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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How did Texas tax a vehicle bought for export and accessories installed before or after the vehicle purchase?
The vehicle qualified for the export exemption only if its use was limited to removal from Texas and the buyer signed an out-of-state use certificate. Accessories added before the vehicle purchase qua…
(1) Can a wholesaler accept a manufacturing exemption certificate from a grocery store buying packaging supplies it knows are used only to repackage, not manufacture, products? (2) When taxable and nontaxable items ship together for one delivery charge, how much of that transportation charge is taxable?
Two separate answers. (1) A wholesaler CANNOT accept a manufacturing exemption certificate in good faith from a grocery-store customer if the wholesaler actually knows the packaging supplies are used …
Does a crane that lifts scrap metal from a metal-cutting shear to a bin for processing -- and can only be used for that one task -- qualify for the manufacturing exemption?
No. A crane (a 1993 Link-Belt Hydraulic Crawler Excavator) that's attached to a metal-cutting shear and uses a magnet to move scrap to a bin for processing does not qualify for the manufacturing exemp…
Is an apartment locating service taxable, where the locator gets paid a referral fee by the apartment complex (not the renter) for each successful referral?
No. Apartment locating services are not taxable in Texas when the locator's fee is paid by the apartment complex for each successful referral.
Does a 5,500-gallon storage tank plumbed directly into a chemical-blending manufacturer's mixing kettles qualify for the Texas manufacturing exemption?
No. A chemical-blending manufacturer's newly acquired 5,500-gallon storage tank -- plumbed directly into its mixing kettles so material can be fed into a batch-in-process by opening a valve -- does no…
When shareware software is downloaded for free but the user later pays a registration fee to unlock it, is that a taxable sale in Texas, and does it matter which server the customer downloaded the software from?
Downloading shareware for free is not a taxable sale, because there's no consideration exchanged at that point. Tax Code § 151.005 defines a "sale" as a transfer of title or possession of tangible pro…
Did a licensed wholesale auto auction have to collect Texas motor vehicle tax when selling a government vehicle to an unlicensed public buyer?
Yes. When the licensed wholesale auto auction sold a government-owned vehicle to an unlicensed public buyer, it had to collect the tax, remit it to the tax assessor-collector, and file the documents n…
Did a foreign corporation owe the former Texas franchise tax even without a certificate of authority?
Yes. The corporation lacked authority to transact business in Texas, but it appeared to have begun doing business there in 1988 and was therefore subject to the former franchise tax. The letter treate…
Is developing original design specifications for a client's custom home project taxable, even though the designer isn't a licensed architect or engineer -- and how does that compare to drafting services or selling stock house plans?
Developing original specifications and producing an original design for a client -- creating, conceiving, originating, and relating the planning and specifications of a project such as a custom home -…
Did a Dodge pickup with an attachment in its bed qualify for Texas's farm-machine motor vehicle tax exemption?
No. The pickup only had an attachment in its bed; the vehicle itself was not specially adapted or modified. An electrical hookup was not enough, and a qualifying vehicle also had to be used primarily …
Could a parent reduce its former Texas taxable-capital basis after liquidating a subsidiary whose charter remained active?
No for taxable capital. Because the subsidiary's charter remained active, Texas did not recognize the liquidation or adjust the parent's cost-method investment basis on its 1997 report. Earned-surplus…
Is the labor charge for a contractor splicing a new section of fiber optic cable into an existing cable TV network taxable?
Yes. When an outside contractor splices a newly constructed cable line into an existing cable TV network at a pedestal splice point -- detaching the old cable pairs and attaching a new group of cable …
Was a parent's transfer of motor vehicles to a newly formed wholly owned subsidiary subject to Texas motor vehicle tax?
Not if the transfer occurred when the wholly owned subsidiary was formed, no consideration other than stock was given, and the parent had already paid the proper Texas tax on the vehicles. If the pare…
What former Texas franchise-tax filing rules applied to a foreign S corporation and its nonresident shareholders?
The foreign S corporation itself had to file an initial franchise-tax report and annual reports and was taxed like a C corporation under the former system. The initial report was due 89 days after the…
When a seller inside the City of Austin ships taxable items to a delivery address in Travis County that's outside the Austin MTA boundary, what local tax rate applies?
