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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When a document-outsourcing company provides photocopying, duplicating, facsimile, internal messenger service, and equipment maintenance, which pieces are taxable — standalone, bundled, or itemized?
Photocopying, duplicating, facsimile, and equipment-maintenance charges are all subject to sales tax as standalone services; facsimile is additionally subject to sales tax as a telecommunications serv…
Do motorized shopping carts (the powered, basket-equipped carts stores provide for mobility-impaired shoppers) qualify for the wheelchair sales tax exemption?
Yes. Motorized shopping carts — the powered, tricycle-like carts with a basket that stores provide for shoppers with mobility impairments — are considered wheelchairs for Texas sales tax purposes and …
Did a Texas vehicle buyer owe tax again when a dealer collected the tax but closed without remitting it?
No. Motor vehicle tax paid to the dealer satisfied the buyer's payment obligation even though the dealer failed to remit it. An itemized sales invoice was acceptable proof, title could transfer withou…
Does piping and conveyor equipment used to transport product in a Texas refinery or chemical plant still qualify for the manufacturing exemption after September 30, 1997?
No, not on or after October 1, 1997. H.B. 1855 made clear that piping and conveyors used to transport product do not qualify for the manufacturing exemption from that date forward — reversing the expa…
Is surveying a ship channel to determine water depth (for dredging decisions) a taxable real property service in Texas?
No. Surveying to determine the depth of water in a ship channel — done periodically to decide whether dredging is needed so ships can safely navigate to docks — is not a taxable service. The taxable k…
Is a tire dealer's disposal/collection fee for scrap tires taxable, and does it matter whether the fee is separately stated?
It depends on who bears the fee. The state-imposed scrap tire recycling fee charged to the CONSUMER (new tire buyer) under the now-expiring recycling program is not taxable if separately stated on the…
How did Texas tax leased trucks under long-term leases, short-term rentals, and interstate use in 1997?
The 1997 letter taxed leases over 180 days on the lessor's purchase price, while rentals of 180 days or less were taxed on gross receipts at different historical rates. Qualifying interstate trucks wi…
How did Texas treat a sale of 90% of LLC interests followed by a federal Section 754 basis adjustment under the former franchise tax?
If the seller's gain was unitary income, Texas treated the LLC-interest sale as an intangible sale sourced by the payor's location for both former franchise-tax components. The LLC itself recognized n…
How did the former Texas franchise tax define taxable capital, surplus, and net taxable capital?
Taxable capital consisted of the corporation's stated capital plus surplus. Net taxable capital was the taxable-capital amount after apportionment and allowable deductions. The letter directed readers…
Are compressors that keep breaded fish frozen after processing exempt from Texas sales tax as manufacturing equipment?
No, the compressors are not exempt. A company that cuts, breads, and freezes fish (later shipped to its own restaurants for cooking and sale as food ready for immediate consumption) uses compressors t…
Can a hospital buy food processing equipment tax-free with an exemption certificate, given that patient meals are treated as part of health care services rather than restaurant-style food sales?
A hospital can issue an exemption certificate for food processing equipment used both to prepare meals for patients (part of its health care services, not a food sale) and to prepare food sold to visi…
How does Texas tax prepaid telephone calling cards, and what changed when S.B. 862 reclassified them as tangible personal property effective September 1, 1997?
Effective September 1, 1997 (corrected from an earlier-stated October 1, 1997 date), Senate Bill 862 recharacterized the sale of telephone prepaid calling cards from a telecommunications service to a …
When a credit-card rewards certificate is redeemed at a store, should sales tax be calculated on the full purchase price before or after the certificate is subtracted?
Sales tax is correctly calculated on the FULL purchase price, with the rewards certificate's value subtracted only AFTER tax is added — not before. A credit-card rewards certificate earned through pur…
Is installing a memory card in a computer taxable, and does installing software drivers along with it change the answer?
Yes, installing a memory card is taxable. Inserting a card into a motherboard — whether replacing an existing card or filling an unused expansion slot — is repair, remodeling, or restoration of the co…
When a used bookstore later redeems a customer's store credit (from selling used books) toward a new purchase, is tax due on the full purchase price or only the cash portion?
Tax is due on the total purchase price, including the credit portion. A used bookstore is correct to collect sales tax on the full charge when a customer buys a book using a store credit memo (earned …
Does equipment that seals shipping cartons with glue, as the final packaging step before shipment, qualify for the Texas manufacturing exemption?
