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August 2012 TAX POLICY NEWS
a monthly newsletter about Texas tax policy

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HOTEL OCCUPANCY TAX

National Collegiate Athletic Association (NCAA) Conference Realignments

Changes to NCAA conference affiliations are bringing new travelers to Texas who are unfamiliar with Texas hotel tax law. With Texas A&M University joining the Southeastern Conference (SEC) and West Virginia University (WVU) joining the Big 12 Conference, sports and academic teams and their fans from the SEC and WVU are booking hotel stays throughout the state.

As educational organizations, Texas colleges and universities and their employees (coaches) traveling on official business qualify for exemption from the 6 percent state hotel occupancy tax. The exemption does not apply to local hotel occupancy tax. See Texas Tax Code Section 156.102.

Educational organizations, as defined in Rule 3.161(a)(2), include independent school districts, public and nonprofit private elementary and secondary schools and Texas institutions of higher education. Universities, colleges, junior colleges and community colleges from other states or countries are not exempt and must pay all hotel occupancy taxes imposed.

For example, an SEC team traveling to College Station to play Texas A&M may not claim a hotel tax exemption. The same is true for a team from WVU when it travels to a Big 12 school in Texas. On the other hand, teams from Baylor, Texas Christian University, Texas Tech University and the University of Texas may claim a state hotel tax exemption when traveling to a Texas city.

A completed Texas Hotel Occupancy Tax Exemption Certificate (Form 12-302) (PDF, 66KB) should be submitted to the hotel to claim the exemption. A hotel may accept the exemption certificate, in good faith, when presented with a letter of hotel tax exemption from the Comptroller or proof the school has received a letter of hotel tax exemption, such as a copy of the exempt verification from the Comptroller’s Texas Tax-Exempt Entities Search. See Rule 3.161(b)(2).

In addition to reserving hotel rooms, travelers may also use other non-conventional types of lodging, such as renting a person’s home. A hotel is defined in Texas Tax Code Section 156.001 as a building in which members of the public obtain sleeping accommodations for consideration. Therefore, the rental of a home, apartment or condominium unit is also subject to hotel occupancy tax.

For more information, see the Hotel Occupancy Tax section of our website and Hotel Occupancy Tax Exemptions (Pub 96-224).

MIXED BEVERAGE TAX

Personal Liability for Fraudulent Tax Evasion

An officer, manager or director of a corporation, association or limited liability company who takes an action or participates in a fraudulent scheme or plan to evade taxes can be held personally liable for tax evasion. This also applies to a partner of a partnership and a managing general partner of a limited partnership or limited liability partnership. See Tax Code Section 111.0611.

The liability is for taxes, penalties and interest due from the business entity, including an additional 50 percent penalty for fraud provided in Section 111.061.

Actions that may indicate a fraudulent plan to evade taxes include:

  • filing, or causing to be filed, a fraudulent tax return or report with the Comptroller on behalf of the business entity;
  • intentionally failing to file a tax return, report or other required document with the Comptroller when the business entity is under legal obligation to file;
  • filing, or causing to be filed, a tax return or report with the Comptroller on behalf of the business entity that contains an intentionally false statement that results in the amount of tax due exceeding the amount of tax reported by 25 percent or more; and
  • altering, destroying or concealing any record, document or thing, presenting to the Comptroller any altered or fraudulent record, document or thing or otherwise engaging in fraudulent conduct with the intent to affect the course or outcome of a Comptroller audit or investigation, a redetermination hearing or other proceeding involving the Comptroller.

In Hearing No. 105,113, the member and manager of a limited liability company was assessed liability for fraudulent tax evasion under Section 111.0611. The personal liability stemmed from a mixed beverage gross receipts tax audit that found the manager’s company had grossly underreported the amount of tax due. Records presented showed that the manager prepared and signed the mixed beverage gross receipts tax returns and remittances, ordered and paid for the bar’s expenses and taxable inventory, accepted and signed for the inventory and made deposits.

Due to the manager’s involvement in the day-to-day operations of the bar and the underreporting of mixed beverage gross receipts tax, the Comptroller held that the manager filed the tax returns as part of a fraudulent scheme or plan to evade the payment of taxes due.

SALES TAX

Back to School; Back to Fundraising

Acting as a Sales Agent or Representative of a For-Profit Fundraising Company

When a school, school group, PTA/PTO, booster club or other nonprofit organization raises funds by holding a book fair or selling candy, food products, gift wrap, holiday ornaments, candles or similar items using a for-profit fundraising company's brochures, catalogs, sales forms or marketing materials and receives a share of the proceeds (for example, “commission,” “split” or “cut”), the nonprofit organization is functioning as a sales agent or representative of the fundraising company. See Rule 3.286(d)(6).

