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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In a sale-leaseback/cash-advance arrangement -- where a customer sells an appliance to a business and then leases it back while receiving a cash advance, backed by a refundable security deposit and a separate rental fee -- which parts of the transaction are subject to Texas sales tax?
The purchase of the appliance from the customer qualifies as a purchase for resale (buyable tax-free with a resale certificate). The refundable security deposit is NOT taxable. But the rental/lease ch…
Can a high-volume home-based independent distributor of a direct sales company (Metabolife International) get their own Texas sales tax permit to streamline exempt out-of-state sales, instead of paying tax up front and waiting for a refund from the company?
Yes, under a specific administrative policy set out in this letter: an independent Metabolife distributor with total sales exceeding $24,000 a quarter may apply for a Texas sales tax permit. Once perm…
Is sales tax due on equipment (microscope, vials, droppers, bottles, forceps, and collection vessels) sold to farmers and ranchers for performing fecal egg counts to check livestock for parasites?
Mostly exempt. Under Sec. 151.316, farm/ranch equipment used exclusively on a farm or ranch in agricultural production is exempt -- so the microscope, cleaning supplies, slides, flotation solution, dr…
Can a retailer exempt a sale as an export at the time of the transaction because it ships directly to a customs broker, and how soon can it refund tax to a purchaser once a licensed customs broker certifies the goods were exported?
No, a retailer cannot exempt the sale at the time of the transaction -- proof of export must come first (either a pedimento de importaciones, which takes one to three weeks, or a stamped certification…
Two aircraft were swapped in back-to-back sales a day apart -- Company A sold a Beechcraft King Air to Company B, and the next day Company B sold an IAI Westwind 1124 to Company A. Does the occasional sale exemption apply to these transactions, and does it matter that Company B holds an active Texas sales tax permit?
These are two separate transactions taxed on their own merits, not one combined deal. Company A's sale of the King Air may qualify as an exempt occasional sale under Sec. 151.304(b)(1) if Company A do…
A materials vendor sold fencing materials for a zoo exhibit to a construction contractor. The zoo's bid documents said the owner was tax-exempt and taxes should NOT be included in the contract price, but the contractor's purchase order listed 'Sales tax: Included' and told the vendor not to charge Texas sales tax because the contractor 'pays direct.' The contractor now wants to deduct that 'included' tax amount from what it owes the vendor, claiming the vendor collected it. Can the contractor do that?
Not just by pointing to the purchase order's 'Sales Tax: Included' language. The vendor's own invoice showed a price with no indication tax was included, and the vendor issued no tax receipt -- so des…
When a mailing list broker charges for lists that mix Texas and out-of-state addresses, is the sale taxable based on the percentage of Texas names on the list, and does that change if the list is sold to an out-of-state customer?
Yes to the percentage test: under Rule 3.342(b)(3), the taxable portion of a mailing list sale is based on the percentage of names on the list located in Texas. But an information service (like a mail…
If a company reorganizes its Texas operations into a Texas limited partnership that elects under the federal 'check-the-box' rules to be taxed as a corporation and joins the company's consolidated federal tax return, does Texas's Intercorporate Services exemption cover services the company provides to that limited partnership?
Yes. A limited partnership or limited liability partnership that makes a check-the-box election under Treas. Reg. 301.7701-3 to be treated as a corporation, and reports its income as a C corporation o…
Are pass-through charges a Competitive Local Exchange Carrier collects from customers -- municipal charges, expanded local calling service surcharges, number portability service charges, FCC-approved customer line charges, and federal presubscribed interexchange carrier charges -- subject to Texas sales tax?
Yes. Each of these pass-through charges becomes part of the sales price of the telecommunications service and is taxed the same way the underlying service itself is taxed, when passed through to the r…
In an oil refinery's crude distillation unit -- where a furnace, distillation tower, and stripper each perform one step of separating petroleum into fractions -- is the whole crude unit treated as a single item of manufacturing equipment under House Bill 3211, and which pipes, pumps, and fittings qualify for the manufacturing exemption?
The crude unit as a whole is NOT a single item of manufacturing equipment -- H.B. 3211's Sec. 151.318(f) treats an integrated group of machines working together as separate items, so the furnace, dist…
A city owns a golf course but hires an independent private company to operate it under a management agreement giving the company exclusive use and day-to-day control of the facility. Are the green fees the company charges golfers exempt from Texas sales tax as a municipal amusement service, or taxable?
