Tax Policy News

Coin-operated amusement machine owners and operators must file renewal applications for their 2025 general business license, registration certificate, import license or repair license by Nov. 30, 2024. A $60 occupation tax permit for each coin-operated amusement machine exhibited or displayed in Texas is also due by Nov. 30. An occupation tax permit decal must be affixed to each machine in use.

Under Occupations Code Section 2153.154, License Fee and Section 2153.405, Refund or Credit Prohibited, the Comptroller’s office may not refund the license fee once a license is issued, nor refund the occupation tax to an owner who ceases to exhibit or display a coin-operated machine before the end of the calendar year for which the tax is imposed.

The Comptroller's office mailed renewal application packets in early October. Coin-operated amusement machine owners and operators who have not received renewal packets by Oct. 31 should contact our office at 512-463-3731.

Sales tax filers should validate their business location address(es) to ensure local tax is accurately reported. Collecting and paying the correct local tax rate is the taxpayer’s responsibility and inaccurate local tax collection can cost you money. If you have moved and your business location address is no longer correct, visit Move or Add a Business Location and complete the online form.

It is extremely important for all taxpayers to ensure the mailing address we have on file is accurate and up-to-date. Without an accurate mailing address a taxpayer’s mail goes undelivered, and you will miss important information from the Comptroller’s office. Without a correct mailing address an account could slip into a delinquent status and the taxpayer would not be aware. Check your address on our Taxable Entity Search and/or Sales Taxpayer Search webpages. Visit our Change Mailing Address/Phone Number webpage to update your address online.

For convenient access to taxpayer notices and billings, the Comptroller’s office is developing a platform called “Message Center” within our confidential Webfile system. Many taxpayers have CPAs and consultants that handle their tax filings and have not signed up for Webfile. You must sign up for Webfile and add your taxpayer account using your unique Webfile number to view your account and any important notices that will be in Message Center. Visit our Getting Started with Webfile webpage for information on signing up for Webfile and locating your Webfile number.

In July 2023, the Legislature passed Senate Bill 3, increasing the no tax due threshold to $2.47 million and eliminating the no tax due reporting requirements for certain entities. In response, the Comptroller’s office changed the way some entities report for franchise tax purposes. See our Changes to No Tax Due Reporting For 2024 Reports webpage for details.

Depending on your entity’s annualized total revenue, you may need to file a franchise tax report and a PIR or OIR; or you may only need to file a PIR or OIR. There is no $50 penalty for late filing a PIR or OIR.

On Oct. 22, the Comptroller’s office will begin mailing Form 05-212, Texas Notice of Forfeiture of Right to Transact Business, to entities who have not satisfied their franchise tax filing and/or payment requirements. As a direct result of the forfeiture of the right to transact business, an entity's officers, directors, partners, members, or owners will be liable for certain debts of the entity (including taxes, penalties, and interest) incurred after the due date of the report and/or payment. Also, the entity will generally be denied the right to sue or defend in a Texas court in accordance with the law. If your entity's right to transact business is not revived before Feb. 18, 2025, the entity's registration with the Secretary of State will be forfeited.

You still have time to act to ensure your entity’s registration with the Secretary of State is not forfeited. See our Tax Notices and Resolving Problems With Your Account webpage for steps on making your account current.

You can verify an entity’s franchise tax account status online.

The Comptroller’s office proposed the following rules for public comment through the Texas Register:

Sales and Use Tax

New Rule 3.330 – Data Processing Services

Publication date – Sept. 13, 2024
Comment period end date – Oct. 13, 2024

The Comptroller's office proposed amendments to Rule 3.330 concerning data processing services. The amendments implement Senate Bill 153, 87th Legislature, 2021, which excluded certain payment processing services from the definition of data processing. The Comptroller will hold a hearing to take public comments on Friday, December 6, 2024. The proposed rule adds definitions and lists services that are specifically excluded from data processing under Tax Code Section 151.0035 (Data Processing Service). It also lists services that are excluded from data processing services under the Comptroller’s exclusive jurisdiction to interpret taxable services as provided in Tax Code Section 151.0101 (Taxable Services). Additionally, the proposed rule makes changes to more accurately describe unrelated services as nontaxable.

