Texas State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Texas, with full citations and the original source on every page.
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Did a utility-owned LLC include transition charges and interest earned while temporarily investing those receipts in taxable capital or taxable earned surplus?
No. TXU Electric's proposed wholly owned LLC would issue bonds secured by transition property, receive transition charges, and temporarily invest those receipts. Section 39.311 excluded the described …
A homeowners' association contracted for three subdivision entrance signs; the contractor's proposals and invoices bundled labor and materials into one lump-sum price and charged sales tax on top. Are the sign sale/installation charges lump-sum contracts, and is sales tax properly due on the invoices as billed?
The sale and installation of the sign posts qualify as improvements to realty, and the contractor's proposals/invoices here were lump-sum (one combined price for labor and materials). Under a lump-sum…
Can a Texas lessor buy a vehicle exempt from motor vehicle sales tax when it will be modified and leased for an orthopedically handicapped driver or passenger?
Yes. The vehicle did not have to be sold directly to the orthopedically handicapped driver or passenger. A lessor's purchase could qualify if the required modification was performed and the vehicle's …
A retailer's employee embezzled company funds, including sales tax collected from customers. Can the retailer get a refund or waiver of the sales tax that was stolen, since the retailer never actually got to keep that money?
No refund is available. Sales tax is paid by the purchaser and collected by the retailer, who holds it IN TRUST for the state and remains personally liable for remitting it to the Comptroller — even i…
A full-service interactive media company builds websites, domain names, and e-commerce solutions for clients. Which pieces of this work — web page creation, HTML/scanning, graphics/logos, hosting, database access, domain registration, search-engine submission, and software sold online — are taxable data processing, advertising, or other services in Texas?
Web page creation and maintenance is generally a taxable data processing service. Scanning data and creating HTML documents are taxable data processing; creating graphics or logos for a client's page …
How did the former Texas franchise tax treat an electric utility LLC's transition-property transactions and interest received by its bondholders?
The LLC excluded the transfer and ownership of transition property and receipt of transition charges from taxable capital and taxable earned surplus under Section 39.311. A bondholder subject to Texas…
A repair business fixes copiers for customers located outside Texas. Is the repair service taxable, and does it matter whether the customer picks up the repaired copier in Texas or has it shipped back out of state?
The repair service is exempt from Texas sales tax if the repairman travels to another state to perform the repair, OR if the repair is performed in Texas but the repaired copier is shipped or delivere…
Is restaurant-style food-preparation equipment purchased when constructing a new nursing home facility exempt from Texas sales and use tax as manufacturing equipment, since it turns raw food into consumable food for residents?
No. The manufacturing exemption applies to equipment used to process tangible personal property that is HELD FOR SALE. A nursing home is in the business of providing nursing care, not in the business …
A debt collection company collects on behalf of a client operating both inside and outside Texas, and has been charging Texas sales tax on ALL debtors regardless of where the debtor is actually located. Is that correct, or should Texas tax only apply to debtors located in Texas?
Texas sales tax should only apply to debt collection charges for debtors located in Texas — no Texas sales tax is due on the charge to collect a debt if the debtor was not located in Texas at the time…
A CPA firm signed a large outsourced-services contract to perform finance, accounting, and information technology functions for a client's upstream/chemical and downstream business units. Should the whole contract be treated as one nontaxable bundle of 'professional' accounting services (since the computer work is just how the firm delivers its professional advice), or does it need to be broken into individually taxable and nontaxable pieces?
The contract must be broken into pieces — it can't all be treated as one nontaxable professional-services bundle just because a CPA firm is providing it. Rule 3.330 defines data processing broadly (da…
A restaurant's game room has coin/token-operated video arcade games and rides, plus a bumper car ride that also requires depositing tokens into a turnstile but is controlled by an employee. Are the receipts from all of these exempt as coin-operated amusement machines?
