|May 2012||TAX POLICY NEWS|
|a monthly newsletter about Texas tax policy|
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In this issue...
Coin-Operated Machines Tax
Motor Fuels Tax
Recently Proposed Rules
Reimbursement of Coin-Operated Machines Occupation Tax
To operate or exhibit a coin-operated music or coin-operated skill or pleasure machine in Texas, the owner of the machine must be licensed or registered with the Comptroller’s office. In addition, an annual $60 machines occupation tax must be paid for each machine exhibited. Machine owners are reimbursed for the payment of machine occupation taxes.
The Coin-Operated Machines Law, in Occupations Code Subsection 2153.205(a), provides that the first money earned from the exhibition of a coin-operated amusement machine may be paid to the owner as reimbursement for payment of state and local machine occupation taxes. Subsection (b) further stipulates that a portion of the money earned each year from the machine must be paid to the owner to reimburse the owner for the next year’s occupation taxes.
Therefore, when a coin-operated amusement machine is exhibited for the first time at a location in Texas, the first money earned from the machine may be used to reimburse the machine owner for that year’s occupation taxes. In addition, enough money must be taken each year from machine earnings to reimburse the owner for the following year’s occupation taxes.
The law does not specify when a reimbursement under subsection (b) occurs, just that the reimbursement must be made in the current year for the next year’s occupation taxes.
A machine owner is prohibited from waiving the reimbursement requirement, and from compensating the location owner more than 50 percent of the machine’s receipts after reimbursement. The law requires the Comptroller to revoke the license of a machine owner who violates these provisions. See Occupations Code Subsections 2153.205(c) and (d).
For more information, see the Coin-Operated Machines Tax section of our website and Coin-Operated Amusement Machine Regulation and Taxation (Pub 96-256).
Every unauthorized insurer must file the Texas Annual Insurance Tax Report (Form 25-108) (PDF) and its supplement (Form 25-123) (PDF). The form is due on or before March 1 following the calendar year in which the insurance was effectuated, continued or renewed. If the due date falls on a Saturday, Sunday or legal holiday, the next business day is the due date.
All insurance activities in Texas outside of the licensed market are unauthorized insurance unless they fall within the legislative safe harbors of surplus lines or independently procured insurance.
An unauthorized insurance transaction is an activity performed in Texas by an insurer or person not holding a valid certificate of authority to do an insurance business in this state; or transacting business not authorized by a valid certificate. While not an exhaustive list, the following activities in Texas are examples of acts that constitute the business of insurance:
- issuing or delivering contracts of insurance to residents of Texas;
- soliciting applications for such contracts; or
- collecting premiums, membership fees, assessments or other consideration for such contracts.
Activities performed in Texas by a nonadmitted captive insurance company (insuring only its parent or affiliates) are unauthorized transactions, as the captive insurer is not authorized by the Department of Insurance. The regulatory prohibitions and sanctions applicable to unauthorized insurance transactions do not apply to the nonadmitted captive insurance company. There is still unauthorized insurance premium tax due on this business.
Exceptions and exclusions from tax include premiums on risks or exposures properly allocated to federal waters, international waters, or under the jurisdiction of a foreign government. In addition, there are certain federal preemptions from state taxation for the Federal Deposit Insurance Corporation (FDIC) when it is the receiver of a failed financial institution that holds the property being insured, a federally chartered credit union, the National Credit Union Administration (NCUA) when it is the conservator or liquidating agent for a federally chartered credit union and risks or exposures of Indian Tribal Nations that are located within the borders of Tribal Lands. Refer to Surplus Lines Tax Exemptions/Preemptions (Pub. 94-142) for more information.MOTOR FUELS TAX
Effective July 1, 2012: Changes to the Petroleum Products Delivery Fee
House Bill 2694, passed during the 82nd Legislature Regular Session (2011), reauthorized and made permanent, the fee on the delivery of certain petroleum products that was set to expire on Aug. 31, 2011. The law requires the Texas Commission on Environmental Quality (TCEQ) by rule to set the amount of the petroleum product delivery fee rates. The fee applies to all petroleum products imported into Texas or withdrawn from a Texas bulk storage facility and delivered into cargo tanks or barges. The fee set by the TCEQ is based upon total net gallons delivered, as shown in this schedule, beginning July 1, 2012:
|Less than 2,500 net gallons||$ 2.75|
|2,500 but less than 5,000 net gallons||$ 5.50|
|5,000 but less than 8,000 net gallons||$ 8.65|
|8,000 but less than 10,000 net gallons||$11.00|
|10,000 or more net gallons, per 5,000 or increment thereof||$ 5.50|
For gasoline deliveries of at least 7,000 but less than 8,000 net gallons (whether single product type or split load), special rules apply:
- If the gasoline portion of the delivery is less than 7,000 net gallons, the fee is $8.65.
