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 used-car dealer owe Texas motor vehicle tax after operating a new vehicle on a metal dealer tag?
Yes. The dealer did not hold the new vehicle exclusively for resale and was not eligible to operate it on a metal dealer tag, so taxable use occurred. The dealer had to pay tax when applying for title…
Does a rubber-tired, electrically-powered 'people mover' passenger transportation system, guided by a steel guidebeam rather than running on rails, qualify for Texas's rolling stock sales tax exemption?
No. A rubber-tired, electrically-powered "people mover" passenger transportation system -- guided and powered by a steel guidebeam/rail system rather than running on rails -- does not qualify as tax-e…
Is electricity used in the common areas of a residential condominium complex (sprinkler systems, pools, clubhouses, exterior lighting) exempt from Texas sales tax as residential use?
Yes, if the complex is genuinely residential. Electricity used in common areas (sprinkler systems, swimming pools, clubhouses, exterior lighting) of a residential condominium complex -- one where unit…
Must a forensic engineering firm charge sales tax on fees for investigating the cause of a fire or explosion for a law firm or insurance company pursuing subrogation, as a taxable insurance service?
Yes, these are taxable insurance services. A forensic engineering firm retained by law firms and/or insurance companies to determine the cause of a fire or explosion -- and to provide expert testimony…
Which city's local sales tax applies when an itinerant janitorial service vendor (no fixed place of business) performs services at a homebuilder's job site?
Local tax is due based on the job site. A janitorial service provider that has no place of business where it receives orders -- and instead receives its orders for services at the job site itself -- m…
Is electricity used to pump treated municipal effluent to a pond, and then pump that pond water to irrigate a golf course, exempt from Texas sales tax?
No, it's not exempt. A private country club used one electric meter exclusively to pump effluent from a municipality to a pond, and a second meter exclusively to pump water out of that pond to irrigat…
Are purchases made by federal employees using a government I.M.P.A.C. (GSA SmartPay) Visa credit card exempt from Texas sales and use tax?
Yes, if three conditions are met. Purchases made by federal government employees using a Government Visa credit card (I.M.P.A.C.) are exempt from Texas state and local sales and use tax when: (1) the …
Did a Texas certificate of authority subject a corporation to both former franchise-tax components despite no Texas activity or employees?
Yes. The corporation reported no Texas business activity, employees, or other nexus for the period, but its certificate of authority meant it was authorized to do business in Texas. Section 171.001 th…
My insurance brokerage sometimes charges clients a fee instead of taking a sales commission, and we serve both Texas and out-of-state clients -- when is that fee taxable as an 'insurance service,' and what happens with multi-state customers?
Insurance placement and servicing work is not a taxable insurance service when your only compensation is the commission you'd normally earn on the policy (or a fee charged purely in place of that comm…
Did cumulative preferred securities tied to 49-year debentures qualify as debt under the former Texas surplus rules?
No. Texas concluded that the preferred securities failed at least one of Section 171.109(a)(3)'s three debt criteria. Mandatory redemption when the related 49-year debentures matured or were redeemed …
Is a bioresorbable surgical implant like Seprafilm IM -- an internal adhesion barrier that dissolves in the body over time -- exempt from Texas sales tax as a prosthetic device?
Yes. Texas exempts prosthetic devices from sales tax, and its rule specifically includes devices implanted in the body -- so a bioresorbable membrane like Seprafilm IM, which is surgically implanted t…
Could a surviving corporation inherit former Texas business-loss carryforwards from corporations merged into it?
No. Rule 3.555(g)(3) prohibited conveying, assigning, or transferring a former Texas business loss to another entity, including through a merger. The surviving corporation therefore could not use loss…
My satellite TV provider let me prepay a year of service for $154.95 instead of $354.95 using an 'instant credit certificate,' but then charged me sales tax on the full $354.95, calling the credit a gift certificate -- is that right?
No. Texas sales tax is measured on the actual selling price you actually pay, and an 'instant credit certificate' that immediately reduces your bill at the time of purchase is a discount, not a gift c…
My Texas-based internet business builds websites, broadcasts information online, and resells domain name registrations to customers both in and out of state -- which of these are subject to Texas sales tax, and how do I handle out-of-state customers?
Building and maintaining a website is a taxable data processing service, sourced to wherever the customer actually receives the benefit (not where your server sits) if the customer gives you an exempt…
I sell to a Mexican retailer who wants to buy tax-free for resale in Mexico -- what documentation do I need beyond a standard Texas resale certificate, and does a blanket certificate expire over time?