Taxable. Golf courses are amusement services under Rule 3.298, and amusement services are exempt only when EXCLUSIVELY provided by a municipality (Sec. 151.3101(a)(1)). Because the city contracted wit…
A nonprofit college runs a federally mandated proficiency testing program for pathology laboratories, charging labs a single subscription fee that bundles the testing service with disposable test-specimen materials the college buys and ships in. Is the college's subscription fee a taxable sale of the specimen materials, or a nontaxable service charge -- and does the college owe Texas use tax on specimens it ships into Texas from out of state?
The subscription fee itself is not taxable: the 'true object' of the program is the testing/accreditation service, not a sale of the specimen materials, so the college (not the labs) is treated as the…
A member of an online buying club (SITE ONE) purchases distressed/discounted merchandise from manufacturers using membership access, then resells it. Is the club's membership fee taxable, and what are the member-reseller's own sales tax obligations on the merchandise it resells over the Internet?
The club's membership fee IS taxable -- SITE ONE is selling a taxable information service (price lists, manufacturer information) and should collect tax on the fee from Texas members (effective Octobe…
A seller of specialized instruments (thin film deposition monitors, gas analyzers, leak detectors, gauges, and optical measurement products used in semiconductor cleanrooms and other manufacturing) asked which of these items its manufacturer-customers can buy tax-free with a manufacturing exemption certificate.
It depends on how each item is actually used. Equipment used directly to make or cause a physical/chemical change in the product qualifies. So does equipment a manufacturer uses for quality control te…
When an insurance carrier reimburses a service provider for travel, meals, and hotel expenses incurred while performing a taxable service, is that reimbursement itself part of the taxable sales price, even though it's separately stated and feels like a pass-through cost rather than a fee for the service?
Yes. Expense reimbursements like travel, meals, and hotel costs are taxable as part of the total price of the taxable service, even if separately stated on the bill -- Tax Code Sec. 151.007(a) defines…
A jewelry manufacturer converting a former map-making facility into its plant added a silver-dust pollution control system: new concrete pads, dedicated electrical switchgear, and extra HVAC units to cool the air moving through the dust collector. Which of these items and which labor charges qualify for Texas's manufacturing/pollution-control equipment exemption?
Mixed results. New concrete pad materials are taxable, but the LABOR to build the new pads is exempt new-construction labor under Rule 3.357(a)(5) since there was no prior improvement to remodel. The …
A direct-sales company gives a home-party 'hostess' credits based on the volume of orders she collects (a percentage of merchandise total, plus bonus credits for hitting order-count and dollar thresholds), which she can apply toward her own order including the sales tax due. Do these hostess credits reduce the taxable sales price of the goods she buys, or are they just a form of payment?
The hostess credits do NOT reduce the taxable sales price -- tax is still computed on the full regular retail value of the goods. The credits are treated as consideration the hostess earned in a barte…
A direct sales organization selling vitamins through independent Texas distributors needs a Texas sales tax permit. What state and local sales tax rates apply, and how should the organization collect and account for local taxes across all of its distributors' sales?
The direct sales organization -- not its distributors -- is responsible for collecting and remitting sales and use tax on all Texas distributor sales, under Rule 3.286. On top of the 6.25% state rate,…
A direct payment permit holder already paid sales tax to its vendor on past purchases. Can it now retroactively issue a direct payment exemption certificate for those same past purchases so it can get a full refund of the tax and instead accrue and pay the tax itself directly to the state?
No. A direct pay permit holder must choose, at the time of each purchase, between giving the supplier a direct payment exemption certificate or having tax paid directly to the supplier -- once tax has…
A taxpayer sought a refund of sales tax it charged clients (employers) for case management/risk management consulting services, on the theory that because those clients were 'nonsubscribers' to Texas Worker's Compensation, the services couldn't be taxable insurance services. Is that refund claim valid?
Largely no -- an internal Tax Policy Division memo to the Comptroller's refund-review staff concludes the taxpayer's reliance on the 'nonsubscriber' label is misplaced. Being a Worker's Compensation n…
Will a state-prescribed Texas sales tax exemption certificate that a customer completes electronically, signs with an electronic signature pad, and stores only in electronic form pass muster in a Comptroller audit?
Yes. The Comptroller's audit division accepts certificates with electronic signatures, in addition to certificates that have been scanned, faxed, or microfiched -- so a system that creates a non-alter…
Are periodicals and writings sold by a church exempt from Texas sales tax, and does that exemption extend to formats other than print, like video tape, audio tape, or computer disk?