A seller located inside the City of Austin that ships or delivers taxable items to a Travis County address OUTSIDE the Austin Metropolitan Transit Authority (MTA) boundary collects 7.25% total sales t…
Is a disposable, one-time-use bone-marrow stem-cell concentration kit -- sold to hospitals/physicians, not directly to patients, and used to filter out cancer cells and debris before an autologous bone marrow transplant -- exempt from Texas sales tax as a prescription medicine or therapeutic device?
No. A disposable, one-time-use biological kit that processes a cancer patient's own bone marrow (reducing 3 liters down to 4.5 milliliters of vital cells, removing cancer cells and debris) as part of …
A firm whose main business is insurance adjusting is paid per-claim to re-inspect plumbing work as part of a class-action settlement over faulty pipe -- is that re-inspection service a taxable insurance service?
No. Re-inspecting plumbing work done as part of a class-action lawsuit settlement over faulty pipe -- charged per claim to a Texas company -- is not a taxable insurance service, even though the firm's…
Could an S corporation with up to 75 shareholders qualify for the 1998 former Texas earned-surplus report?
Not under the statute as it stood on March 21, 1997, because Texas still calculated earned surplus using the 1994 Internal Revenue Code. If pending legislation changed the reference to the 1996 Code, …
How did Texas treat a Qualified Subchapter S Subsidiary under the former franchise tax in March 1997?
Texas treated a state-law QSSS as a separate corporation required to file its own franchise-tax report, because the tax applied to each corporation and consolidated reporting was prohibited. For earne…
When is a country club's mandatory gratuity charge on meals and food exempt from Texas sales tax, rather than taxed as part of the sales price?
A mandatory gratuity charge that a country club adds for serving meals and food (including soft drinks and candy) for immediate consumption is exempt from Texas sales tax if ALL four conditions in Rul…
Is cloud seeding a taxable service in Texas, and does the company doing the cloud seeding owe tax on the materials and aircraft it uses?
Cloud seeding itself is not a taxable service -- no tax is due on the charge for cloud seeding whether performed for an exempt or a non-exempt entity. However, the firm performing the cloud seeding ow…
How did the former Texas franchise tax apply to a new S corporation's expenses, apportionment, and filing duty?
Texas generally taxed the S corporation like other corporations. Earned surplus allowed expenses to the extent deductible under federal law, while taxable capital reflected wages and expenses through …
Did a Texas-based employee investigating aircraft accidents create franchise-tax nexus for an out-of-state corporation?
Yes. Even though the corporation had no Texas facilities or sales activity, its employee lived and worked from home in Texas and investigated aircraft accidents in Texas and nearby states. Performing …
Is a torque turning and computerized torque measurement service (joining/tightening drill pipe and measuring joint torque) for oil and gas wells taxable in Texas, and does it matter whether it's a new well or a producing/workover well?
Torque turning and computerized torque measurement service -- joining and tightening pipe on wells being drilled or serviced, and measuring the torque applied to each joint -- is not, by itself, a def…
Which occasional Texas activities created earned-surplus nexus, and when did Public Law 86-272 protect a seller?
A one-time buyer visit to a supplier did not create earned-surplus nexus on the assumed facts. A customer seminar, recurring Texas bank reviews, and acquisition due diligence did. P.L. 86-272 did not …
Does a business that recycles and resells used air filters for large trucks owe sales tax on those sales -- and how does that differ from a motor vehicle repairman who cleans a filter and puts it back in the same truck?
Yes, sales tax is due on the sale of recycled air filters, and the seller must collect it unless it receives a valid resale or exemption certificate. This is different from a 1984 letter (document 841…
Does using a third-party answering service that routes paged messages to a mobile locksmith count as having a "place of business" at that answering service's location for local sales tax purposes?
No. A third-party answering service that simply routes paged messages to a locksmith is not considered a "place of business" of that locksmith for local sales and use tax purposes. A "place of busines…
When a club requires patrons to buy a "dance token" before an independent-contractor dancer will perform a table/couch dance, is the sale of that token a taxable admission to an amusement service -- even though the dancers are independent contractors and the club already collects tax on a separate cover charge?
Yes. A club that requires patrons to purchase a "dance token" -- then exchange it with an independent-contractor dancer for a table dance or couch dance -- is selling a taxable admission to an amuseme…
When a manufacturing plant's waste haul-off is 95% or more industrial solid waste (nontaxable) mixed with a small amount of taxable garbage like office trash, does the Comptroller's "five percent rule" exempt the whole haul-off charge from sales tax?