Beyond a properly completed Texas (or Border States Uniform) resale certificate, Rule 3.285(d)(2) requires you to also keep a copy of the buyer's Mexican Registration Form showing their RFC (Mexican f…
Did a wooden farm wagon count as a motor vehicle for Texas tax purposes?
No. The wooden farm wagons were not designed to carry people or property over the highway, so Texas treated them as tangible personal property rather than motor vehicles. Changing the business's SIC c…
Did four annual paid Texas product-training seminars defeat P.L. 86-272 protection for a medical-products manufacturer?
Yes. Four recurring one-day seminars teaching customers how to fit the company's medical devices were training services, not protected solicitation. Their regular annual schedule meant they were not t…
Who collects Texas tax when a storage facility auctions vehicles for the U.S. Marshals Service, and how are salvage vehicles treated?
A nondealer auctioneer acting for the U.S. Marshals Service did not collect motor vehicle tax; the buyer paid it at county registration. Salvage vehicles were tangible personal property subject to lim…
I design store signage and trim on a computer using 3D drafting software, then fabricate and install it in new stores -- am I taxed as a contractor or as a manufacturer, and does my design equipment qualify for the manufacturing exemption?
You're taxed as a contractor, not a manufacturer, because you affix the signage and trim you fabricate to realty under a new construction contract. Tax is due on your cost of materials (lump-sum contr…
I run a lockbox/remittance service that automates payment posting for doctors' offices -- is that a taxable data processing service in Texas?
Yes -- taxable. The Comptroller ruled that the ABC charges for this automated accounts-receivable payment-posting service fall within the definition of a taxable data processing service under Rule 3.3…
Our nonprofit 501(c)(3) garden club association prints instructional brochures and sells them at no profit to local garden clubs in Texas -- do we owe sales tax on those sales?
No -- the sale is exempt from Texas sales tax. The Comptroller ruled that brochures published or distributed by a nonprofit 501(c)(3) organization are exempt from sales tax under Texas Tax Code Sec. 1…
Does sales tax apply to a commercial greenhouse and laboratory used to grow, propagate, and sell orchids from seed?
No sales tax is due. The Comptroller confirmed that machinery and equipment -- including a qualifying building or structure -- used exclusively to process, pack, or market agricultural products by the…
How did a Texas or foreign corporation receive its Comptroller taxpayer identification number?
Secretary of State filings automatically registered a Texas corporation with the Comptroller and generated a temporary taxpayer number. Texas assigned a permanent number after receiving the corporatio…
Is replacing a temporary fire sprinkler system with a new one during finish-out of a never-occupied strip-center lease space taxed as new construction or as nonresidential remodeling?
It's new construction, not remodeling -- because the lease space had only been roughed-in and was never finished out or occupied, installing the new fire sprinkler system counts as new construction ev…
My local sales tax rate changed partway through a multi-year equipment lease -- do I owe the old rate or the new rate for the rest of the lease, and what happens when the lease is renewed?
For a fixed-term operating lease (like a 5-year lease), the sales tax rate is locked in at the rate in effect when the lease was signed (consummated) -- it does not change even if the local tax rate g…
Did corporations with more than 35 shareholders add back officer and director compensation under the former earned-surplus tax?
Yes. Section 171.110(a)(1) required the officer-and-director compensation add-back, while subsection (a)(2) excused corporations with no more than 35 shareholders. Presuming each claimant had more tha…
Did a voting trust holding shares for 19 people count as one shareholder for the former officer-compensation add-back exception?
Yes, if the shares were registered in the trust's name and the trust was not organized to avoid the add-back. Rule 3.558(b)(7) counted a trust, association, or other registered legal entity as one sha…
I'm a Texas private investigation/security firm with clients and jobs both inside and outside Texas -- which of my investigation and security services are subject to Texas sales tax?
It depends on where the investigation is performed and where its object/benefit is located, not on where the client is based: investigations of people, places, or facilities located outside Texas are …
Is installing an awning or canopy taxable as new construction, or as a sale of tangible personal property, under Texas sales tax rules?
It depends on whether the canopy becomes an improvement to the realty. If it does, the installation labor counts as new construction and is not taxable, but the materials are taxable (per the lump-sum…
Did a stock sale and inclusion in a new federal consolidated return end a corporation's former Texas franchise-tax obligation?