Yes. Tax Code Section 151.312 exempts periodicals and writings published and distributed by a religious, philanthropic, charitable, historical, scientific, or similar nonprofit organization. Effective…
A phone customer noticed their bill includes an FCC line charge, which they understood to be a federal charge tied to the number of incoming lines, within the total that Texas sales tax is calculated on. Since it looks like a federal tax/fee, should Texas sales tax apply to it?
Yes. The FCC line charge isn't a federal tax on the customer -- according to the FCC, it applies to all subscribers regardless of long-distance usage and is simply another way for the phone carrier to…
A commercial monitoring company separately bills clients for security-system monitoring and fire-alarm-system monitoring, subcontracting the actual monitoring to its parent company. Are separately stated charges for monitoring a fire alarm system taxable the same way as security system monitoring charges, and what about the telecommunications lines used to run both?
No -- separately stated charges for monitoring FIRE alarm systems are NOT subject to Texas state and local sales tax, while separately stated charges for monitoring SECURITY systems ARE taxable. On th…
A commercial photography studio creates images (conventional film transparencies or digital media) for advertising clients and, on request, does pre-press production work (scanning, color-adjusting, image-setting, and proofing) to prepare 4-color film and proofs for the client's printer. Which of the studio's cameras, computers, scanners, and other equipment qualify for Texas's manufacturing exemption?
The studio qualifies as a manufacturer under Sec. 151.318 because it fabricates tangible personal property (transparencies, electronic media, 4-color film, proofs) for sale. Under new Sec. 151.318(t) …
For a private club's construction/renovation contracts billed lump-sum, what kind of written statement or contract language satisfies Rule 3.286(d)(3)'s requirement that a stated price includes sales tax, and which of several possible documents (purchase order, bid, signed contract, invoice) controls for that purpose? Separately, is a CPA firm's computer-prepared payroll tax reports for the club a taxable data processing service?
For 'tax included' lump-sum billing, Rule 3.286(d)(3) requires either the tax be separately stated OR a written statement that the price includes tax; whether a given letter/purchase order/bid satisfi…
When a direct sales organization's independent distributor has overpaid sales tax (e.g., on products kept for personal use, sold out of state, or discounted below suggested retail price), how should the distributor get that overpaid tax refunded or credited -- directly from the Comptroller, or from the direct sales organization itself?
From the direct sales organization itself, not the Comptroller. Because the Comptroller treats the direct sales organization as the seller (requiring tax to be initially collected on the suggested ret…
When a retailer sells on credit, is sales tax due on the full accounts receivable balance right away, or only as payments are actually collected over time?
It depends on the retailer's own accounting method. If the retailer uses ACCRUAL basis accounting, the ENTIRE tax on the credit sale is due and must be reported at the time of the sale. If the retaile…
A sawmill sells railroad ties to railroad companies and also manufactures lumber generally. Are the railroad ties exempt from sales tax, and separately, do lubricants used in the sawmill's manufacturing machinery qualify for the manufacturing exemption?
Yes to both, with certificates required either way. A railroad company can give the sawmill an exemption certificate to buy railroad ties tax-free under Sec. 151.331 (rolling stock/locomotive fuel and…
Two companies provide liability-investigation services to attorneys representing plaintiffs and defendants in injury cases -- not directly to insurance companies -- and argue that because they don't work on 'first-party' claims (an insured's own claim under their policy) and any insurance involved is only incidental to determining liability between litigants, their services shouldn't count as taxable insurance services. Is that right?
No. The companies are providing taxable insurance services whenever they're paid to investigate a loss pertaining to a policy of insurance, regardless of who hires them or whether the claim is a first…
Someone selling mail order products from home (supplied by a California company) asked whether they need a Texas sales tax permit, and how local tax is determined when the business operates out of a home or apartment.
Yes, a sales tax permit is required, and the seller is responsible for collecting and remitting state and local sales tax on Texas sales (sales shipped outside Texas are exempt). The home itself is th…
Why can't an independent distributor of a direct sales/multi-level marketing company simply give the company a resale certificate and buy products tax-free, the way an ordinary reseller would?
Because Tax Code Section 151.024 authorizes the Comptroller to treat the direct sales organization itself -- not the individual salesperson/distributor -- as the retailer responsible for the tax, spec…
A manufacturing facility that handles powder ingredients asked about the taxability of an equipment enhancement: silos, scale hoppers, filters/receivers, piping/fittings/valves, instrumentation, a motor control center, and a bag dump station with a convey air compressor. Which of these qualify for the manufacturing exemption?
