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 corporate expenses affect the two former Texas franchise-tax components?
Corporate expenses were generally deductible in computing taxable capital. They also reduced earned surplus to the extent the expenses were allowed as deductions when computing the corporation's feder…
Can I buy a recumbent bicycle tax-free in Texas if my doctor prescribed it for rehabilitation, and what does the prescription need to say?
Yes, but only if the prescription is written correctly. A recumbent bicycle can be purchased tax free with a prescription from a licensed practitioner of the healing arts, but the prescription must st…
Is renovating a specialty hospital taxed as work on nonresidential (commercial) real property, or as work on residential real property?
Taxable. The Comptroller ruled that hospitals are considered nonresidential (commercial) property, so the total charge to renovate an existing building into a specialty hospital is taxable, even thoug…
Did leasing airplanes and train cars that lessees used in Texas create franchise-tax nexus for the lessor?
Yes. The lessor was subject because it held a Texas certificate of authority. It also had nexus independently because it leased airplanes and train cars that lessees used in Texas, even though the les…
Did changing fiscal year-end require an extra former Texas franchise-tax filing, and which earned-surplus periods applied?
No additional report was required solely because the fiscal year-end changed. The 1997 annual report used August 1, 1995 through April 11, 1996 for earned surplus. The 1998 report used April 12, 1996 …
I'm leasing land, a car wash building, and the car wash equipment together to my own S corporation -- is that lease subject to Texas sales tax?
No. The Comptroller ruled that leasing the land, building, and equipment together to the S corporation is treated as a lease of real property, so no sales tax applies to the lease payments -- the same…
Did an out-of-state alarm-monitoring company have Texas franchise-tax nexus without Texas plant, equipment, or employees?
Yes. The alarm-monitoring company was subject because it held a Texas certificate of authority. Texas also found independent service nexus because it processed monitoring signals for Texas customers, …
We had to completely rebuild an ice skating rink that never worked because of construction defects, before it ever opened to the public -- does the rebuild count as new construction or taxable repair?
New construction. The Comptroller ruled that rebuilding the ice rink qualifies as new construction (rather than a taxable repair to existing real property) because the original rink was never used for…
How is local sales tax (like the Regional Transportation Authority tax) sourced on cellular telephone and cellular roaming charges?
Local sales tax (such as the Regional Transportation Authority tax) on cellular telephone service is sourced to the location of the cell site that receives and re-transmits the call. If the cellular c…
Are charges for telemarketing sales calls, list-based calling, and related services (compiling lists, mail fulfillment, final reports) subject to Texas sales tax?
Charges for making sales calls (soliciting sales and taking orders) are not subject to Texas sales tax. But charges tied to gathering or selling customer/prospect information -- such as calls made usi…
Are natural gas and electricity used at a personal care home taxed as residential or commercial utility service?
Residential -- provided the predominant use of the natural gas and electricity is by persons who initially contracted to live at the personal care home for periods exceeding 29 days. The Comptroller a…
I'm a cotton ginner and I use gas and electricity to keep my warehouse or storage area cool and dry so cotton seed doesn't sprout, including during the off-season -- is that electricity exempt from Texas sales/use tax?
Mixed answer, split by predominant use. The electricity used to actively lower the temperature or humidity of stored cotton seed to a target level counts as exempt processing. But electricity used jus…
Did Canadian sales representatives soliciting Texas dealers create former franchise-tax liability, and did P.L. 86-272 protect the company?
Texas representatives soliciting dealer purchases of office furniture subjected the Canadian corporation to the former taxable-capital component. If their Texas activity was limited to soliciting orde…
How were intercompany receivable sales, collection gains, and servicing fees sourced under the former Texas franchise tax?
The parent's sale of receivables to its subsidiary created no gross receipts for either corporation. Any subsidiary gain collected above its purchase price was sourced to the customer-debtor's legal d…
Is a fee for gathering medical records from doctors and hospitals on behalf of an insurance company's underwriting department subject to Texas sales tax?
Yes, it's taxable. The Comptroller ruled that a firm's fee for contacting doctors, hospitals, and other medical service providers to obtain medical information for an insurance company's underwriting …
Could an S corporation deduct IRS payroll-tax penalties when computing former Texas earned surplus?