Yes. Manufacturing is defined as every operation from the first stage of production of tangible personal property through completion — and completion includes packaging, if any, since the product must…
Did a corporation owe Texas motor vehicle tax when it changed only its name on the vehicle title?
No. Each corporation had only changed its name by amending its certificate of incorporation. Because the entity remained the same and there was no taxable transaction, changing the name on the Texas c…
What Texas tax applied to an importer's test-drive vehicles using metal dealer plates?
It depended on the transportation agency's dealer-plate decision. If the vehicles could properly use metal dealer plates, the importer-distributor owed only the historical $25 dealer-plate tax. Otherw…
Does a home builder's 'tax included' contract language shift sales-tax liability to the contractor, and who is liable if a service later turns out not to qualify for the new-residential-construction exemption?
The submitted 'tax included' contract language does NOT meet the requirements of Rule 3.286(d)(4) because it isn't unconditionally explicit — it refers only to 'applicable taxes' on 'material, labor o…
Can a motor vehicle paint and body shop switch from separately billing parts (with tax collected from the customer) to a lump-sum price (paying tax itself on parts, collecting none from the customer)?
Yes, this is an acceptable way to handle the tax. Labor to repair motor vehicles is not taxable under Rule 3.290(g)(1)-(2). A shop billing a lump-sum price for motor vehicle repair is not a retailer o…
Does a Texas computer retailer need to collect Texas sales tax on computers and parts it ships to customers outside Texas, and can it buy those components tax-free?
No Texas tax collection is required. A retailer is not required to collect Texas sales tax on computers or parts it ships to customers outside Texas, but must keep documentation — like postal receipts…
Can an Internet service provider buy its facility 'environment' and T1 connectivity charges tax-free if it charges its own customers sales tax on those services?
The ISP's own supplier should not charge it tax on the monthly $150 environment-and-connectivity charge. Instead, the supplier itself must pay tax on the taxable items included in that charge — except…
When a gift basket bundles nontaxable food with taxable items (like candy or gift items), how is Texas sales tax applied to the package's price?
Not all food in a gift package is nontaxable — of the food items listed, only candy, chocolates, soda pops, chocolate powder drinks, and chewing gum are taxable; the rest are nontaxable food. Whether …
Is a fee charged to businesses for posting their printable coupons on a website subject to Texas sales tax as data processing?
Yes. Charging businesses a fee to place their coupons on your website — where visitors can print and redeem them — is taxable as data processing, because the service involves entering, scanning, creat…
How does Texas tax hotel amenities, upgraded-package charges, and bundled room-and-meal (American Plan) pricing — hotel occupancy tax, sales tax, or both?
This letter corrects an earlier March 1997 ruling's citation (the Alcoholic Beverage Code section for mixed beverage gross receipts tax is § 183.021, not the repealed § 202.02) and restates five hotel…
How did Texas calculate former franchise-tax penalty and interest when an annual report was extended, underpaid, or filed without an extension?
An extended report still showed its original due date. The 90% payment test used total tax on line 36, less the payment made by the original due date. The unpaid difference drew 5% penalty, another 5%…
Could a multistate air-freight carrier use a special four-factor formula for the former Texas franchise tax?
No. Texas denied the carrier's proposed formula based on miles, arrivals and departures, shipping weight, and sales. Section 171.106 required a single gross-receipts factor for both former franchise-t…
Was providing a concrete pump truck with a skilled operator a Texas motor vehicle rental or a service?
It was a service, not a rental. The operator transported and controlled the complex pump truck, the customer's staff never operated it, and the customer merely directed where concrete should be placed…
Is the fee charged to program a patient's medical history and insurance information onto a smart card subject to Texas sales tax?
Yes. A programming fee — charged to load a patient's health and insurance information onto a credit-card-sized smart card with an embedded memory chip, readable by ambulances, hospital emergency depar…
Are fuel filters, nozzles, hoses, and lubricants used on farm/ranch equipment and vehicles exempt from Texas sales tax?
Yes, with an exemption certificate. Fuel filters, nozzles, and hoses used on large fuel tanks (250-1,000 gallons) that supply fuel exclusively to farm or ranch equipment, or to motor vehicles not lice…
Do substation equipment items (breakers, switches, transformers, capacitor banks, regulators, relays) used to step down high-voltage electricity for distribution qualify for the manufacturing exemption?