The Comptroller’s office filed the following rules for adoption with the Secretary of State:

Mixed Beverage Taxes

Rule 3.1001 – Mixed Beverage Gross Receipts Tax

Proposed publication date – Sept. 6, 2024
Adoption publication date – Oct. 25, 2024
Effective date – Oct. 30, 2024

Summary: The Comptroller’s office adopted amendments to Rule 3.1001 concerning the mixed beverage gross receipts tax. The amendments implement House Bill 1024, 87th Legislature, 2021, effective May 12, 2021, relating to the pickup and delivery of alcoholic beverages for off-premises consumption. The amendments also implement House Bill 1545, 86th Legislature, 2019, effective Sept. 1, 2021, which updated the definition of "permittee" in Tax Code Section 183.001 (Definitions) and eliminated the distinction between ale, beer, and malt liquor, which are now referred to as a malt beverage. Finally, the amendments add average pour figures for malt beverages and wine in the absence of records or evidence during an audit.

Rule 3.1002 – Mixed Beverage Sales Tax

Proposed publication date – Sept. 6, 2024
Adoption publication date – Oct. 25, 2024
Effective date – Oct. 30, 2024

Summary: The Comptroller’s office adopts amendments to Rule 3.1002 concerning the mixed beverage sales tax. The amendments implement House Bill 1024, 87th Legislature, 2021, effective May 12, 2021, relating to the pickup and delivery of alcoholic beverages for off-premises consumption. The amendments also implement House Bill 1545, 86th Legislature, 2019, effective Sept. 1, 2021, which updated the definition of "permittee" in Tax Code Section 183.001 (Definitions) and eliminated the distinction between ale, beer, and malt liquor, which are now referred to as a malt beverage.

Our State Tax Automated Research (STAR) system provides viewing and downloading of redacted letter rulings, hearings, rules, and Attorney General’s Opinions, among other documents. To see the latest items added to the STAR System, use the New Documents link on the STAR home page in the blue menu bar.

The Monthly Updates Search Form defaults to the current month and "All Taxes." Use the pull-down menu to choose a different month or a particular tax. Selecting "All Taxes" brings up the documents organized by tax type.

STAR Doc. No. 202407021L

A taxpayer requested a private letter ruling regarding the taxability of residual fees received for promoting credit card processing services.

The taxpayer provides a variety of technology-based services to clients in the retail and hospitality business, including the sale and installation of point-of-sale systems. The taxpayer collects sales and use tax on the sale of the point-of-sale systems.

The taxpayer also enters into a referral agreement with a credit card processor to promote the processor’s services to the taxpayer’s clients that accept credit cards as payment for goods and services. The taxpayer receives a residual fee from the credit card processor for each accepted merchant whose merchant’s agreement was submitted by the taxpayer. The residual fee is a percentage of the processor’s income from fees charged to merchants after subtracting the processor’s costs.

The Comptroller’s office determined that the taxpayer’s service is not taxable. The residual fee compensates the taxpayer for promoting the processor’s services and submitting executed merchant agreements. These activities do not fall under the services listed as taxable services under Tax Code Section 151.0101 (Taxable Services). Therefore, the taxpayer’s services are not subject to sales and use tax.

STAR Doc. No. 202407022L

The Tax Policy Division responded to a private letter ruling request regarding the taxability of incorporated materials such as sub-ballast, riprap, and steel and precast culverts.

Materials used in construction are generally taxable. However, supplies that are essential to the operation of locomotives and trains are exempt from tax.

Tax Policy determined that materials that are incorporated into the construction of railroad tracks or roadbeds are essential to the operation of locomotives and trains. Items such as sub-ballast, riprap, and steel and precast culverts used in the construction of railroad tracks or roadbeds are therefore exempt from Texas sales and use tax.

STAR Doc. No. 202407027L

A taxpayer requested a private letter ruling regarding the taxability of its membership-based business systems, professional coaching, and networking services.

The taxpayer charges members an initial membership fee and a monthly fee. As part of its services, the taxpayer assigns each member a client success manager who meets with the member's leadership team to work on coaching and mentoring. Members have access to a member network that includes access to live expos and conferences.