- If the gasoline portion of the delivery is at least 7,000 net gallons, the total load is presumed to be at least 8,000 gallons and the fee is $11.00.
For more information, please see the Petroleum Products Delivery Fee page on our website.MOTOR FUELS TAX
Notice Required for Biodiesel and Renewable Diesel
Texas law provides a tax exemption for biodiesel, renewable diesel and for the volume of biodiesel or renewable diesel blended with taxable diesel fuel. This exemption is intended to be passed to the ultimate consumer.
The volume of biodiesel and renewable diesel and the volume of biodiesel or renewable diesel that is combined with taxable diesel fuel must be identified on the sales invoice on each sales transaction after the biodiesel or renewable diesel is produced and is first blended with taxable diesel fuel, and must continue to be identified on sales invoices until sold to the ultimate consumer. Comptroller Rule 3.433 details the information required on each sales invoice issued by wholesalers (refiners, producers, blenders, importers resellers) and retail dealers.
A wholesaler must identify on each sales invoice the volume of biodiesel or renewable diesel that is combined with taxable diesel fuel showing the number of gallons of biodiesel or renewable diesel, rounded to the nearest whole gallon, or by the percentage of biodiesel or renewable diesel, rounded to the nearest whole percentage. This is not an option. The sales invoice must also indicate the state tax collected on each sale based on the volume that is taxable petroleum-based diesel fuel.
Dealers are required to identify on each sales invoice the volume of biodiesel and renewable diesel sold through a retail pump to the ultimate consumer. On retail sales to the ultimate consumer that contain 20% or less biodiesel or renewable diesel, the dealer may identify the blended product sold as “Contains up to 5% biodiesel or renewable diesel - state diesel tax $0.19 per gallon” or “Contains up to 10% biodiesel or renewable diesel - state diesel tax $0.18 per gallon” or “Contains up to 15% biodiesel or renewable diesel - state diesel tax $0.17 per gallon” or “Contains up to 20% biodiesel or renewable diesel - state diesel tax $0.16 per gallon.”
On blends that contain more than 20% biodiesel or renewable diesel fuel, the volume must be identified to the nearest whole gallon or nearest whole percentage, with the appropriate state diesel tax rate. Identifying the volume of biodiesel and renewable diesel fuel on a sales invoice when sold by a dealer through a retail pump is not an option.SALES TAX
Proper Calculation of Sales and Use Tax
All Texas sellers must collect sales tax on each separate retail sale in accordance with the statutory bracket system in Tax Code Section 151.053.
Tax Code Section 151.053 states, “If the sales price involves a fraction of a dollar, the sales tax to be added to the sales price shall be computed by multiplying the percentage rate of the sales tax times the amount of the sale. A fraction of one cent that is less than one-half of one cent is not collected and a fraction of one cent that is equal to one-half of one cent or more is collected as one cent of tax.”
When the seller computes the sales tax by multiplying the tax rate by the sales price, the amount should be carried to the third decimal place. If the numeral numeral in the third decimal place is equal to or greater than five, the amount should be rounded up to the next cent. If the numeral in the third decimal place is four or less, the amount should be rounded down to the next cent. Taxpayers should not “round off” the amount of tax due using any other method.
For example, a taxable item is sold for $250 and the tax rate charged is 8.25 percent. The tax rate multiplied by the sales price equals $20.625. Because the third decimal place is a five, the amount should be rounded up and the tax would be $20.63.