No. Texas treated shareholder-allocated S-corporation items as if the corporation were taxed as a C corporation. Because the Comptroller understood Section 162 to disallow deductions for U.S. governme…
Is the wastewater treatment system my manufacturing company must install to meet TNRCC environmental requirements exempt from Texas sales and use tax?
Partially exempt. The pollution control equipment itself qualifies for the Texas manufacturing exemption because it's necessary and essential to the manufacturer's production process, and the company …
Are closed-caption decoders and wireless phone jack extenders used by deaf people exempt from Texas sales tax?
Yes. The Comptroller ruled that a closed-caption decoder for televisions and a wireless phone jack extender used with a phone flasher are both exempt from Texas sales tax when used by a deaf person, a…
Can a buyer reduce the sales or use tax it already paid on equipment purchases when the vendor later gives back a cash or credit rebate or discount tied to those specific purchases?
Yes, in most of the scenarios described. The Comptroller ruled that volume discounts and cash rebates paid directly by a vendor to a purchaser -- including cooperative marketing funding, consigned-uni…
Does Texas sales tax apply to charges for mechanical warranty inspections that determine what caused equipment or a motor vehicle to break down, without appraising the dollar amount of damage?
No. The Comptroller ruled that charges for inspecting tangible personal property are not taxable unless the inspections are performed under a policy or policies of insurance. Because mechanical warran…
Does Texas use tax apply to repair or replacement parts (such as retreaded tires) bought out of state and installed in Texas on a common carrier's self-propelled vehicle?
No, use tax is not due on repair or replacement parts acquired outside Texas and actually affixed in Texas to a self-propelled vehicle used as a licensed and certificated common carrier -- but the car…
Is a booting fee charged to remove a boot from an illegally parked car taxable as part of a taxable motor vehicle parking service?
Yes. The Comptroller ruled the parking violation (booting) fee is taxable because it is part of a taxable parking service -- booting a car parked in an illegal space in a garage constitutes an "impoun…
How did Texas source property sales, interest, rental-broker services, and railroad-car lease receipts under the former franchise tax?
Tangible-property sales were sourced where delivery occurred; interest followed the payor's legal domicile; lease-negotiation and car-rental management receipts followed where services were performed;…
How did Texas compute tax when a lessor bought a vehicle, used a retired vehicle's value, and later re-leased the unit?
The lessor's vehicle purchase was taxable, but the lease payments were not. A lessor could reduce taxable value by a qualifying Texas-titled retired vehicle's fair market value without trading it to t…
Is a cable company's "Technical Access Fee" taxable, and should local sales tax on cable service be based on the provider's business location or the customer's service location?
Yes, the fee is taxable. The Comptroller ruled that a cable provider's "Technical Access Fee" is part of the taxable charge for cable television service under Section 151.007(a) of the Texas Tax Code,…
What documentation does a Texas seller need to prove a sale was shipped out of state and is exempt from Texas sales tax?
Shipping documents such as a bill of lading, federal express receipt, or postal receipt, together with an invoice showing an out-of-state shipping address, are acceptable proof of an exempt out-of-sta…
Was a one-year water-truck agreement a taxable Texas motor vehicle rental or a lease?
It was a lease, not a rental. The agreement ran for one year and did not require an earlier return, while the historical rental definition covered exclusive use for 180 days or less. The customer's pa…
How is Texas sales tax applied to charges for designing, coding, and updating a web page for a client?
Taxable as a data processing service. The Comptroller ruled that web pages are electronic data and graphics rather than computer programs, so charges for designing, programming, and updating a web pag…
Does a mobile home skirting/door/window installer owe sales tax on the charge to the dealer, or on the materials, when installing skirting on mobile homes treated as real property?
It depends on how you bill. For sales tax purposes a mobile home is treated as real property, so you can use either a lump-sum contract (you pay tax on materials, and your lump-sum charge to the deale…
When a caterer or event planner rents out a facility with recreational amenities and provides food, is the facility rental charge taxable as an amusement-service admission?
Yes, in most cases. Because the taxpayer's facility included a swimming pool, volleyball court, horse riding trails, baseball fields, and fishing area, the Comptroller ruled the facility rental itself…
How did an accounting-year and S-election change affect the 1997 former Texas report, and where were export commissions sourced?
