|Focus on 2009 Legislation|
|Tax Law Changes You Need to Know|
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2009 Legislative Update
Our focus in this Legislative Update is a summary of the changes in Texas tax laws arising from legislation passed during the 81st regular session of the Texas Legislature.
The summaries are organized alphabetically by tax and then numerically by bill number.
9-1-1 EMERGENCY SERVICE FEES
Prepaid 9-1-1 Emergency Service Fee
House Bill 1831 (Effective June 1, 2010)
This bill creates a prepaid 9-1-1 emergency service fee of 2 percent of the purchase price of each prepaid wireless telecommunications service purchased by any method.
The fee will be collected by the seller from the consumer at the time of each retail transaction of prepaid wireless telecommunications service occurring in Texas and remitted to the Comptroller. The fee will be distributed by the Comptroller consistent with the procedures in place for the emergency service fee in Section 771.0711, Health and Safety Code.
A seller may deduct and retain 2 percent of prepaid wireless fees collected to offset the seller's costs for administering the fee.
CIGAR AND TOBACCO PRODUCTS TAX
New Base and Rates for Calculating the Tax on Tobacco Products (Other Than Cigars)
House Bill 2154 (Effective Sept. 1, 2009)
This bill, in part, amends the Tax Code, Chapter 155, and changes the base used to calculate the tax imposed on tobacco products (other than cigars) from the manufacturer's listed price to the manufacturer's listed net weight for each of the products.
The bill also imposes a different tax rate for state fiscal years 2010, 2011, 2012, 2013, 2014 and thereafter. The bill requires that the records kept by each manufacturer, distributor, wholesaler, bonded agent, export warehouse and retailer must show the manufacturer's listed net weight for each tobacco product (other than a cigar) that is sold, distributed, exchanged, purchased, received or used.
Additional revenue from the new tax base and rates will be deposited to the credit of the Physician Education Loan Repayment Program account.
Tax Credit for Clean Energy Projects
House Bill 469 (Effective Sept. 1, 2009)
House Bill 469 amends Chapter 490, Government Code, to allow a franchise tax credit to entities implementing a clean energy project (carbon dioxide sequestration) in connection with the construction of a new facility in Texas. The tax credit is equal to the lesser of 10 percent of the total capital cost of the project or $100 million and is limited to three projects.
This legislation is effective Sept. 1, 2009; however, the Comptroller may not issue a credit before Sept. 1, 2013.
Bingo Unit Exemption
House Bill 1474 (Effective Oct. 1, 2009)
Bingo units formed under Subchapter I-1, Chapter 2001, Occupations Code, are exempted from franchise tax under House Bill 1474. Eligible entities must submit an application for exemption (Form AP-204), along with the governing document showing the entity was created under this chapter, to the Comptroller's Exempt Organizations Section.
Reporting Gross Receipts on the Sale of Loans or Securities for Lending Institutions
House Bill 4611 (Effective for reports originally due on or after Jan. 1, 2010)
Tax Code Section 171.106 is amended to allow lending institutions that categorize a loan or security as “Securities Available for Sale” or “Trading Securities” under Financial Accounting Standard No. 115 to report the gross proceeds of the sale of that loan or security as gross receipts for apportionment purposes.
No Tax Due Revenue Threshold Increased to $1 Million
House Bill 4765 (Effective for reports originally due on or after Jan. 1, 2010)
House Bill 4765 amends Tax Code Section 171.002 to increase the revenue threshold for no tax due from $300,000 to $1 million. Taxable entities with total revenue of $1 million or less will have no tax due, but must still file a report.
The increase is effective for reports originally due on or after Jan. 1, 2010, and expires on Dec. 31, 2011. The threshold becomes $600,000 for reports originally due on or after Jan. 1, 2012.
Destination Management Services Exclusion from Total Revenue
Senate Bill 636 (Effective for reports originally due on or after Jan. 1, 2010)
This senate bill amends Texas Tax Code Section 171.1011 to provide an exclusion from total revenue to a qualified destination management company for payments made to persons providing services, labor or materials in connection with the provision of destination management services.
The bill also amends Texas Tax Code Section 151.0565 by adding definitions for “destination management services,” “qualified destination management company” and “qualified destination management services contract.”
Tax Clearance Letter Requirement for All Taxable Entities
Senate Bill 1442 (Effective Sept. 1, 2009)
This bill amends several sections of the Business Organizations Code to require all taxable entities to provide a certificate or tax clearance letter issued by the Comptroller when filing for withdrawal, conversion, reinstatement, termination or dissolution with the Texas Secretary of State.