No. The five percent rule does NOT exempt the whole charge just because 95% or more of a manufacturing plant's hauled-off waste is industrial solid waste. Rule 3.356(a)(3)(E) excludes industrial solid…
Was an extended warranty or service contract taxable when sold for a motorcycle, dirt bike, or ATV?
It depended on the vehicle. A service contract for a highway motorcycle was not taxable because motor vehicle repair labor was not taxed. A contract for a dirt bike, ATV, or other non-highway vehicle …
Was a separately stated scheduled-maintenance contract included in the Texas motor vehicle tax base?
No. The separately stated scheduled-maintenance contract was not part of the vehicle's taxable sale price and was not subject to motor vehicle tax. Repair and replacement parts used under the contract…
Is a third-party service that uses Interactive Voice Recognition (IVR) technology to independently verify a consumer's phone-service-switch instructions -- billed to the telemarketing company, not the consumer -- a taxable data processing service?
Yes. A company's independent, IVR-based verification service -- confirming a consumer's instruction to switch long-distance telephone carriers after a telemarketing call, matching the phone number and…
If a company performs auto damage appraisal (insurance) services for a self-insured client, are those services taxable, and does the client need to provide anything to document the exemption?
The client (referred to as CORPORATION X) was correct: auto damage appraisal services performed on behalf of a self-insured entity are NOT taxable. Rule 3.355(b) taxes insurance services performed for…
Was Sallie Mae exempt from Texas motor vehicle sales and use tax on a vehicle purchase in 1997?
Yes. The Comptroller said the federal exemption in 20 U.S.C.A. § 1087-2 exempted the Student Loan Marketing Association from Texas motor vehicle sales and use tax, so its Texas vehicle purchase was ex…
Did using independent contractors for computer programming in Texas create franchise-tax nexus for an out-of-state corporation?
Yes. The corporation employed its own programmers outside Texas but used independent contractors to perform programming services in Texas. Those in-state services subjected it to both former franchise…
How did the former Texas franchise tax define taxable capital and surplus?
Taxable capital was the corporation's stated capital plus surplus. Section 171.109(a)(1) defined surplus as net assets minus stated capital and said it included unrealized, estimated, or contingent lo…
Is a $30 donation to a school booster club, given in exchange for having a name stamped on a commemorative brick placed at the school, subject to Texas sales tax?
No. A $30 donation to a high school fine arts booster club, given in exchange for having a brick stamped with the name of a student, alumnus, or other requested name and placed at the school, is not s…
When a strip-mining company is legally required to reclaim mined land by planting it with grass for future livestock grazing, does the grass seed -- and the fertilizer and heavy equipment used in reclamation -- qualify for the Texas agricultural exemption?
Partly. Grass seed used to revegetate strip-mined land as part of the legally required reclamation process DOES qualify for the agricultural exemption under Tax Code § 151.316, which exempts seeds and…
When is a multimedia presentation on CD-ROM or diskette taxable as a computer program in Texas, versus a non-taxable production service?
It depends on whether the production contains "source code." This follow-up letter clarifies an earlier ruling: "source code" means any series of instructions -- whether originally written by the prog…
Could a used-car dealer buy a customer's vehicle tax-free and finance its resale to that same customer?
Yes, the licensed dealer could buy the vehicle tax-free if it was held strictly for resale. But reselling it to the same customer for $700 was taxable. The dealer needed a seller-financing permit and …
Is a flood zone determination service -- checking FEMA flood hazard maps and certifying whether property is in a flood zone for mortgage lenders -- taxable in Texas as an information or insurance service?
No, it's not taxable. A service company that consults flood hazard boundary maps (FHBMs) and certifies on a FEMA form whether property is in a flood zone -- helping mortgage lenders meet a federal not…
Did installing an emergency-vehicle alerting device for a deaf or hard-of-hearing driver qualify the vehicle for Texas's disability exemption?
No. The motor vehicle tax statute described in the letter exempted vehicles modified for people with orthopedic disabilities, defined by limited movement of body extremities. A hearing deficiency did …
Were commissions earned in Texas and shoe sales delivered in California Texas receipts under the former franchise tax?
The commissions were Texas receipts for both former franchise-tax components because the taxpayer performed the customer service in Texas. The shoe-sale receipts were not Texas receipts because delive…
Did Public Law 86-272 protect a Texas-authorized corporation from both former franchise-tax components?
No. The certificate of authority made the corporation subject to the former taxable-capital component even if its only Texas activity was protected solicitation. If the stated activities qualified und…
What initial and later former Texas franchise-tax reports followed a merger into a newly formed surviving corporation?