No. The stock sale and shortened federal consolidated-return period did not end the corporation's Texas status while its certificate of authority remained active. Its filed 1996 report produced no tax…
I'm a carpet company recarpeting an apartment complex, and the job includes the manager's office and lobby along with the apartments themselves -- is the labor to recarpet the office/lobby taxable, or does it count as part of the tax-exempt residential job?
It depends on how the office/lobby is billed and how big it is relative to the whole job. If the office/lobby recarpeting labor is separately stated from the apartment recarpeting labor, it is always …
Are checks that a bank or credit union sells to its customers subject to Texas sales tax, and who has to collect it?
Yes -- checks are taxable tangible personal property under Sec. 151.010, so the sale of checks delivered to a purchaser in Texas is taxable. Who must collect and report the tax depends on how the bank…
If I perform scheduled, periodic maintenance on real property and incorporate materials into it, am I a contractor for tax purposes -- and does it matter whether the property is residential or nonresidential?
Yes, you're a contractor either way. Under Rule 3.291(a)(3), a person who repairs, restores, or remodels residential real property and incorporates tangible personal property into it is a contractor, …
Which asset basis controlled gross receipts when federal and former Texas franchise-tax depreciation methods differed?
Taxable-capital basis followed the method used to compute surplus: GAAP depreciation under the GAAP method or federal basis under the federal-income-tax method. Earned surplus used the actual Section …
Did an out-of-state mortgage broker create Texas franchise-tax nexus by soliciting loans through mail and telephone?
No, if mail and telephone solicitation of mortgage loans was the corporation's only Texas activity and it lacked a Texas certificate of authority. Texas surveys, inspections, or other activities relat…
We sell a color Doppler weather radar system (antenna, computer, and enhanced software) to TV stations for live severe-weather coverage -- is it exempt from Texas sales/use tax?
Yes, exempt. The Comptroller ruled that a color weather radar system -- sold as a package consisting of an antenna, a computer, and enhanced software, with the computer used for no other purpose -- qu…
My direct payment permit is being canceled because the Comptroller says I didn't buy $800,000 of taxable items this year, even though I did — I just didn't accrue that much use tax on it. Will my permit be canceled?
No, the permit will not be canceled. The Comptroller had initially notified the company that its direct payment permit would be canceled because it appeared not to meet the $800,000 annual taxable-pur…
I'm a regulated telecommunications provider that buys basic local exchange network access so jail inmates can make collect outbound calls -- can I buy that access tax-free?
Yes -- this purchase is exempt from sales tax. The Comptroller confirmed that because the firm is a regulated provider of telecommunications services (verified through Public Utility Commission regist…
Did Texas tax short-term tractor and trailer rentals that began outside Texas but were renewed in Texas?
The out-of-state rentals were not subject to Texas motor vehicle rental tax because possession transferred outside Texas. A renewal occurring in Texas was taxable, and an owner renting in Texas needed…
How did Texas treat S corporations and their subsidiaries before addressing the 1996 Small Business Job Protection Act changes?
Under the existing 1994-Code reference, the S corporation and its C-corporation subsidiaries filed separately and reported earned surplus separately. The S corporation received no Schedule C deduction…
Is a Texas motor vehicle painting/repair shop's charge for painting materials, consumables (masking tape, sandpaper, solvents, etc.), and supplies taxable, and can the shop buy them tax-free for resale?
It depends on how the shop bills. Motor vehicle repair labor itself is not taxable, but tangible personal property furnished in the repair is. If the shop separately states labor and parts/materials o…
Who is responsible for collecting and remitting sales tax on parking garage fees -- the building owner, or the property management company that runs the garage?
The property owner, not the property management company, is responsible for collecting and remitting sales tax on motor vehicle parking services provided in the building's parking garage. Under Rule 3…
Is chilled or heated water taxable in Texas, and does adding anti-corrosion chemicals to a closed water system change that?
No -- water is not taxable in Texas, whether it's sold chilled or heated, and adding chemicals to prevent corrosion in a closed system doesn't change that. The Comptroller reasoned this is the same as…
My predominant use utility study was rejected by the Comptroller -- what did it need to include, and why was mine found deficient?
The study was rejected as deficient. Rule 3.295(e)(1) requires a predominant use study to show all exempt and nonexempt uses of the utility, the times of usage, the energy used, twelve consecutive mon…
Is the electricity my golf club charges to recharge members' own golf carts, stored in the club's cart barn, taxable?
Yes, taxable. The electricity used to recharge golf carts that belong to members (not the club) is taxable, because the cart barn storage space is sold as part of a taxable club membership -- an amuse…
I operate a landfill and am reorganizing into a separate management company -- is operating the landfill itself taxable, and does adding a transfer station change that?