HOTEL TAX - STATE TAX ALLOCATIONS
State Hotel Tax Allocated to Port Aransas for Beach Maintenance and Erosion Response
House Bill 2276 (Effective July 1, 2009)
State hotel tax law, in Tax Code Section 156.2512, provides that the Comptroller allocate to an “eligible barrier island coastal municipality” 1 percent of the state hotel occupancy tax received from hotels located on a barrier island in the city. The tax revenue may only be used to clean and maintain beaches within the city and for erosion response projects.
House Bill 2276 expands the qualifications of an eligible barrier island coastal municipality to allow Port Aransas to receive the 1 percent state hotel tax rebate. Previously, only the township of South Padre Island was receiving a state hotel tax allocation under Section 156.2512.
To qualify, a city must border the Gulf of Mexico, be located wholly or partially on a barrier island and either be located within 30 miles of the United Mexican States or include a portion of a national seashore or a national estuarine research reserve.
The city of Galveston, under Tax Code Section 156.2511, currently receives 2 percent of the state hotel occupancy tax collected from hotels located in the city that is used to clean and maintain the city's public beaches.
Texas Windstorm Insurance Association (TWIA) Funding for Losses
House Bill 4409 (Effective June 19, 2009)
This bill amends provisions of Chapter 2210, Insurance Code, that relate to the Texas Windstorm Insurance Association. The statutory revisions include restructuring the payment process for covered losses from windstorm and hail damage in certain portions of the seacoast territory of this state, defined as the first and second tier coastal counties.
Losses will be paid from the following sources: available reserves of the association and the catastrophe reserve trust fund, Class 1 public securities, Class 2 public securities and Class 3 public securities.
Class 1 public securities will be repaid from association premium and other revenue. Thirty percent of the Class 2 public securities will be repaid through member assessments. The remaining 70 percent of the Class 2 public securities will be repaid by a premium surcharge on each policyholder whose property is located in a catastrophe area and applies to each windstorm and hail policy and to each property and casualty policy issued for coverage in the catastrophe area. Class 3 public securities will be repaid through member assessments. The assessments for payment of Class 2 and Class 3 public securities may not be recouped by a premium surcharge or through a premium tax credit.
It is important to note that the revised law eliminates premium tax credits for all assessments made after June 19, 2009. In addition, the premium surcharge for the repayment of Class 2 public securities applies to each property and casualty insurer authorized to engage in the business of property and casualty insurance in this state and an affiliate of such insurer, including an affiliate that is not authorized to engage in the business of property and casualty insurance in this state.
MOTOR FUELS TAXES
Biodiesel Fuel and Renewable Diesel Fuel
House Bill 2582 (Effective June 19, 2009)
Biodiesel fuel and renewable diesel fuel are redefined in the Agricultural Code. This bill exempts from the state diesel fuel tax renewable diesel fuel and the volume of renewable diesel fuel blended with taxable petroleum diesel fuel. Renewable diesel fuel is included in the Fuel Ethanol, Biodiesel Fuel, and Renewable Diesel Production Incentive Program administered by the Texas Department of Agriculture.
Biodiesel fuel is defined as a motor fuel that (1) meets the U.S. Environmental Protection Agency registration requirements for a fuel or fuel additive, (2) is mono-alkyl esters of long fatty acids derived from vegetable oils or animal fats, (3) meets the ASTM specification D-6751, (4) is intended for use in engines designed to run on conventional diesel fuel and (5) is derived from agricultural products, recycled greases, biomass, or animal fats or the waste products of those products or fats.
Renewable diesel fuel is defined as a motor fuel that (1) meets the U.S. Environmental Protection Agency registration requirements for a fuel or fuel additive, (2) is a hydrocarbon, (3) meets the ASTM specification D-975, (4) is intended for use in engines designed to run on conventional diesel fuel and (5) is derived from agricultural products, recycled greases, biomass, or animal fats or the wastes products of those products or fats. Renewable diesel fuel and blends of renewable diesel fuel must meet the same storage tank, sales invoice and retail pump labeling requirements of biodiesel fuel.
Volunteer Fire Departments Refund
Senate Bill 254 (Effective July 1, 2009)
Texas volunteer fire departments may purchase gasoline and diesel fuel state tax-free in bulk from license holders for the department's exclusive use in motor vehicles and equipment owned or leased and operated by the department.