Not all of them. Receipts from coin-operated video arcade games and rides that require a token/coin to play and display the required $60 annual occupation tax stamp are NOT subject to sales tax (thoug…
Could a surviving Texas leasing company use vehicles previously leased and titled to its merger predecessors as fair market value deductions?
Yes. Because of the merger restructuring and legislative changes to Tax Code § 152.002, the surviving renamed company could use vehicles previously leased and titled in Texas to the merged companies. …
A company refurbishes and remanufactures old cryogenic tanks and vessels (used by mostly out-of-state customers to store liquid oxygen, nitrogen, and argon), performing complete restoration and repair. Should it collect Texas sales tax on both in-state and out-of-state customers, and how is tax handled on the parts used in the repair?
Refurbishing, restoring, or repairing tangible personal property belonging to another is a taxable service under Rule 3.292, and tax is due on the ENTIRE charge — materials, parts, labor, consumable s…
A backhoe cut a natural gas pipeline at a construction company's job site. The gas company billed the construction company for the repair, separating out labor, materials, equipment, gas loss, and overhead — without charging sales tax. Should the gas company have charged sales tax on that invoice?
Yes, mostly. The charge for repairing the pipeline is taxable as a nonresidential real property repair service under Rule 3.357, and the total charges for the repair — labor, materials, equipment, and…
A non-Texas food broker with no Texas offices, employees, or agents obtains bids to supply food products (not ready-to-eat meals) to tax-exempt entities like school districts, using common carriers for delivery and sometimes a short-term rented storage facility in Texas. Does this company need a Texas sales tax permit?
The company's short-term rental of a Texas storage facility does make it "engaged in business" in Texas under Tex. Tax Code § 151.107(a)(1). However, as long as the company sells only food products no…
A store advertises a computer at $649, but gives an instant $400 rebate at the time of purchase if the customer signs a 3-year internet provider contract — so the customer only pays $249, and the $400 never appears on the customer's bill or account. Is Texas sales tax due on the $649 advertised price or the $249 actual price paid?
Sales tax is due on the $249 discounted price actually paid, not the $649 advertised price. This follows the standing rule (from an earlier 1988 letter, 8810L0904F12) that cash discounts taken at the …
A city owns and operates an auditorium-coliseum and has begun charging patrons to park for events. Is the parking fee taxable if the city is the sole entity charging for parking, and is it taxable if the city instead shares the net parking profit with the event promoter leasing the facility?
Yes — the parking fee is taxable either way, whether the city is the sole entity charging for parking or the city and the event share the parking profits. Rule 3.315(a) makes sales tax due on parking …
Are chemical sanitizers used to clean food-processing equipment and processing-area floors/walls exempt from Texas sales tax?
Yes. Chemical sanitizers that state or federal law requires a food-processing facility to use, applied to processing equipment or used within the actual manufacturing/processing area (including proces…
When a building job mixes new construction, residential remodeling, and nonresidential remodeling, how is Texas sales tax calculated on the combined contract?
It depends on category and billing method: new construction and residential repair/remodeling are both taxed the same way (materials taxable, labor exempt; lump-sum billing makes the CONTRACTOR the ta…
Are conveyors, piping, and water-treatment equipment in a rock-crushing plant exempt from Texas sales tax as manufacturing equipment?
Split ruling: the shakers, log washers, sand screws, and high-pressure water machine in a rock-crushing operation qualify for the manufacturing exemption because they each make a chemical or physical …
Are thermometers and timers used in food processing exempt from Texas sales tax as manufacturing/quality-control equipment?
Yes, for quality-control uses: hand-held probe thermometers used to check food temperature during processing, shelf-type oven thermometers used to monitor cooking temperature, and timers used in food …
When a Texas-permitted seller drop-ships to a Texas customer on behalf of an out-of-state retailer, can it accept the out-of-state retailer's resale certificate instead of collecting sales tax?