Operating and managing the landfill itself -- receiving trash already delivered to the dump site, separating, compacting, and covering it -- is not a taxable service, because it is not the removal or …
Is avionics installation, equipment addition, and interior modification/remodeling work on a privately owned aircraft taxable under Texas sales and use tax, and how is a lump-sum repair/remodeling contract taxed?
No sales or use tax applies to the charge for the repair/remodeling service itself -- the Comptroller ruled this work (avionics installation and interior modification/installation) on a private aircra…
Did Texas change its franchise tax treatment of municipal bond income for 1996 or 1997?
No changes. This December 1996 Comptroller letter confirmed there were no 1996 changes to the Texas franchise tax code and no tax-code changes affecting holders of municipal bonds set to take effect i…
I run an FAA repair station that services aircraft components for airlines -- are the machinery, tools, manuals, wire, chemicals, hardware, and shipping supplies I use exempt from Texas sales tax?
Mostly exempt. Tax Code 151.328(d) exempts machinery, tools, supplies, and equipment used or consumed exclusively in repairing, remodeling, or maintaining aircraft, aircraft engines, or aircraft compo…
I run a computer backup service and also install software and do on-site hard disk maintenance for small businesses -- which of my fees are subject to Texas sales/use tax, and at what local rate?
All of it is taxable. The monthly service fee for data storage/backup, the software installation charges, the on-site maintenance fee, and the file-restoration fee are all subject to Texas sales and u…
I bottle and resell water in returnable bottles that I get back from customers and refill -- can I buy those bottles tax-free as packaging/manufacturing supplies?
No -- the purchase is taxable. The Comptroller ruled that returnable water bottles do not qualify for the packaging-supplies exemption. Rule 3.314(b)(1) exempts items like boxes and pallets, but (b)(3…
I have an operating lease on a printing press that started before 10/1/95 -- can I cancel it and sign a new letter agreement so the equipment qualifies for the manufacturing exemption going forward?
Yes. The Comptroller confirmed that canceling the existing lease and replacing it with a new lease (via a letter agreement attached to the canceled lease, same terms, taking effect on the cancellation…
Did proceeds from selling treasury stock enter taxable-capital gross receipts under the former Texas franchise tax?
No. Texas treated the treasury-stock sale as an issuance of the corporation's capital stock, so none of the proceeds entered Texas or everywhere gross receipts for taxable-capital apportionment. Divid…
When could a Comptroller sales-tax audit sample be used to project the former franchise-tax credit for manufacturing equipment?
Only a sample selected and projected by a Comptroller auditor could be used; taxpayer-created samples were not allowed. Projection was limited to the audited October 1, 1991 through September 30, 1993…
Can a utility company rely on an exemption certificate from an apartment complex owner or property management company to exempt utility service from sales tax, without checking whether the property actually qualifies?
Yes, in most cases -- a utility company may accept and rely on a complete exemption certificate from an apartment complex owner or property management company without demanding proof that the property…
Is the money a customer pays directly to a table/couch dancer at a topless club subject to Texas sales tax as an amusement service?
No. The Comptroller ruled that a table dance or couch dance is an amusement, but the payment a customer makes directly to the dancer is not a taxable sale of an admission to an amusement service under…
Could a corporation extend the deadline to amend its former Texas franchise-tax report after an IRS audit?
No. If a finalized IRS Revenue Agent's Report changed amounts used for Texas franchise tax, Rule 3.544(d)(2) required an amended Texas report within 120 days. The RAR became final when IRS administrat…
I bought subsurface pumps for my gas/oil wells to remove water so gas can flow to the surface -- do they qualify for the sales tax manufacturing exemption?
No -- the pumps are taxable. The Comptroller ruled that bringing oil or gas to the surface is "production," not "manufacturing, processing, or fabrication" under Tax Code 151.318. Even though the subs…
Could a lessee's own vehicle reduce the taxable value of the lessor's purchase of a new vehicle?
Yes, but only if the lessee's old vehicle was delivered to the new-car dealer as part of the lessor's purchase. If the vehicle went to the leasing company and was then sold to a neighbor, the lessor r…
Was a qualified settlement fund subject to the former Texas franchise tax?
No, on the Comptroller's stated understanding. The letter said a qualified settlement fund could not be a corporation, LLC, bank, or savings and loan association under state or foreign law. Because it…
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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.