Volunteer fire departments will continue to pay state motor fuel taxes when buying gasoline and diesel fuel at retail service stations and may claim a refund of those taxes from the Comptroller for purchases made on or after July 1, 2009. License holders who have paid tax on their purchase of gasoline or diesel fuel and subsequently resell the gasoline or diesel fuel to a Texas volunteer fire department without collecting the tax on or after July 1, 2009, may claim a credit on their monthly tax return.
License holders using the Comptroller's motor fuel electronic reporting software may download the new version 4.10 beginning July 15. This version will allow taxpayers to report the exempt gallons sold to volunteer fire departments using the number 4, “Other,” on the Gallons Sold Tax Free Sales to Exempt Entities schedule.
Enforcement and Collection of Motor Fuel Taxes
Senate Bill 1495 (Effective Sept. 1, 2009)
This bill amends the definitions of biodiesel fuel, blending, bulk storage, diesel fuel, distributor, gasoline, gasoline blended fuel and motor fuel to enhance the prosecution of criminal motor fuel tax fraud and makes clear who is liable for motor fuel taxes. “Bulk storage” is defined as a container of more than 10 gallons.
A motor fuel transporter license is no longer required by a person who is licensed as a supplier, permissive supplier or distributor and who only transports motor fuel for which they retain title.
A shipping document is required in conjunction with the sale, transfer or transportation of motor fuel, regardless of where the motor fuel is obtained.
A supplier or permissive supplier license is no longer needed to enter into tax-free transactions in the bulk terminal/transfer system. A supplier license is required for position holders who remove or take orders for the removal of motor fuel from a terminal located in Texas.
This bill makes clear that a sales invoice must separately state the amount of state motor fuels tax collected so that the tax is ultimately paid by the end consumer. A separate statement is not required on a sales invoice issued by a dealer when the delivery is into a fuel supply tank or a container having a capacity of not more than 10 gallons.
A license holder may claim a tax credit on gasoline or diesel fuel sold to certain exempt entities through the acceptance of a credit card not issued by the license holder, if the credit card issuer did not collect the tax from the exempt entity and the license holder reimbursed the card issuer for the amount of the tax included in the retail purchase price. The exempt entities affected by this bill are the U.S. government, Texas public school districts, commercial transportation companies using the motor fuel to provide transportation services for Texas public school districts, Texas volunteer fire departments and non-profit electric and telephone cooperatives organized under Chapters 161 or 162, Utilities Code. This bill codifies longstanding Comptroller policy.
The 7,400 gallon single delivery limitation on the signed statement purchase of tax-free dyed diesel fuel is eliminated. An end user may purchase up to 10,000 gallons in a calendar month, and an agricultural end user may purchase up to 25,000 gallons in a calendar month whether the purchase is made in one delivery or multiple deliveries. If multiple deliveries are made, then the last delivery in a calendar month that causes the purchaser to exceed the 10,000 or 25,000 gallon limitation is still a tax-free delivery.
A licensed seller may temporarily rely on the Comptroller's Web site list of end user numbers, or other materials provided by the Comptroller, to make a tax-free signed statement sale of dyed diesel fuel until the purchaser provides the seller with a completed signed statement. The Comptroller may issue a written request giving the seller 60 days to provide copies of the seller's signed statements. The Comptroller may disallow tax-free sales of dyed diesel fuel on which the seller cannot deliver copies of the signed statement within the 60-day period.
This bill codifies longstanding Comptroller policy allowing a licensed distributor, importer, exporter or blender, who erroneously overpaid gasoline or diesel fuel taxes four years, to amend the tax return on which the taxes were overpaid.
Statutory references in affected codes have been changed from Chapter 153 to Chapter 162, Tax Code.
100 Percent Refund on Accelerated Credits
Senate Bill 1782 (Effective June 19, 2009)
Licensed distributors and importers have the right to defer payment of tax to a supplier or permissive supplier until two days before the date the supplier or permissive supplier must remit the tax to the Comptroller.
Under this bill, licensed suppliers and permissive suppliers may request a 100 percent accelerated credit on taxes that were not paid by the distributor or importer, but only if the supplier or permissive supplier notifies the Comptroller within 15 days of the date of default. For example, a supplier or permissive supplier may claim a 100 percent accelerated credit no later than July 8, 2009, for taxes defaulted by a distributor or importer on June 23, 2009.