When several taxable items are sold in the same transaction, sales tax is computed on the total sale of taxable items, not on the sale of each individual item.
For example, if two items are sold on the same transaction and each item is sold for $7, the seller must collect the tax on the total sum of $14. Tax must be reported and remitted to the Comptroller as required by Tax Code Section 151.410.
In addition to the method above, Tax Code Section 321 allows sellers to calculate the amount of taxes due by multiplying the taxable amount by the tax rate of each jurisdiction and then adding those amounts together.
For example, an item is sold for $20 and the total tax rate is 8.25 percent (6.25 percent state tax, 2 percent city tax). The seller should multiply $20 by the state tax rate (6.25 percent) and then multiply $20 by the city tax rate (2 percent). The seller would add state tax ($1.25) and the local tax ($.40) to compute the total tax due ($1.65).
Sellers are not allowed to “round off” the tax rate that is charged. The Texas state sales tax rate is 6.25 percent, and local sales and use tax rates range from 0.125 percent (1/8 percent) to 2 percent. Sellers may not round off a tax rate percentage that is a fraction of a whole number, but must instead calculate the amount of tax due based on the actual rate in effect at a location.
Sellers should also remember to charge tax only on the final sales price of a taxable item. The final sales price is the total after all discounts, coupons, “free” offers and all other price reductions have been subtracted. Tax is due only on the amount actually charged the customer. See Tax Code Section 151.007(c)(1).
For example, a retailer may offer a customer a 10 percent discount on all purchases. If the customer buys an item marked at $50, the discounted price becomes $45. Tax is computed on the final discounted sales price of $45.SALES TAX
Real Property Services Performed at Oil and Gas Well Sites
Waste Removal or Collection
The removal or collection of garbage, rubbish or other solid waste is usually a taxable real property service.
An exclusion from taxable waste removal services is the removal or collection of waste material that results from an activity associated with the exploration, development, or production of oil, gas, geothermal resources, or any other substance or material regulated by the Railroad Commission of Texas (RRC) under Section 91.101, Natural Resources Code. For example, the collection and disposal of used and depleted drilling mud, drilling fluids, saltwater, broken pipe or other waste directly coming from an oil or gas well is not a taxable service when provided during the exploration, development and production of an oil or gas well. See Tax Code Section 151.0048(a)(3)(C).
An exemption certificate (Form 01-339/back) (PDF) is not required in order to purchase the services of collection and/or disposal of qualifying oil and gas well-related materials tax free as long as the invoice and contract between service provider and customer clearly state that the waste removal service is for waste created from the exploration, development and production of an oil or gas well or substances regulated by the RRC. A waste disposal service operator providing the service may also request an exemption certificate from the purchaser of the service as additional documentation that the sale qualified for exclusion from tax.
The collection and removal of any other waste that does not directly result from the exploration, development or production of an oil or gas well is taxable. Examples are empty food and beverage containers, wrappers, bags and other unwanted personal disposal items. It doesn’t matter that the waste was generated by the well service staff, roustabouts, roughnecks, operator or others. Collecting and removing personal disposal items is a taxable real property service.
Landscaping activities, including cutting or mowing grass and weeds for aesthetic purposes, are taxable as real property services. When performed at an oil or gas well site, water disposal or injection well, these services are not taxable real property services. The service provider does not need to collect the sales tax. See Rule 3.324.
On the other hand, pest control services to kill insects or remove weeds at an oil field related location, such a well site, compressor or booster station, etc., through the use of pesticides, herbicides or other similar chemicals are taxable as structural pest control services regardless of whether an aesthetic effect is achieved. Structural pest control services that use chemical means to prevent, control, or eliminate an infestation of weeds, wood-infesting organisms and other pests that are covered by Section 1951.003, Occupation Code are considered a taxable real property service.
At some oil field related locations, some of the machinery and equipment is tangible personal property and not deemed to be either a structure or improvement to realty. For example, a pump jack, flow line, heater treater, separator, or wellhead christmas tree is tangible personal property. Pest control services provided at a location where there are only items of tangible personal property are not taxable structural pest control services.
