Is the training taxable, and who pays sales tax on the materials?
The training itself is not subject to Texas sales tax. If the seminar provider gives materials like notebooks or workbooks to attendees as part of the seminar (bundled into the price), the PROVIDER mu…
In a four-party chain — a telecom provider (Company A) selling to a reseller (Company B), which sells a bundled WAN service to a service company (Company C), which in turn charges a property owner (Company D) — where in the chain is Texas sales tax actually due?
Wide-area network (WAN) charges are taxable as telecommunications services, but the tax only attaches at certain points in this four-party chain. Company A's charge to Company B is taxable. Company B'…
A contractor performs actual repairs (not maintenance) to nonresidential real property and buys parts/materials at a hardware store to incorporate into the job. Can the contractor use a resale certificate to buy those materials tax-free, and does it matter whether the bill to the customer separates labor from materials?
Yes — because nonresidential real property repair is itself a taxable service, the contractor may give the hardware store a resale certificate and buy the materials tax-free, since the materials will …
I inspect homes and buildings, sometimes for insurance purposes and sometimes just because someone is buying or selling the property. Which of these inspections are taxable, and do I need a sales tax permit?
Inspections performed for insurance purposes (evaluating property risk for insurance coverage) are taxable insurance services under Rule 3.355. But an inspection done for the purpose of selling or buy…
A company plugs holes drilled to record seismic data for an oilfield service company. Is this service taxable, and does it matter whether the bill separates the materials (bentonite) charge from the labor charge?
The hole-plugging service itself is not a listed taxable service, so a lump-sum charge (labor and materials not separately stated) is not subject to Texas sales tax — though the company must pay sales…
Do I need to periodically renew resale and exemption certificates I've collected from customers, and do I need my customers to show me a copy of their Texas sales tax permit?
No to both. There's no requirement to renew resale or exemption certificates once you have them on file, though it's wise to verify the customer's information (address, phone number, etc.) is still cu…
A company answers four separate sales-tax questions: is electricity/gas used to repair aircraft (including in leased-out hangar space) exempt, who collects tax on catered aircraft meals, is electricity for a helicopter-repair shop taxable, and is electricity used to repair equipment held for resale taxable?
Four separate answers in one letter: (1) electricity/gas used for OFF-WING jet turbine engine repair by a licensed, certificated carrier is exempt under Rule 3.297(d)(4) — but a lessor renting out han…
A university owns and operates a parking garage used mostly by its own students, faculty, and staff, with about 10% of the use going to the general public. Are the parking charges to the university's own students, faculty, and staff subject to Texas sales tax?
No — parking permits sold to the university's own faculty, staff, and students are exempt from Texas sales tax. But the university must collect sales tax on parking charges to other tenants of the bui…
A corporation that already holds a Texas sales tax permit forms a single-member LLC (a disregarded entity for federal and Texas income tax purposes) with activity in Texas. Can the LLC report its sales tax activity on the parent corporation's own sales tax permit, or does the LLC need its own separate permit?
The single-member LLC needs its own separate Texas sales and use tax permit — it cannot report its taxable activity on its member's (parent corporation's) sales tax return. Even though the LLC is disr…
A retailer's computerized point-of-sale system calculates a sales tax amount that differs from what's actually collected from customers. Can the Comptroller approve reporting sales tax based on the actual amount collected instead of the statutory calculation?
No — the Comptroller cannot approve a reporting method that departs from Tex. Tax Code § 151.053(a). Tax must be computed on the TOTAL sale of taxable items (not on each individual item), with fractio…
Are admission tickets to view movies in a theater that's listed in the National Register of Historic Places subject to Texas sales tax?
No. Admission tickets to a movie theater are ordinarily taxable amusement services under Tex. Tax Code §§ 151.0028 and 151.0101(a)(1), but § 151.3101(2)(B) specifically exempts admission tickets to vi…
For pre-2008 Texas franchise tax, could an LLC exclude contributed property with a $1,000 tax basis and $600,000 agreed value from taxable capital?
No. A corporation contributed property with a $1,000 tax basis and $600,000 fair market value to an LLC taxed federally as a partnership. The Comptroller said the LLC's pre-2008 taxable capital includ…
A university holds various events — rock concerts, a student-organization movie showing, and a monster truck rally — sometimes alone, sometimes with a performer's agent, sometimes with a promoter under a profit/loss-sharing contract. In which of these five scenarios are the admission tickets taxable amusement services?
It depends on whether the university is "held out as the provider" of the event and whether it's genuinely sharing both profit AND loss with a for-profit co-provider. Tickets are NOT taxable when the …
A commercial bank asked the Comptroller to run through the sales-tax treatment of a whole list of products and services it purchases: training seminars, delivery charges, armored car/courier services, UCC lien searches, printing, appraisals, pest control, books/subscriptions, audit/loan-review/401(k) administration, software maintenance, and repossession services. Which of these are taxable?
A mixed bag, item by item: training seminars are NOT taxable. Delivery charges billed by the seller of a taxable item ARE taxable. Armored car/courier services requiring a Board of Private Investigato…
A construction company acts as authorized purchasing agent and general contractor for the Federal Home Loan Bank on a construction job, billing equipment rentals to the Bank (paid by Bank check) as a federal exemption claim. Are those equipment rentals exempt from Texas sales tax?
Yes. The equipment rentals are exempt because they are made to the Federal Home Loan Bank, which Tex. Tax Code § 151.309(1)-(3) treats as an exempt purchaser — the statute exempts sales, rentals, and …
Is a Muzak-style 'Marketing on Hold' service — messages and music played to callers while they wait to be connected — a taxable service in Texas?
The Muzak 'Marketing on Hold' service itself is not a taxable service. But if the same seller also provides 'on hold' tapes containing marketing messages to be played to waiting callers, charges for t…
A manufacturer uses a dedicated holding table to hold molded components in place while glue and carpet pieces are affixed and set, then removed for packaging. The table is used for no other manufacturing process. Does it qualify for the manufacturing equipment exemption?
No. Work tables or holding stations used in a manufacturing process do not qualify for the manufacturing exemption unless they directly cause a chemical or physical change in the product (or its compo…
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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.