Distributors and importers who default on a tax payment to a supplier or permissive supplier lose their right to defer tax payments to that supplier or permissive supplier for one year from the date the supplier or permissive supplier claims the accelerated credit.
A supplier or permissive supplier who does not claim an accelerated credit within 15 days of the default may still claim a bad debt credit after the account is written off the books of the supplier or permissive supplier as uncollectable. When claiming a bad debt credit, a supplier or permissive supplier must apply all monies received on an account ratably between products sold and taxes.
MOTOR VEHICLE SALES AND USE TAX
Orthopedic Handicap Exemption
House Bill 236 (Effective Sept. 1, 2009; applies to sales made on or after Jan. 1, 2010)
A dealer selling a motor vehicle may not collect motor vehicle sales tax from a person claiming the orthopedic handicap exemption. Claim for the exemption must be on a form prescribed by the Comptroller, signed by the purchaser at the time of purchase and provided to the seller. The Comptroller may require additional documentation by rule. The seller who obtains the required certificate is held harmless and has no responsibility to investigate.
Tax on Gifts of Motor Vehicles
House Bill 2654 (Effective Sept. 1, 2009)
This bill establishes new criteria for determining when a transaction qualifies as a gift for motor vehicle tax purposes. Effective Sept. 1, 2009, the only transactions that qualify to be taxed as gifts ($10) are those wherein the vehicles are received from a:
- parent or stepparent;
- grandparent or grandchild;
- child or stepchild;
- decedent's estate.
A vehicle also qualifies to be taxed as a gift when it is donated to, or given by, a nonprofit service organization qualifying under the Internal Revenue Code, Sec. 501(c)(3).
All other motor vehicle transfers made without payment of consideration are now defined as sales and will be subject to tax calculated on the normal standard presumptive value (SPV) of the vehicle as determined through the Registration and Title System (RTS).
To document a gift, the donor and person receiving the vehicle must complete a joint notarized Affidavit of Motor Vehicle Gift Transfer (Form 14-317) describing the transaction and the relationship between the parties. This document should be provided to the County Tax Assessor-Collector along with the Application for Certificate of Title (Form 130-U) and will become part of the title package.
Department of Motor Vehicles Created
House Bill 3097 (Effective Sept. 1, 2009)
This legislation creates the new Department of Motor Vehicles and transfers certain related duties of the Texas Department of Transportation to the new agency. A new board and executive director are provided for.
Citrus Pest and Disease Management Corporation
Senate Bill 1016 (Effective Sept. 1, 2009)
This bill amends the Agricultural Code to provide an exemption from motor vehicle tax for the Texas Citrus Pest and Disease Management Corporation.
Debt Cancellation Agreements
Senate Bill 1966 (Effective Sept. 1, 2009)
The Finance Code is amended to allow a seller of a motor vehicle to charge a fee to a purchaser for a debt cancellation agreement to cover an event in which a purchased vehicle is destroyed or stolen. This fee is not subject to motor vehicle sales and use tax.
NATURAL GAS AND CRUDE OIL TAXES
Crude Oil Production Tax - Exemption for Enhanced Recovery Projects Using Anthropogenic Carbon Dioxide
House Bill 469 (Effective Sept. 1, 2009)
In 2007, the 80th Legislature, Regular Session, created the Tax Exemption for Enhanced Recovery Projects Using Anthropogenic Carbon Dioxide. The original bill provided a seven- year exemption period. House Bill 469 changes that exemption period to 30 years.
Crude Oil Production Tax - Exemption from Oil Severance Taxes for Oil Produced in Association with the Production of Geothermal Energy
House Bill 4433 (Effective Sept. 1, 2009)
This bill creates a new tax exemption for any crude oil incidentally produced in association with the production of geothermal energy.
Natural Gas Production Tax - Exemption from Gas Severance Taxes for Gas Produced in Association with the Production of Geothermal Energy
House Bill 4433 (Effective Sept. 1, 2009)
This bill creates a new tax exemption for any natural gas incidentally produced in association with the production of geothermal energy.
Natural Gas Production Tax - Administration of and Exemptions from the Gas Production Tax
Senate Bill 997 (Effective Sept. 1, 2009)
This bill amends Chapter 201, Tax Code, making all sections dealing with the “due date” correspond. The bill also amends Section 201.058, Tax Code, to eliminate the reference to the Exemption for Hydrocarbons Produced from a Texas Experimental Research and Recovery Activity Well that was repealed by the 2003 Legislature.