Yes. A seller holding a Texas sales tax permit that drop-ships items to a Texas 'ship to' address on behalf of an out-of-state retailer may accept a properly completed resale certificate from that out…
Is an advertising company's electronic transmission of a recorded phone message to a radio station's listeners a taxable telecommunications service?
Yes, taxable -- and the taxpayer's own prior informal advice (that it would be exempt telemarketing) was corrected in writing. A charge for electronically transmitting a recorded message via telephone…
Is propane (LP gas) sold for residential or commercial use subject to Texas sales tax?
ALERT (see note below): propane (LP gas) is exempt from both state and local sales and use tax under Tex. Tax Code § 151.308(a)(3) and § 321.003, regardless of whether it's used residentially or comme…
Is artwork design and printing for a manufacturer's shipping containers exempt from Texas sales tax, including when the container doubles as an in-store display?
Split answer. A manufacturer can use a manufacturer's exemption certificate to buy, tax-free, artwork design and printing for a shipping container -- even if that same container later doubles as a pro…
Is copying seismic data onto tape taxable, even when it's outsourced to a related company or billed directly to the end client?
No exemption in any of the three billing arrangements tested. A seismic-data company's tape-copying charges are taxable whether (1) the data owner invoices the client and pays a related tape-copying c…
After a corporate merger, can the surviving company take a sales-tax credit for taxes the non-surviving predecessor paid in error before the merger?
Yes. Where a Texas corporation was merged into a Delaware corporation (a tax-free reorganization under IRC § 368(a)(1)(F), keeping the same federal ID), the surviving corporation -- as the entity now …
Which parts of a bulk mailing/fulfillment business's services (data processing, collating, printing, postage, labels, set-up fees) are subject to Texas sales tax?
It depends item-by-item on what's actually done, per the Comptroller's category-by-category breakdown: data services (database design, de-duplication, CASS certification) are nontaxable when they rela…
Did federal tax deferral for an I.R.C. Section 1031 exchange also defer the exchange gain in the earned-surplus component of the former Texas franchise tax?
Yes, for the earned-surplus component described. Because that component began with federal net taxable income, a corporation's federal Section 1031 tax deferral was reflected in taxable earned surplus…
Did federal tax deferral for an I.R.C. Section 1031 exchange also defer the exchange gain in the earned-surplus component of the former Texas franchise tax?
Yes, for the earned-surplus component described. Because that component began with federal net taxable income, a corporation's federal Section 1031 tax deferral was reflected in taxable earned surplus…
Did a Virginia corporation create Texas franchise-tax nexus by selling merchandise from a trailer at one Texas NASCAR event?
Yes. Assuming the company was a corporation without a Texas certificate of authority, its merchandise sales from a trailer at one Texas NASCAR event in 1998 were sufficient to subject it to both the t…
Are digital certificates (Digital IDs) sold and delivered over the Internet subject to Texas sales tax as software, data processing, information services, or telecommunications services?
Not taxable under any of four theories tested. A company that sells Digital IDs (digital certificates used to authenticate identity for secure online commerce) delivered electronically over the Intern…
Does a chiropractor collect sales tax from patients for therapeutic devices used in treatment, and can a practitioner buy prescribed dietary supplements/vitamins tax-free?
A licensed practitioner of the healing arts (like a chiropractor) pays sales tax itself on the purchase price of therapeutic appliances or devices used in treating patients, but does NOT collect sales…
Did a Delaware corporation create Texas franchise-tax nexus by keeping a Texas checking account and hiring a Texas resident as president?
No, not by themselves. A Delaware corporation's Texas checking account and employment of a Texas resident as president did not subject it to franchise tax. If the president conducted the corporation's…
Can a Texas sales tax filer report on a 4-4-5 (or similar) fiscal accounting calendar instead of a strict calendar-month basis?