Tanks with a capacity of 500 barrels or less are also considered tangible personal property. Tanks with a capacity exceeding 500 barrels are considered to be a structure or improvement to realty. Therefore, the charge for the pest control service at the well site should be separately stated for the services related to structural/realty components and the tangible personal property in order for the sales tax to only apply to the structural/realty components. Otherwise, sales tax would apply to the total combined charge if the service relating to the structural/realty components represents more than 5.0 percent of the total charge.SALES TAX
Reminder: Filing Late Reports Means a $50 Late Filing Penalty
As noted in the August 2011 TPN legislative update issue, a $50 penalty is assessed for certain taxpayers who file their tax reports late, whether they report them online or by mail. A report is late when it is filed after the due date. To help taxpayers file on time, we have a calendar on our website detailing when reports and payments are due.
Taxes or fees subject to the $50 penalty are:
- 9-1-1 prepaid wireless emergency service fee;
- fireworks tax;
- franchise tax;
- hotel occupancy tax;
- maquiladora tax;
- mixed beverage gross receipts tax;
- motor fuels tax;
- motor vehicle gross rental receipts tax;
- motor vehicle seller-financed sales tax;
- sales and use tax (including direct pay); and
- the off-road, heavy-duty diesel equipment surcharge tax.
The penalty applies to reports filed late, beginning with reports originally due on or after Oct. 1, 2011, and is due in addition to any other penalties assessed for a reporting period. It is due regardless of whether the taxpayer later files the report or whether any taxes or fees were due from the taxpayer for the period covered by the late-filed report.
The fact that a person does not receive or obtain the correct report form from our office does not relieve them of their responsibility to file a report and to remit the required tax or fee.SALES TAX
Spring Cleaning and Occasional Sales
You may want to clear some space in your closets and garage and get a little cash at the same time by advertising your items for sale via online advertisements or auction sites or by holding a garage or yard sale.
You aren’t in business – or at least you don’t think you are – but you could still be responsible for collecting tax on the items you sell. Here is some information to help you know whether you need a sales tax permit and must collect sales tax.
In general, sales tax applies to the sale of taxable items in Texas regardless of the price of the item, or the number of sales made by the seller. Texas sales tax is a “transaction tax” imposed on the sale, lease or rental of taxable items. A sale occurs when title or possession of a taxable item transfers for consideration. Each time an item is sold for consideration, sales tax is due and the person who sells the taxable item is required to hold a sales tax permit, collect the tax and remit it to the Comptroller. See Texas Tax Code Sections 151.005, 151.051(a), 151.006, 151.151 and 151.154.
Certain transactions, however, may qualify for exemption from tax as an “occasional sale” under Texas Tax Code Section 151.304. Persons who make only occasional sales (as that term is defined in the Tax Code) are not required to hold a sales tax permit or collect tax on their sales of qualifying items.
The following types of transactions generally made by individuals selling personal items can qualify as an “occasional sale”:
- sales, regardless of price, of one or two taxable items, other than an amusement service, during any 12-month period by a person who does not hold, or is not required to hold, a Texas sales and use tax permit or a similar permit or license issued by another state (Tax Code Sec. 151.304(b)(1); or
- sales of up to $3,000 in a calendar year of items that were originally acquired for personal use by the person or a family member of the person selling them (Tax Code Section 151.304(b)(5).
Under the first and oldest provision (selling only one or two taxable items), the sales price of the items does not matter. For example, you can sell an organ for $4,000 and a bicycle for $200 in the same calendar year. If you decide to sell your used lawnmower before the end of that calendar year, you are required to obtain a sales tax permit and collect sales tax because that would be a third sale. This type of occasional sale exemption applies to sales made by individuals and others including businesses who do not regularly sell taxable items such as businesses who ordinarily sell nontaxable services.
Under the second provision, you can make as many sales as you like, as long as you are selling only items that were originally acquired for your or your family’s personal use and you don’t earn more than $3,000 in a calendar year from the sale of such goods.