Even though the nonprofit organization may take orders, collect money and deliver merchandise to the purchaser, the seller is the for-profit fundraising company. This type of fundraising activity does not qualify as a tax-free sale and tax must be collected on the sale of all taxable items.

If the nonprofit organization is eligible for the two one-day tax-free sales, the nonprofit organization has not used one of its tax-free sale days when using a for-profit fundraising company for this type of fundraiser. See Tax Code Section 151.310(c), Rule 3.322(h)(2) and Rule 3.286(d)(6) for information regarding the two one-day tax-free sales provision. Similarly, sales of taxable items made through the website of a fundraising company are also taxable and may not be sold tax-free in connection with a fundraiser.

When the nonprofit organization acts as a sales agent or representative of a for-profit fundraising company, the fundraising company should provide instructions and information to the nonprofit organization regarding how the for-profit fundraising company will provide for the proper collection and remittance of sales tax on any taxable items sold. Because tax laws vary among the states and the fundraising company is engaged in business in Texas, it must be knowledgeable of Texas sales tax law. The nonprofit organization engaging in the fundraising activity should have a thorough understanding of the agreement it is entering into with the fundraising company.

Collecting Local Tax

The primary location of the nonprofit organization determines the tax rate that should be collected from customers and which local taxing jurisdictions are entitled to revenue from those sales. Under this scenario, the nonprofit organization is operating a place of business on behalf of the seller.

Reporting the Tax

The nonprofit organization has no sales tax collection or remittance responsibility other than to forward to the for-profit fundraising company all of the sales tax collected on its behalf. If the nonprofit organization has a sales tax permit, these sales are not included in the nonprofit organization’s total sales. All sales tax remittance and reporting are the responsibility of the fundraising company. The fundraising company cannot accept a resale or exemption certificate from the nonprofit organization in this situation. Instead, it must ensure the proper amount of tax is collected by the nonprofit organization and then report and remit that tax.

The for-profit fundraising company may advertise in its sales catalog or state on each invoice that tax is included in the sales price of the taxable item or require that tax be calculated and collected based on the selling price of each taxable item. The fundraising company is then responsible for remitting the tax collected, including tax “backed out” of a tax included sale, to the Comptroller. The fundraising company should only require the nonprofit organization to remit the amount of tax due on or included in the sales price and collected on behalf of the fundraising company; the fundraising company should not charge the nonprofit organization sales tax.

Examples

In the following examples, the taxable item sells for $11, the sales tax rate for the location where the taxable item is sold is 8.25 percent and the nonprofit organization’s share of the proceeds is 50 percent of the sale with no additional deductions under the terms of the agreement.

Tax included catalog

Divide $11 by 1.0825. That equals the tax base of $10.16. The difference between $11 and $10.16 is the sales tax, which is $0.84. If the nonprofit organization’s share of the proceeds is 50 percent of the sales price of $10.16, the nonprofit organization’s share of the proceeds is $5.08. The for-profit fundraising company will report and remit the $0.84 sales tax collected by the nonprofit organization.

Tax not included catalog

Multiply $11 by .0825 to determine the sales tax amount of $0.91. Since the nonprofit organization’s share of the proceeds is 50 percent, multiply $11 by 50 percent. Of the $11.91 collected, the nonprofit organization’s share of the proceeds is $5.50. The for-profit fundraising company will report and remit the $0.91 sales tax collected by the nonprofit organization.

Sales for Resale

Please note that neither this article nor Rule 3.286(d)(6) addresses the taxability of sales by a for-profit fundraising company to a nonprofit organization that is purchasing inventory for resale. A fundraising company may sell taxable items tax-free to a nonprofit organization acquiring the taxable items for resale. See Tax Code Section 151.006(a) and Rule 3.285(a)(2) regarding sales for resale.

School Fundraisers and Texas Sales Tax (Pub. 94-193) (PDF, 412KB) provides additional information of interest to schools and school groups.

SALES TAX

School Supplies Purchased for Classroom Use

Texas public schools are government entities exempted from the payment of sales tax under Tax Code Section 151.309.

Under Tax Code Section 151.310, nonprofit private schools also may qualify for sales tax exemption, but must apply to the comptroller. See Rule 3.322, Exempt Organizations.

An exempt school or its authorized agent can purchase items tax free by issuing a properly completed sales tax exemption certificate (PDF, 57KB) in the name of the school. A purchase voucher issued by a public school may also be used to claim an exemption from Texas sales and use tax as provided in Rule 3.322(g)(3), and an exemption certificate is not required when a public school pays with a purchase voucher.