Mostly taxable, with narrow exceptions tied to quality control. Silos (storage of raw powder) are taxable. Scale hoppers are exempt ONLY if they actually measure the recipe amounts used in the mixers …
A retailer demolished most of an existing 49,887-square-foot store -- removing the floor slab, all electrical, all plumbing, the fire protection system, the roof, and the entire parking lot -- but kept one side wall, the rear wall, and the steel columns/joists, then expanded the footprint to 59,666 square feet. Is this project taxed as new construction or as taxable remodeling?
Mostly remodeling, with one new-construction carve-out. Total demolition means removing the ENTIRE structure except the slab -- since this project kept a side wall, rear wall, and the steel columns/jo…
Can caterers, party planners, florists, and bridal consultants who rent tables, linens, china, vases, and candelabras to re-rent to their own customers use a resale certificate instead of paying tax on the rental?
It depends on whether the renter serves prepared food. Food service operators -- restaurants, caterers, party planners, bridal consultants, and others who serve prepared food -- may NOT purchase, leas…
Can a Texas movie theater buy admission tickets tax-free for resale, and does the same rule apply to the gift certificates, envelopes, and passbooks it buys?
Movie tickets may be purchased for resale under Rule 3.298(f)(1), so a theater that already paid tax on tickets can get a refund by issuing its supplier a resale certificate (limited to a four-year st…
If a Texas defense contractor's gas and electricity use is exempt because it makes defense/national-security electronics for the U.S. Government, does the exemption also cover indirect uses like offices, cafeterias, and restrooms?
No. The Section 151.317(c)(2)(A)(vi) exemption applies only to gas and electricity actually used in performing the listed defense-related activities (manufacturing precision-guided weapons, radar, nig…
Does a Texas company that performs artificial insemination of cattle on ranches owe sales tax on its semen, insemination labor, and the AI supplies/equipment it uses to perform the service?
No. Charges for semen and insemination labor are not subject to sales tax at all, and Tax Code Section 151.316's farm/ranch exemption covers AI supplies, AI equipment, animal care products, liquid nit…
If a Texas retailer gift-wraps an exempt item like a Bible for an extra charge, is the gift-wrapping charge taxable?
No. Gift wrapping is not itself a taxable service, and a charge for gift-wrapping an item follows the tax treatment of the item being wrapped. Because Bibles and other books are exempt from Texas sale…
Can a Texas Internet service provider buy telecommunications services (like leased lines) tax-free for resale, even though part of its Internet access revenue becomes exempt from sales tax starting October 1, 1999?
Yes. Telecommunications services purchased to provide Internet access, data processing, or information services still qualify as a sale for resale under Tax Code Section 151.006(1), because each of th…
How does Texas apply state, city, and MTA (Metropolitan Transit Authority) sales tax to cellular roaming charges, including calls that originate or terminate outside Texas?
A call is subject to Texas tax only if it both originates in Texas AND is billed to a telephone number/billing or service address within Texas. Intrastate calls (originating and terminating in Texas) …
If a 501(c)(3) nonprofit is the general partner (not the sole owner) of a limited partnership that hires a contractor to build affordable housing, how much of the construction materials can be bought tax-free?
Only a proportional share. The Comptroller treats the limited partnership the same as it would treat the individual partners -- so the exempt general partner's percentage ownership interest in the par…
If an electric cooperative buys items tax-free under a valid exemption certificate but then uses them in a way that isn't actually exempt (divergent use by a for-profit entity), how is the tax calculated -- on the fair market rental value or the original purchase price?
The default is fair market rental value (FMRV): under Rule 3.287(e), tax is due on the ongoing fair market rental value of items purchased under a valid exemption certificate but used in a divergent m…
Does an independent distributor of a Texas direct sales organization need their own sales tax permit to sell that company's products at a trade show?
No. Direct sales organizations, not their independent distributors, are responsible for collecting and remitting sales and use tax on Texas sales made by distributors, and sales tax permits are not is…
Does Texas treat a direct sales organization's distributor with a physical retail store in a mall or shopping center the same way it treats a home-based independent distributor, for sales tax permit and resale-certificate purposes?
No. Home-based independent distributors of a direct sales organization are never issued sales tax permits and may not give a resale certificate -- they pay tax on the suggested retail price, with a re…
For a Texas-based interstate trucking company, does it matter whether repair parts are bought in-state or out-of-state, and whether they go on the tractor (truck) versus the trailer?
Yes, both distinctions matter. Repair/replacement parts (including tires and tubes) bought OUTSIDE Texas and affixed in Texas to the self-propelled vehicle (the tractor/truck) of a licensed, certifica…
Is an annual fee a company charges its independent sales agents to access their own personal sales data on a company web page a taxable service in Texas?