Yes. Breakers, switches, transformers, capacitor banks, regulators, and relays located in an electric utility's substation and used to step down high-voltage electricity (69kv/138kv/230kv) to distribu…
When a financial institution only holds a security interest in equipment (never taking title or possession), are its 'financing lease' interest charges subject to Texas sales tax?
No sales tax is due on the separately stated finance/interest charges. A lease or rental under Rule 3.294(a)(2) requires transferring POSSESSION (even if not title) of tangible personal property — but…
Were S corporations subject to the former Texas franchise tax?
Yes. Texas imposed the former franchise tax on each corporation doing business in Texas or chartered or authorized to do business there, including an S corporation. A 1993 bill that would have exempte…
How did Texas address possible double taxation of related S corporations and LLCs under the former earned-surplus tax?
Texas did not resolve the stated S-corporation parent-and-subsidiary issue because it was still considering Qualified Subchapter S Subsidiary treatment. It did explain that an LLC investor should excl…
In Houston, how are telecommunications service charges, rented telecom equipment, PBX maintenance, and related software upgrade/training charges taxed, and at what combined state-plus-local rate?
Telecommunications services (trunking/SMR, air time, local phone service, dispatch service, and tower access billed as part of the service) are taxable at the combined Houston rate of 7.25% (6.25% sta…
How did an acquired company report the former Texas franchise tax after changing from a December 31 to March 31 year-end?
The company did not need Texas permission to change its accounting period and should not file a short-period franchise-tax report. Its 1998 annual report used the 12 months ending March 31, 1997 for t…
Does replacing an old golf course sprinkler/irrigation system with a completely new one, laid in new trenches, count as nontaxable new construction?
Yes. A golf course, per TR 1263, is not as a whole an improvement to realty — rather, it's made up of a number of separate improvements to realty, each analyzed on its own. Installing a brand-new in-g…
When is a staff leasing arrangement exempt from Texas sales tax, and what happens if the leased employees perform otherwise-taxable services like data processing, security, or collections?
A staff leasing arrangement is exempt from sales tax only if it meets ALL of Rule 3.364(b)'s conditions: at least 75% of the assigned employees were previously the client's own employees for at least …
Is a 16-ounce packaged jar of hot sauce subject to Texas sales tax?
No. A 16-ounce jar of hot sauce is presumed to be sold for home consumption rather than immediate consumption because of its packaging and size, so no Texas sales tax is due on the sale.
Could a company use an intended later restructuring or another entity's apportionment factor to reduce former Texas taxable capital?
No. Texas required the taxpayer's taxable-capital component to reflect its actual financial condition at the relevant period end and its own apportionment activity. The Comptroller rejected using anot…
If a subcontractor never gets a resale certificate from the general contractor on a separated construction contract, who owes sales tax on the materials -- even though the ultimate customer holds a direct-pay permit?
The subcontractor (Company B) must bill and collect sales tax on the materials under the separated contract, because it never received a valid resale certificate from the general contractor (Company A…
How does a refinery or chemical plant prove that turnaround maintenance work qualifies as tax-favorable "scheduled periodic" maintenance rather than taxable repair, especially before a repeat pattern has been established?
To support the "scheduled periodic" element under Rule 3.357(a)(4) even without an established repeat pattern, either the same work must be performed at each turnaround, or the turnaround contract its…
Did a Texas vehicle with a newly installed left accelerator qualify for the orthopedic-disability tax exemption?
No, on the facts presented. A left accelerator was qualifying adaptive equipment, but the vehicle already had more than 3,700 miles before the modification. The Comptroller treated that mileage as sho…
Is compensation an employer pays employees for using their own personal tools on the job subject to Texas sales tax as a taxable lease or rental?
Not automatically. The Comptroller's longstanding position is that additional compensation or reimbursement paid to employees for using their own personal tools is NOT taxable, as long as the employee…
Does owning an interest in — or being a partner in — a partnership that does business in Texas make a corporation 'doing business' in Texas for franchise tax?
It depends on the type of partner: a general partner is doing business in Texas if the partnership is, but a limited partner is not — if its only Texas connection is the partnership interest. The Comp…
If a bulletin-board-service (early internet) provider mistakenly paid sales tax for years on dedicated phone lines it actually bought tax-free for resale, how does it get that overpaid tax refunded?
The dedicated telephone lines were purchasable tax-free for resale under Tax Code § 151.006(1), since the provider was reselling the taxable telecommunications service to its bulletin-board clients. H…
Can a private developer get a refund of sales tax paid on materials used to build an office building that it then leases to the State of Texas under a lease-with-option-to-purchase?