Taxable capital used the December 31, 1996 financial condition and calendar-year receipts. Earned surplus combined February 1, 1995 through December 31, 1996, including short federal periods before an…
How did changing a corporation's year-end from July 31 to January 31 affect its 1997 and 1998 former Texas franchise tax reports?
The change created no additional filing requirement. The 1997 report used December 31, 1996 for taxable capital, the August 1, 1995-July 31, 1996 period for earned surplus, and the 1998 report used th…
When a city raises its local sales tax rate mid-project, does a construction contract signed before the increase still shield materials and subcontracts from the higher rate?
Yes, if the requirements are met. The Comptroller ruled that a written construction contract signed before a city's local sales tax rate increase takes effect can exempt the general contractor's mater…
Is electricity and gas used in an electroplating and precision-grinding business exempt from Texas sales tax, or does it matter whether the work is processing new parts versus repairing/regrinding existing ones?
It depends on what the power is used for. Gas and electricity used to chrome and grind parts as a sub-processor for original part manufacturers is exempt as processing personal property for sale, and …
When is help provided by a temporary help service exempt from Texas sales tax as a 'temporary employee,' even if the assignment lasts an extended period?
There is no fixed time limit that turns a 'temporary' worker into a taxable service. The Comptroller applies a three-part test under Tax Code 151.057: the help must supplement the customer's existing …
Is a farm or ranch scale exempt from Texas sales tax, and does it matter whether the scale is free-standing or built into the ground or a building?
It depends on whether the scale stays tangible personal property or becomes part of the real property. A free-standing scale used exclusively on a farm or ranch in producing or marketing agricultural …
Does Texas sales tax apply to a floral order that a Texas florist takes over the internet from an international customer, if the flowers are delivered outside the U.S. by an unrelated florist?
Yes, taxable. The Comptroller ruled that charges for floral orders taken in Texas over a web site are subject to Texas sales tax, even when the flowers are delivered outside the state or outside the c…
What certificate wording can apartment complexes and multifamily property managers use to claim the residential exemption on electricity purchased from utility companies?
Yes, with the right wording. The Comptroller approved two proposed certificate wordings utility companies could accept from customers: one for apartment complexes where 100% of a meter's electricity i…
Are industrial back/lumbar support belts sold as braces exempt from Texas sales tax?
Yes. The Comptroller ruled that the listed industrial back support belts/harnesses qualify for exemption as a brace under Texas Tax Code SEC. 151.313(a)(4) and Rule 3.284(a)(1) and (c)(1). Because bra…
Is Texas sales tax owed on claims processing services performed for the Texas Public Entity Excess Insurance Pool?
No. The Comptroller ruled that claims processing services performed for the Texas Public Entity Excess Insurance Pool, or for an administrator hired by the Pool, are not taxable — because the Pool its…
If I rent out a 'grip package' (electrical production equipment plus a 5-ton truck and driver) for one price, do I owe motor vehicle rental tax on the truck, and can I buy the equipment tax free for resale?
Pay motor vehicle tax when you buy the truck, and don't collect motor vehicle rental tax when you rent out the grip package, because you're renting production equipment with transportation, not rentin…
What former Texas franchise-tax reports and additional tax applied when a corporation planned to dissolve in 1996?
The corporation properly filed its 1996 annual report and a 1996 final report paying additional tax because dissolution would end its earned-surplus liability. If it did not dissolve by December 31, i…
Are Jobst burn-treatment garments (pressure vests, gloves, garments with leg zippers, and vest-with-gloves-and-face-mask combinations) exempt from Texas sales tax as braces?
Yes, but only as braces, not as orthopedic devices. The Comptroller reversed part of an earlier opinion and ruled that the Jobst pressure gradient vest, Jobst pressure vest, Jobst pressure gradient gl…
Is a separately stated charge for air quality monitoring during an asbestos abatement project taxable in Texas?
Not taxable. A separately stated charge for air quality monitoring performed during an asbestos abatement project is not taxable, though the monitoring and other equipment used is taxable to the servi…
Is the labor to set up a computer -- connecting the monitor, mouse, keyboard, and printer to the CPU -- taxable in Texas?
Yes. The Comptroller ruled that the initial set up of a computer -- connecting the monitor, mouse, keyboard, and printer to the CPU -- is considered assembly of tangible personal property and is subje…
Did installment-sale gain belong in a dissolving S corporation's former Texas franchise-tax final report?