Yes. The storage of a sales agent's sales information on a web page is a taxable data processing service, even though the company isn't providing general Internet access and the agents aren't download…
Can a warehouse get a refund of tax on the electricity it uses to refrigerate and store already-finished products, based on a predominant-use exemption certificate claiming the electricity is used in manufacturing/processing?
No. Warehouses generally provide a storage commodity/service rather than sell tangible personal property, so their electricity use generally does not qualify for the manufacturing/processing exemption…
Is power-washing a restaurant's kitchen vent hood taxable in Texas?
It depends on what the vent hood legally is. If the vent hood is affixed to the building as an improvement to realty (part of the ductwork), cleaning it is a taxable real property service under Rule 3…
Is concrete cutting, coring, drilling, and repouring taxable in Texas, and does it matter whether the job is new construction, residential, or nonresidential repair/remodeling?
Charges for cutting/coring concrete tied to a repair or remodeling job on NONRESIDENTIAL real property are fully taxable, including any repouring charges afterward. But labor charges for the same cutt…
Is a fee charged for a fast (under 3-minute), on-the-spot credit approval/denial decision a taxable credit reporting service, even if the vendor never furnishes the retailer any actual credit report or credit history document?
Yes. Even though the vendor doesn't assemble or hand over a credit history or credit report, the vendor is still performing a taxable credit reporting service as defined in Tax Code Section 151.0034 -…
Can a private investigator selling surveillance work to a television station use a resale certificate instead of charging sales tax, on the theory that the TV station resells the information to the public as part of its programming?
No. The private investigator is performing a taxable security service under Tax Code Section 151.0075 (services requiring a Private Investigators and Private Security Agencies Act license), not an inf…
If a company leases manufacturing equipment to a lessee who later incorporates it into a building (realty), does that later incorporation destroy the lessor's resale certificate, and when exactly does an operating lease's 'sale' happen for tax-reporting purposes?
No, incorporation into realty by the lessee does not destroy the lessor's resale certificate or trigger a 'divergent use' problem, because the equipment is still being used as claimed on the exemption…
If an out-of-state software company places an unstaffed backup server computer in Texas, does merely owning that computer create nexus requiring the company to collect and remit Texas sales tax?
Yes. A New Hampshire-based software company's ownership of a computer physically located in Texas -- even one used only as a backup server, with no Texas employees, and only an outside Internet compan…
Is monthly storage of RVs, campers, and boats at a converted airport storage yard taxable in Texas, and does it matter if a boat is sitting on a boat trailer?
RVs and campers are motor vehicles, so their monthly storage charges ARE taxable. But boats are NOT taxable to store, even when the boat is sitting on a boat trailer -- Texas's storage tax applies onl…
In a related-party sale-leaseback used to restructure debt within a corporate group, are the lease payments taxable, and does it matter whether the leaseback is structured as an operating lease or a financing lease?
It depends entirely on how the leaseback is structured, even though the initial asset sale itself qualifies as a tax-exempt resale under Rule 3.285. If the leaseback is an OPERATING lease, the periodi…
Is bottled, purified mineral water taxable in Texas, whether sold directly or through vending machines?
No. Water, spring water, sparkling water, and mineral water are not taxable in Texas, whether sold through direct retail sales or vending machines. This includes water that has been purified through r…
Is a concrete pumping charge (using a primer to slick the pump's pipe) taxable, and is concrete sawing taxable on new construction versus a remodeling job?
A charge for pumping concrete that was sold by a third-party retailer to a foundation contractor is NOT subject to sales tax. Charges for sawing concrete as part of a NEW CONSTRUCTION contract are NOT…
How does Texas sales tax and the Telecommunications Infrastructure Fund (TIF) assessment apply to toll calls, 800-number calls, and prepaid telephone calling cards sold by a switchless telecom reseller?
Telecommunications services (toll calls, intrastate 800 calls, calling card usage) that originate in Texas and are billed to a Texas telephone number or billing/service address are subject to Texas sa…
Can a pilot renting an aircraft to accumulate flight hours toward an Airline Transport Pilot (ATP) rating claim Texas's flight-training aircraft tax exemption, and what proof does the exemption require?
Yes. Tax Code Section 151.328(a)(2)(B) exempts both lessor and lessee from sales/use tax on aircraft use when the renting pilot is using the aircraft in a way designed to lead to an FAA pilot certific…
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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.