For example, you may hold a garage sale in May and earn $1,000; in August sell your used bicycle to your neighbor for $200.00; and then earn $500.00 in December of the same calendar year by selling a childhood toy as a collectible through an online auction site. You have made more than two sales transactions in a calendar year so the exemption provided by Section 151.304(b)(1 ) does not apply, but since the total amount you earned from the sales was less than $3,000, the exemption provided by Section 151.304(b)(5 ) applies instead. This type of occasional sale exemption applies only to individuals. It does not extend to similar sales made by groups or organizations (such as student groups or church groups) that collect items to sell at a garage sale type event; or to “community-wide” type events that are coordinated or produced by a third party if the seller is required to pay a fee or commission in order to participate in the event (i.e., booth or space rental fees). In these situations, sales tax is required to be collected unless other exemptions apply.
If you continue to sell taxable items after you have reached the $3,000 limit and you have made more than two sales, you will be considered engaged in business, and required to obtain a sales tax permit and start collecting tax on all subsequent sales of taxable items, beginning with the first sale that occurs after the limit is reached.
The occasional sale exemption does not apply to persons engaged in the business of making sales. A person who buys or otherwise obtains goods from others for the purpose of reselling them (including barters or trades), or a person who routinely engages in making sales of taxable items, including an artist or craftsman who fabricates goods for sale, is considered to be engaged in the business of selling taxable items and is required to have a Texas sales tax permit and collect tax on all sales of taxable items. A person engaged in the business of making taxable sales may not claim an exemption from tax on the first two sales or on the first $3,000 worth of taxable items sold in a calendar year.
As with all exemptions, the seller is required to maintain records to document that the exemption applies.
Use this chart to see if the occasional sale exemption applies to you:
|you have a sales tax permit||sales tax is due (unless another exemption applies to the sale).|
|you are an individual who does not have, and is not required to have, a sales tax permit||
||you are not required to collect sales tax.
NOTE: If the purchaser has a sales tax permit, the purchaser is not required to accrue and report the sales tax. See STAR document 200711090L.
|you are an individual or a business who does not have, and is not required to have, a sales tax permit||make two sales per calendar year (regardless of the dollar amount of the sales)||
NOTE: If the purchaser has a sales tax permit, the purchaser is required to report its purchase of a taxable item as a “taxable purchase” on its sales tax return. See Tax Code Section 151.304(g).
State Sales and Use Tax
The following rule was submitted for filing with the Secretary of State with a publication date of May 18, 2012. The comment period ends 30 days after publication.
3.346 – Use TaxRESOURCES
Popular Online Resources
Our Window on State Government website is a wonderful resource for information about Texas taxes. From applying for a sales tax permit to closing a business, and all things in between, you can find answers here. You can also sign up to be notified when pages of interest to you are updated.
Some of the most popular sections include:
- Texas Taxes – This section has links to all Texas taxes and fees. Clicking on a specific tax on the list will open its own page which will have links to everything needed to report and pay that tax, along with the statutes and rules that govern it.
- Texas Taxes – Frequently Asked Questions – Answers to our most common questions, organized by tax
- Tax Publications – Links to publications about specific taxes
- Special Tax Mailings – A list of pertinent information sent to specific industries to keep them up to date about new legislation or other items of interest
- State Tax Automated Research System (STAR) – A searchable tool for Texas tax law and tax policy, including position letters and hearings
The Comptroller’s office publishes this newsletter to keep you informed about state taxes. Tax questions can be complicated, so please use these summaries as guidelines only.
For a Copy of a Proposed Rule
For a copy of a proposed rule or information about a proposed rule, write to Bryant Lomax, Tax Policy Division, 1700 North Congress Avenue, Austin, Texas, 78701-1436, or submit a request via Texas Tax Help.
For Publications, Rules or Other Tax Information
Contributors to This Month’s Issue
Robin Corrigan, Kirk Davenport, Lisa Davis, Don Dillard, Lance Fitzgerald, Tommy Hoyt; Eric Key, Carol McAnnally, Jo Anne Meyerson; Karen Ortosky, Lindey Osborne, Jerry Oxford, David Reed, Deborah Riley, Viki Smith, Karen Snyder and Jennifer Specchio