Only to the extent the gain was reported on the S corporation return through dissolution. That portion entered receipts and taxable earned surplus on the final report. Installment income reported late…
Is ISDN internet equipment and connectivity used to transfer prepress printing files exempt from Texas sales tax as manufacturing equipment?
Mostly no. The Comptroller ruled that computers or equipment that directly drive digital printing presses qualify for the manufacturing exemption, but the ISDN line, routers, and other equipment used …
Does a promotional-advertising company owe Texas sales tax on searchlights, inflatables, banners, balloon giveaways, and clowns it provides for grand openings and sales events?
It depends on the item. Imprinting balloons for giveaway and selling balloons is taxable, but searchlights, inflatables, banners, flyovers, decorating, and clowns/entertainment are nontaxable advertis…
Is carpet bought for a minister's parsonage exempt from Texas sales tax, and does it matter who pays for it?
It depends on who pays. A church can buy carpet to refurbish a parsonage tax-free by giving the supplier an exemption certificate, but only if the materials are billed to and paid for by the church it…
Did a corporation independently tax two short federal periods after its stock changed owners, or combine them on its former Texas report?
It combined them. Because the stock sale changed ownership but not the corporation's legal status, the 1996 annual report used the full 1995 calendar year. The corporation added both short-return amou…
How did Texas tax a leasing company's purchase of another lessor's vehicles, loans, and lease contracts?
A financing takeover was only a lienholder change and was not taxable. Apportioned carrier units could transfer under the carrier's IMC permit. Other vehicles could be acquired for resale tax-free by …
Is a fee-based Internet dating service that maintains a database of interested persons taxable as an information service in Texas?
Yes, taxable. The Comptroller ruled that charging a fee for individuals to access a database of interested persons built for an Internet dating service constitutes an information service, and charges …
Is a rail carrier exempt from Texas sales and use tax on its own purchases, and can Texas make it collect local sales tax on food and beverages sold aboard its trains?
The rail carrier itself is exempt from state and local tax on its own purchases under 49 U.S.C. § 24301(k). But that federal exemption does not let the Comptroller force the carrier to collect local a…
Is electricity used in vacant apartment, duplex, condominium, or townhouse units exempt from Texas sales tax as residential use?
It depends on the type of unit. Once at least one unit in a multifamily apartment complex is occupied, electricity in the complex's other vacant units and common areas is exempt as residential use -- …
Was a nonprofit charitable organization that may have done business in Texas during 1995 subject to former Texas franchise tax?
Possibly, but the letter did not decide the organization's liability. It said liability depended on whether the nonprofit was a corporation or other taxable entity, had Texas nexus under Rule 3.546, a…
Does a citrus de-greening unit that becomes part of a packing shed still qualify for Texas's manufacturing equipment sales tax exemption?
Yes, but it depends on the contract. If the de-greening unit stays tangible personal property, both the unit and installation are exempt. If it becomes an improvement to realty, the exemption survives…
Does an insurance agent owe Texas sales tax on an administrative fee charged to clients to reimburse the agency for expenses like postage, printing, and phone calls, or on a pass-through charge for a third-party coverage evaluation?
Generally not taxable. The Comptroller ruled that an insurance agency's $50 administrative fee is not taxable if it merely reimburses the agency for enumerated costs like postage, printing, and teleph…
Is equipment for a home recording studio exempt from Texas sales tax if it's used to produce master audio recordings for distribution to record labels?
Yes, with limits. The Comptroller ruled that producing audio recordings for sale, license, distribution, broadcast, or exhibition counts as "manufacturing," so a home-studio producer qualifies for the…
In a reorganization, which entities owe Texas franchise tax when a corporate general partner and an out-of-state limited partner hold a Texas-active limited partnership?
The general-partner corporation owes franchise tax; the out-of-state limited-partner corporation and the partnership itself do not. As part of a reorganization, a parent corporation withdrew from Texa…
Did a corporate member include its share of partnership-taxed LLC income and receipts in former Texas earned surplus?
No. Assuming the LLC was treated as a partnership federally, the corporate member excluded its share of LLC income or loss from federal taxable income reported for Texas earned surplus and excluded th…
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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.