The surviving corporation's initial report was due May 7, 1997 and covered the privilege period from February 8, 1996 through December 31, 1997. Its December 31, 1996 year-end supplied both initial co…
Do a TV broadcaster's transmitters, related repair labor/parts, and the electricity used to run them qualify for Texas's manufacturing sales tax exemption?
No. Transmitters, their associated repair labor and parts, and the electricity used to broadcast are NOT exempt from Texas sales tax, even though broadcasters can qualify as manufacturers for their pr…
Could a corporation use federal net operating losses from before 1991 to reduce later former Texas earned surplus?
No. Former Texas earned surplus began with federal taxable income before federal net operating loss deductions. Texas instead allowed its own apportioned business-loss carryforward for up to five year…
Did forming a Texas corporation create former franchise-tax liability even before considering its business activity?
Yes. Section 171.001 subjected a Texas-chartered corporation to the former franchise tax. The corporation calculated taxable capital and earned surplus, apportioned each, and paid the greater amount a…
Does equipment like routers, servers, and hubs used by an Internet service provider to deliver service qualify for Texas's manufacturing sales tax exemption?
No. Equipment such as routers, servers, and hubs used by an Internet service provider (ISP) to provide its service is taxable at the time of purchase. The Comptroller explained the equipment can't qua…
Is the Ceprate Stem Cell Concentration System, used to prepare a patient's stem cells before high-dose chemotherapy, exempt from Texas sales tax as a health care supply?
No. The Ceprate Stem Cell Concentration System does not qualify for Texas's health care supplies exemption under Tax Code Section 151.313. The product is used in a process called immunoadsorption to r…
Could a buyer reduce a new vehicle's Texas tax base when the old vehicle went to someone other than the seller?
No. The old vehicle's value was excluded from total consideration only when the seller of the new vehicle took it as consideration. If someone else received the old vehicle, the letter said there was …
Did a minority beneficial interest in a trust doing business in Texas create franchise-tax nexus for a foreign corporation?
No. The foreign corporation held less than a majority beneficial interest, did not effectively control the trust or trustee, and had no other Texas activity. On those facts, Texas said the corporation…
Was the ultimate parent limited to a U.S. corporation for the former earned-surplus officer-compensation add-back?
No. Neither Section 171.110(c) nor Rule 3.558(h) limited the parent to a U.S. corporation. Texas interpreted the ultimate parent as any corporation exercising ultimate control over the subsidiary, inc…
Is a monthly standby retainer fee paid to a security firm (to be available if needed, billed separately for hours actually worked) subject to Texas sales tax?
Generally no. A monthly retainer fee paid to a security firm just to be on standby -- separate from hourly billing for services actually performed -- is treated as the sale of an intangible and is not…
Do compressors used in oil and gas processing qualify for Texas's manufacturing exemption, and how does a company refund sales tax collected in error on exempt equipment?
It depends on what the compressor does. Effective January 1, 1995, a manufacturer or processor can claim exemption on machinery and equipment necessary and essential to manufacturing, processing, or f…
Do the foundations and support structures for rock-crushing-plant equipment (a crusher, screens, a logwasher) qualify for Texas's manufacturing exemption?
No. Support foundations for manufacturing equipment -- reinforced concrete slabs, sometimes with concrete piers and anchor bolts to fasten equipment in place -- are considered real property, not machi…
What happened when a Texas corporation failed to file its initial franchise-tax and public-information reports?
The corporation's Texas privileges had already been forfeited under Section 171.251. If it did not file its overdue initial franchise-tax report and Public Information Report, its charter would be for…
Is the labor to build a new mezzanine floor inside an existing building taxable real property repair/remodeling, or non-taxable new construction, under Texas law?
It's non-taxable new construction. Building a new mezzanine floor -- adding usable floor space where only non-usable empty space existed before -- inside an existing building qualifies as "new constru…
Which periods did a December 11, 1996 corporation use on its initial former Texas franchise-tax report?
The initial report was due March 10, 1998 and covered the privilege period from December 11, 1996 through December 31, 1998. Because December 31, 1997 met both timing tests, taxable capital, earned su…
Did a Texas certificate of authority create franchise-tax liability when a corporation had no physical presence and took only customer-initiated phone orders?
Yes for taxable capital. The certificate of authority made the corporation subject to the former franchise tax even though it reported no Texas property, payroll, employees, or physical presence and t…
Browse Texas rulings by topic
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.