Yes, with mechanical limits. Texas requires sales tax reports on a calendar basis by default, but permits filing based on a business's own fiscal calendar (such as a 4-4-5 or 5-4-4 accounting system) …
When a company with multiple Texas offices rents and erects scaffolding at a customer site in a different city, which city/district's local sales tax applies -- the office that took the order, or the site where the scaffolding is used?
The seller's ORDER-TAKING place of business controls, not the job site. A scaffolding company with multiple Texas offices owes city sales tax and crime control district sales tax based on which office…
Is a furniture trade-in taxed on the full new-item price, or only on the trade-up difference?
It depends on the direction of the trade. An even trade of like items has no sales tax due at all. If a customer trades up (gets a more valuable item and pays the difference), tax is due only on that …
Does an out-of-state company create Texas nexus just by hiring a former employee, now living in Texas, as an independent contractor to do customer support?
Yes, nexus is created -- twice over. An out-of-state company whose only link to Texas is a single independent contractor (a former employee who relocated to Texas and now answers customer-support e-ma…
Is the 'finish-out' work completing an unfinished ('green') aircraft -- installing interior, avionics, and paint -- exempt manufacturing, or taxable repair/remodeling labor?
Exempt manufacturing, not taxable repair. When a seller's original sales contract obligates it to complete an unfinished ('green') aircraft's 'finish-out' -- custom interior, painting, avionics, commu…
Is mowing, clearing brush, or cutting undergrowth on ranch or timberland a taxable real property service in Texas?
ALERT (see note below): mowing, cleaning, clearing, or brush-cutting to maintain and clear ranch land or timberland of undergrowth -- performed by independent contractors for a land manager -- is NOT …
Is a time-based fee for playing networked computer games (not coin-operated, charged by the hour rather than per game) a taxable amusement service in Texas?
Yes, taxable in both business models the taxpayer proposed. Charging customers by time (e.g., $1 per 15 minutes per computer) to play games on networked computers -- even though it's not coin-operated…
Can a reseller of telephone service buy telecommunications service tax-free using a resale certificate, and who pays the old Telecommunications Infrastructure Fund (TIF) assessment?
PARTIALLY SUPERSEDED (see note below). As of 1999, a reseller of local and long-distance telephone services could issue a resale certificate to its telecommunications provider instead of paying sales …
Is an hourly charge for on-premise use of computers, memory typewriters, or printers -- for tasks like data entry, retrieval, or business accounting -- a taxable data processing service?
Yes. Charging customers for on-premise use of computers, memory typewriters, and printers -- for data entry, data retrieval, data search, information compilation, payroll and business accounting, data…
Does the manufacturing or video/audio production sales tax exemption cover motor vehicles rented to transport movie production equipment?
No. Motor vehicles are taxed under a completely separate statute, Tax Code Chapter 152 (Motor Vehicle Sales and Use Tax), not Chapter 151 -- so the manufacturing exemption (§ 151.318) and the video/au…
Is it legal for Texas to charge sales tax on cigarettes when the price already includes federal and state cigarette excise taxes?
Yes, it's legal. A consumer asked whether it's proper for Texas to assess sales tax on cigarettes when the price already reflects federal and state cigarette excise taxes baked in. The Comptroller con…
For a new Christmas tree farm, are fencing materials, a farm-use ATV, private road construction, and the eventual tree sales subject to Texas sales tax?
ALERT (see note below): a new Christmas tree farmer can buy fencing materials tax-free with an exemption certificate under the agricultural exemption (Tex. Tax Code § 151.316, Rule 3.296) -- covering …
Is bulldozer work for landowners, ranchers, and oil/gas seismic companies (clearing right-of-ways, repairing damaged roads, clearing brush, building or repairing a ranch tank) a taxable real property service?
It splits cleanly along a new-work-vs-repair line across five scenarios. NONTAXABLE: using a bulldozer to cut/clear/stack/burn/disk right-of-ways for a seismic or oil/gas company (with the landowner's…
Can a bakery buy proofing cabinets (which provide the heat and humidity that makes bread dough rise) tax-free under the manufacturing exemption?