No refund here. Section 151.311 exempts materials incorporated into realty improvements built for the primary use and benefit of an entity exempt under § 151.309 (governmental) or § 151.310, but on pr…
Is acid used to clean out a farm/ranch irrigation well, or the well-bailing service itself, exempt from Texas sales tax as agricultural machinery repair?
Yes, both are exempt. Bailing sand out of a farm/ranch irrigation well is nontaxable as the repair of agricultural machinery or equipment, and the acid sold to clean out the well for that purpose is l…
Does a funeral home need to collect sales tax on additional prayer cards, crucifixes, flowers, or motor escorts that get added to and separately invoiced under an existing itemized funeral service contract?
No, the funeral home does not have to collect and report sales tax on those additional items, because they are furnished under the original itemized funeral service contract (as required by state and …
Is a company's business of standardizing and structuring MRO (maintenance, repair, and operating) materials descriptions for clients a taxable data processing service in Texas, even for the parts of the work not actually done on a computer?
Yes. Providing customized materials cataloging is a taxable data processing service under Tax Code § 151.0035 and Rule 3.330(a), which cover information compilation and computerized data manipulation …
Could a Texas rental company separately charge customers for title, registration, property-tax, and toll-road costs?
Yes. The 1997 letter allowed a rental company to separately charge customers for title fees, registration fees, and prior-year fleet property taxes, but the invoice had to label the charge as a reimbu…
Is a gas compression service taxable, and does it matter whether the compressor is instead leased or rented out to the customer?
Gas compression services performed under a contract where the provider never transfers possession or control of the compressor to the customer are NOT taxable -- it's a service, not a rental or lease,…
Is the sale of a house that a house-moving business removes from one lot and relocates to another taxable, and does it matter how the contract itemizes the house price, moving cost, and foundation work?
A house attached to realty is generally not taxable to sell, but once it's detached from realty and sold WITHOUT installation, it becomes a sale of tangible personal property, and sales tax is due on …
Could a seller claim a Texas motor vehicle sales tax refund or deduction for bad debt?
No. The Comptroller said motor vehicle sales were taxed under Tax Code Chapter 152 and that Chapter 152 contained no bad-debt provision. The letter did not decide the separate treatment of items taxed…
Does Farm Credit Bank of Texas have to charge and collect Texas sales tax on the payroll, appraisal, marketing, and other administrative support services it provides to farm credit associations across the state?
No -- the Comptroller cannot require Farm Credit Bank of Texas to charge and collect Texas sales and use tax, because it and its chartered associations are instrumentalities of the United States Gover…
Is a long-standing workforce-provision contract for a chemical plant's operational staff nontaxable as staff leasing, even though the contractor directs supervision, assumes liability, and can subcontract work?
No -- based on the contract terms described, this arrangement is an independent-contractor services agreement, not staff leasing, so Rule 3.364(c)'s staff-leasing exclusion doesn't apply. Tasks perfor…
If a club's mandatory 18% gratuity is split between direct employee payments and employee benefits, does retaining part of it for benefits make the whole gratuity taxable -- and can "total direct compensation" include those benefits to satisfy the full-disbursement test?
A club charged an 18% mandatory gratuity on food and beverage sales, paying 15% directly to service employees and crediting the remaining 3% toward employee benefits (health/life insurance, holiday ti…
Does the NATO Status of Forces Agreement exempt foreign (e.g., UK) military personnel stationed in Texas from Texas sales tax on their personal purchases?
No. The Comptroller's legal staff reviewed Article X of the NATO Status of Forces Agreement (Treaty) and determined it does NOT exempt foreign military personnel covered by it -- including a UK citize…
Is a voice-activated environmental control system, prescribed by a doctor for a quadriplegic individual to independently operate a telephone, TV, lights, and electric hospital bed, exempt from Texas sales tax?
Yes. The Comptroller treated the voice-activated environmental control system -- which lets a quadriplegic individual with no use of his upper or lower extremities independently control his telephone,…
Is a legal-support business that obtains records from non-parties via subpoena and deposition-by-written-questions (issued through a notary public) exempt from Texas sales tax, and are its various fees and shipping charges taxable?
The entire service is exempt. Section 151.353 exempts court reporting services related to preparing a document/record in a civil or criminal suit by a notary public or licensed court reporter, as long…
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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.