Taxpayer also offers members access to an online hub that provides various business resources. The hub includes training materials, such as educational and motivational videos, that are available for download or online viewing. It also contains standardized documents such as bid sheets and budget templates.

The Tax Policy Division determined that the taxpayer’s membership fees are a lump-sum charge for nontaxable consulting services and taxable data processing and information services. The entire membership fee is presumed subject to Texas sales and use tax. The 20 percent exemption for data processing and information services applies to the taxpayer’s membership fees.

STAR Doc. No. 202407028L

The Tax Policy Division issued a private letter ruling regarding the taxability of certification and registration fees charged to third party learning centers.

The taxpayer that submitted the ruling request is a not-for-profit entity who sets standards related to workforce safety and competence for the energy industry and develops vocational certification programs pursuant to those industry standards. The taxpayer provides certification services to independently owned and operated learning centers that provide the training to students.

The taxpayer also maintains an online repository of courses taken by individual students. This includes information on whether the student has received a certification and whether the student’s certification is current. This information can be used by students and employers to track and verify a student’s completed courses and training certifications.

The taxpayer charges the learning centers a registration fee to store, update, and add new certification information on their digital repository. The registration fee is a monthly charge based on the number of students that receive certification for completing a course.

The Comptroller’s office found that the taxpayer’s certification service is nontaxable. The certification service includes the review and approval of a learning center’s training classes, materials, equipment, and facilities to ensure the center provides training that meets the taxpayer’s standards. Performing this type of review to provide an accreditation or certification is not included in the enumerated list of taxable services in Tax Code Section 151.0101 (Taxable Services). Therefore, the taxpayer’s certification services are not subject to Texas sales and use tax.

The Comptroller’s office further determined that the registration fee is a taxable date processing service. Adding new student certifications, updating the status of student certifications, and maintaining the information in the repository constitute data entry and the computerized storage and manipulation of information as described in Tax Code Section 151.0035(a)(1) (Data Processing Service) and Rule 3.330(a)(1) (Data Processing Services). Therefore, the taxpayer is providing a taxable data processing service. The 20 percent exemption for data processing services applies to the taxpayer’s registration fees.

STAR Doc. No. 202407026L

A taxpayer requested a private letter ruling related to whether a contract for the construction of a new library and community center is an exempt contract.

A county is working with the taxpayer on a project to replace the county’s existing library with new, modern facilities. Under the agreements provided, the taxpayer will build a new library and community center and then transfer full ownership of the buildings and underlying land for the project to the county. In return, the county will transfer ownership of the county’s existing library and its land to the taxpayer.

Based on the facts and circumstances established by the construction and exchange agreements provided by the taxpayer, the county will approve the design and construction of the project, will obtain ownership of the land and project improvements upon completion of construction, and will operate the facilities after they are complete. The Tax Policy Division determined that the primary use and benefit of the project is for an exempt entity, the county, and the contract for the construction of the new library and community center is therefore an exempt contract.

The taxpayer may issue an exemption certificate to its contractor to document the exempt contract. The taxpayer’s contractor may subsequently issue exemption certificates to its suppliers for purchases of tangible personal property to be incorporated into the realty, items necessary and essential for performance of the contract that are consumed at the jobsite, and taxable services performed at the jobsite.

STAR Doc. No. 202408014L

A taxpayer requested a private letter ruling regarding the sales and use tax responsibilities of sellers engaged in the sale of imported tangible personal property within a bonded warehouse.

The taxpayer provides industrial automation products and services. The taxpayer has subsidiaries in the United States, Europe, and Mexico. The taxpayer and its subsidiaries sell products that will be imported into the United States by the taxpayer’s customers after a series of transactions that occur in a bonded warehouse in Texas.

Property imported into Texas from another country is exempt from Texas use tax as long as the property retains its character as an import. Once transit of an import ceases in Texas, it becomes subject to Texas use tax. The taxpayer’s customers remove the products from the bonded warehouse in Texas. The Tax Policy Division found that these customers would be responsible for any Texas use tax due when items are removed from the warehouse.

Tax Policy also determined that the entities that take title to the goods in the bonded area of the warehouse in Texas have physical presence in this state. These entities are making use of the warehouse in Texas and are deriving receipts from the sale of tangible personal property in this state. They are therefore engaged in business in this state and required to obtain Texas sales and use tax permits.