Yes. Proofing cabinets -- which provide the uniform heat and humidity needed to cause bread dough to rise -- qualify for Texas's manufacturing exemption when purchased by a business in the business of…
Is installing propane piping and equipment for a meat smoker and water heater in a food-processing plant taxable, and does a water heater used for both smoker humidification and equipment wash-down qualify for the manufacturing exemption?
Split answer across two work orders. For the smoker installation: the propane piping, regulators, flex connector, and other materials are taxable, but the LABOR to install this equipment is new constr…
Is the sale, lease, or rental of a hearing aid subject to Texas sales tax?
No. The sale, lease, or rental of a hearing aid is exempt from Texas sales tax, under Tex. Tax Code § 151.313(a)(4) and Comptroller Rule 3.284(a)(5).
How were a bank's interest and dividend receipts sourced for Texas franchise-tax reports due on or after January 1, 2000?
They were apportioned to the payor's legal domicile. House Bill 2067 repealed Section 171.1031, which had sourced a bank's or savings and loan association's interest and dividends to Texas when the re…
Does a custom pump manufacturer's test-lab equipment (electric motors, discharge heads, overhead cranes) used to test sub-assemblies and finished pumps qualify for the manufacturing exemption?
Splits three ways based on WHEN and WHAT the equipment does. Test lab equipment used to test semi-finished or fully assembled pumps AFTER the manufacturing process has started and BEFORE the product i…
Is artwork and packaging material sold to manufacturers (for their packaging, containers, labels, and displays) exempt from Texas sales tax, and how can a client get a refund for tax already paid?
Split by category, with a refund path. Sellers should accept an exemption certificate in lieu of tax when selling wrapping/packaging materials to manufacturers. A manufacturer that creates its own wra…
Is selling and installing a modular semiconductor cleanroom exempt from Texas sales tax, and what about repairing or remodeling the building around it?
It depends on who the customer is. Selling and installing a modular cleanroom (including installation labor) is exempt only when the customer is a semiconductor manufacturer who gives a properly compl…
Is sales tax due on drilling rigs docked in Texas, and on repairs/maintenance performed on them, while they wait for offshore oil-and-gas contracts?
It depends on how the rigs are used and built. Renting a rig with an operating crew for a single charge is a nontaxable service, not a taxable rental. Separately, purchasing the rigs and repairing/mai…
Is an above-ground swimming pool exempt from Texas sales tax if a doctor prescribes water exercise in it as physical therapy?
No. Even with a doctor's prescription for water exercise as therapy, an above-ground swimming pool does not qualify as an exempt therapeutic device under Tex. Tax Code § 151.313(a)(5) and Rule 3.284(c…
Can a seller take a sales tax credit for cash rebates it pays back to customers after the sale, based on volume of business?
Yes, if properly documented. Cash rebates paid back to customers after the sale are excludable from the sales tax base as long as the tax is refunded to the customer in proportion to the rebated sales…
Is an on-site-built glass-melting furnace ('Tank') tangible personal property that qualifies for the manufacturing exemption, or a taxable improvement to realty?
It's tangible personal property, not realty, because the facts showed no intent to permanently affix it (semi-temporary, no mortar, demolished after 3-5 years). As TPP used directly to cause a physica…
Can a wedding/portrait photographer buy cameras, flashes, batteries, and similar equipment tax-free using an exemption certificate, or only film and processing supplies?
Yes, more than just film. Photographers are treated as manufacturers under Sec. 151.318, and the 1999 addition of Sec. 151.318(t) lets them give an exemption certificate for cameras (conventional and …
Is labor to repair or remodel a building listed on the National Register of Historic Places exempt from Texas sales tax?
Yes, but only the labor. A contractor may accept an exemption certificate in lieu of collecting Texas sales tax on charges for labor to repair or remodel a building that is listed on the National Regi…
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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.