A school, or an authorized agent of the school, must issue an exemption certificate to the seller when using a school issued credit card or, as provided in Rule 3.322(g)(4), when making a cash purchase, including personal cash, debit card, credit card or check. An exemption certificate issued by a school can be signed by anyone authorized by the school to make purchases on its behalf.

The school or its authorized agent can purchase classroom supplies tax free for a teacher. If a teacher is an authorized agent for the school, the exemption would apply and the teacher could purchase the item tax free and issue an exemption certificate in the name of the school. A teacher, however, who is not an authorized agent for the school must pay sales tax on items purchased to be used in the classroom, even if the teacher is reimbursed by the school or receives an allowance. See Rule 3.322(g)(5).

Donations

An individual, including a teacher, can purchase taxable items that will be donated to an exempt public or nonprofit school tax free by issuing an exemption certificate to the seller in lieu of tax.

In this case, the exemption certificate is issued in the purchaser’s name and the purchaser must state on the exemption certificate that the exemption is being claimed because the item will be donated to the named exempt school. If the individual uses the item before donating it, however, the exemption is lost and tax is due. See Rule 3.287(e)(5), Exemption Certificates.

Likewise, a parent may purchase educational items tax free if the items are for use in the classroom by any student in need of the items and the items are donated to the school without first being used.

Parents, however, owe sales tax on the purchase of taxable items for their student's personal use or for a class project, including any required school supplies such as crayons and markers, even if those supplies will be placed in a classroom for communal use by all students in the class.

SALES TAX

“Common” Sense and Homeowners’ Association Golf Courses

Many homeowners’ associations have golf courses within them. Even though a homeowners’ association may own a golf course, the golf course is almost always commercial in nature and treated as such for sales tax purposes.

Tax law recognizes that certain areas in neighborhoods wholly owned by homeowners’ associations are for the common use of the residents and are therefore residential in nature. That is, a person may not have a private front yard in a homeowners’ association, but a local park that is solely for the use of the residents of the homeowners’ association is treated as the “yard” of all residents in the neighborhood. So, the term “residential property” includes homeowners’ association-owned and apartment-owned swimming pools, laundry rooms and other common areas for tenants’ use. See Rule 3.357(a)(13).

Nevertheless, the fact that certain grounds and structures are merely owned by a homeowners’ association and may be used by residents is not necessarily an indication that the property is a residential common area.

The nature of property—residential versus nonresidential—is a critical distinction in terms of the treatment of real property repair, remodeling and restoration services, as well as the taxability of electricity. The labor and materials used to repair, remodel or restore nonresidential real property is taxable, while the labor to perform the same activities on residential real property is not taxable. Similarly, the electricity used in residential common areas of homeowners’ associations is not subject to state tax, while commercial uses of electricity are subject to both state and local tax.

Again, to qualify as a residential common area, the area must be for the sole use of the residents. Rule 3.357(a)(13) notes that residential common areas do “not include any commercial area open to nonresidents, retail outlets, hospitals, hotels, or any other facilities that are subject to the hotel occupancy tax.” This means an amenity (such as a golf course) although owned by the membership of a homeowners’ association or within the confines of the homeowners’ association territory, is generally not a part of the residential common area of the homeowners’ association for the sales tax purposes.

Therefore, a golf course is not considered a residential common area of a homeowners’ association for the “sole use” of residents if any of the following or similar conditions exist:

  • persons from other golf clubs may play under reciprocal agreements;
  • nonresidents can play in hosted tournaments;
  • nationally known celebrities, sports writers, sporting goods salesmen or visiting professionals are invited to play for course promotional purposes or
  • the course is available for golf school programs.

Rule 3.357(a)(13) also states that “[c]ommon areas of mixed residential and nonresidential property are allocated or prorated based on the ratio of residential to nonresidential use of the property.” Therefore, if a golf course qualifies as a residential common area, but there is a retail outlet such as a pro shop or restaurant on site, then work to remodel, repair or restore the property should be prorated accordingly. The tax treatment of electricity will be based on the predominate use of the electricity used and measured though the meter(s) per Rule 3.295.

OTHER NEWS

New Sales Tax Refunds Web Page

We’ve added a new section in the Texas Taxes section of our website that explains how to obtain a sales tax refund for taxes paid or collected in error, including information for both permitted and non-permitted sellers and purchasers.

RESOURCES

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
ABOUT THE NEWSLETTER

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

For a wealth of tax information sorted by tax type or by subject matter, please visit the Texas Taxes section of our website.

Contributors to This Month’s Issue

Robin Corrigan, Kirk Davenport, Lisa Davis, Don Dillard, Tommy Hoyt, Carol McAnnally, Stefanie Medack, Jo Anne Meyerson, Karen Ortosky, Lindey Osborne, Viki Smith and Karen Snyder

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