STAR Doc. No. 202410001M

The Tax Policy Division issued a memo to the Audit Division providing guidance on the local tax sourcing by mobile telecommunications providers.

Providers had been incorrectly sourcing local tax on sales of mobile telecommunications, data plans, and tangible personal property. However, providers that have exercised due diligence to ensure that the correct tax was collected for each address in a local jurisdiction may be held harmless for tax collected incorrectly.

Beginning Jan. 1, 2025, providers must source local sales tax on mobile telecommunications using the agency’s Sales Tax Rate Locator database and Publication 96-339, Jurisdictions That Impose Local Sales Tax on Telecommunications Services, to be considered to have exercised the required due diligence and held harmless. Providers will only be held harmless to the sourcing of local tax on charges for mobile telecommunication services and not for sales of other taxable items. Providers that do not use the agency’s Locator and Publication 96-339 have not exercised due diligence and will not be held harmless for sales of any taxable items.

Providers who collected local sales tax from a jurisdiction who has not voted to impose sales tax must refund the local sales tax to their customers or remit the local sales tax as tax collected in error.

STAR Doc. No. 202407025L

A taxpayer requested a private letter ruling asking if their subcontracting payments could be excluded from total revenue under Tax Code Section 171.1011(g)(3) (Determination of Total Revenue from Entire Business). The taxpayer provides on-site consulting and supervision services on completions and workovers of oil and gas drilling and workover rigs. The taxpayer uses contract field operation consultants (subcontractors) to perform the majority of the work.

A payment to a third party qualifies for the revenue exclusion in Section 171.1011(g)(3) where:

• The payment is a subcontracting payment, meaning the payments the taxpayer makes to another entity to do work or provide materials that the taxpayer is in turn obligated to provide its customer and for which that customer is compensating the taxpayer;
• The payment is a flow-through fund, meaning that the taxpayer’s customer is compensating the taxpayer for the subcontractor’s work;
• The payment is mandated by contract or subcontract, meaning that the taxpayer has a contractual obligation (in the contract or subcontract) to pay its subcontractor; and
• The payment is in connection with the actual or proposed design, construction, remodeling, remediation, or repair of improvements to real property, which requires more than a tangential or incidental relationship between these activities and the services, labor, or materials for which the subcontractors receive payment. However, it does not require that the activity of the taxpayer’s subcontractor affect a material or physical change to the property.

The Comptroller’s office concluded that the taxpayer’s subcontracting payments were subcontracting payments for services or labor in connection with the actual or proposed design, construction, remodeling, remediation, or repair of improvements on real property and could be excluded from total revenue under Section 171.1011(g)(3).

STAR Doc. No. 202408001M

The memo updates and replaces the previous policy memo, STAR Accession No. 202404005M (April 24, 2024), and provides guidance on the statute of limitation when a franchise tax extension is requested. The revised memo changes the application of the provisions of the memo to reports originally due on or after Jan. 1, 2021.

You are invited to join the Tax Policy Division for an overview of our agency website, Comptroller.Texas.Gov.

In this training, you will learn where to locate:

• Tax Publications
• Tax Webpages
• Tax Training Resources
• Tax Forms
• Frequently Asked Questions (F.A.Q.)
• And, much more!

The Taxes webpage has links to:

• All Texas taxes and fees.
• Resources for taxpayers.
• Filing and paying taxes.
• Tax laws and rules.

Our Account Update Tools make it easy for you to:

• Change your address.
• Add a location.
• Close a location.
• Change return/email notifications.

The Comptroller’s office offers video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

Our office also offers virtual Sales and Use Tax Seminars conducted via Webex Events. New taxpayers are especially encouraged to attend these overviews of tax responsibilities for buyers, sellers, and service providers. For more information, visit the Taxpayer Seminars webpage.

Visit our Tax Training Resources webpage to:

• Find out more about our training resources.
• Register for upcoming webinars.
• View the Podcast and Webinar Archive sections for previous recordings.

The Practitioners’ Corner is a one-stop resource for information about filing and paying taxes, links to tax research sources and searchable databases.

• Tax Due Dates
• Holiday Schedule