SALES AND USE TAX - GENERAL
Exemption for Items Used to Capture, Transport and Sequester Carbon Dioxide (CO2)
House Bill 469 (Effective Sept. 1, 2009)
Components of tangible personal property used in connection with an advanced clean energy project that are installed to capture, transport, inject or prepare for transportation or injection of carbon dioxide from an anthropogenic emission source are exempted from sales and use tax if the carbon dioxide is sequestered in Texas as part of an enhanced oil recovery project under conditions that create a reasonable expectation that at least 99 percent of the carbon dioxide will remain sequestered from the atmosphere for at least 1,000 years.
Pest Control - Activities Not Involving Pesticides
House Bill 693 and Senate Bill 768 (Effective June 19, 2009)
The following activities are no longer taxable structural pest control services:
- use of a raptor to control or relocate other birds;
- physical removal of pests or the habitat of pests while cleaning a chimney;
- use of a live trap to remove an animal from the premises of a residence, agricultural operation or business structure;
- removal by mechanical means of weeds or other obstructing vegetation from a sewer, drainage system, body of water or similar area; or
- installation, maintenance or use of a nonpesticidal barrier to remove or prevent infestation by nuisance animals.
School Supplies Added to August Sales Tax Holiday
House Bill 1801 (Effective July 1, 2009)
The list of items qualifying for exemption from Texas state and local sales and use taxes during the annual sales tax holiday in August is expanded to include “school supplies,” as that term is defined in the Streamlined Sales and Use Tax Agreement, priced at less than $100 and purchased for use by a student in an elementary or secondary school. The all-inclusive list of qualifying items is available here.
The 2009 Sales Tax Holiday begins at 12:01 a.m. on Friday, Aug. 21, and ends at 12 a.m. (midnight) Sunday, Aug. 23.
House Bill 2730 (Effective Sept. 1, 2009)
Electronic access gates do not qualify as alarm systems if they are not connected to a computer or data processor that records or archives the voice, visual image or identifying information of the user.
Poultry Carcass Disposal
House Bill 3144 (Effective Sept. 1, 2009)
This bill provides an exemption for tangible personal property incorporated into a structure that is used for the disposal of poultry carcasses in accordance with Section 26.303 of the Water Code.
Agricultural Aircraft Operation Exemptions
House Bill 3144 and Senate Bill 958 (Effective Sept. 1, 2009)
These bills codify the existing exemption for aircraft used exclusively for crop dusting and expand the exemption to cover not only the aircraft and parts, but also other equipment and machinery used exclusively in an agricultural aircraft operation, as defined by 14 C.F.R. Section 137.3.
Agricultural Exemptions Codified
House Bill 3144 (Effective Sept. 1, 2009)
This bill codifies the exemptions for tires and automobile repair parts used on motor vehicles and equipment used exclusively on a farm or ranch.
Destination Management Service Contracts
Senate Bill 636 (Effective Sept. 1, 2009)
Tax Code Section 151.0565 is added to the sales tax chapter. This statute provides that qualifying destination management companies will be considered consumers and not sellers of items provided to customers under certain qualifying “Destination Management Service” contracts.
A qualifying destination management company is a corporation or LLC that receives at least 80 percent of its annual revenue from destination management services; is not a caterer or wedding planner; does not own entertainment venues; spends at least 1 percent of its gross receipts on marketing Texas destinations and recruits at least 80 percent of its clientele from outside of the state. A qualifying contract must contain at least three of the following services:
- transportation management
- booking and managing entertainers
- coordination of tours or recreational activities
- meeting, conference or event registration
- meeting, conference or event staffing
- event management
- meal coordination
Exemption for Aircraft Sold for Agricultural Use
Senate Bill 958 (Effective Sept. 1, 2009)
This bill amends Tax Code Section 151.328 relating to aircraft exemptions by adding Section (a)(5). Section 151.328(a)(5) exempts the sale of aircraft for use exclusively in connection with an agricultural use, as defined by Section 23.51 of the Property Tax Code, used for:
(A) predator control;
(B) wildlife or livestock capture;
(C) wildlife or livestock surveys;
(D) census counts of wildlife or livestock;
(E) animal or plant health inspection services; or
(F) crop dusting, pollination or seeding.
For purposes of this exemption, an aircraft is considered to be used exclusively in connection with an agricultural use if at least 95 percent of the use of the aircraft is for the identified activities. In addition, the bill allows for travel of less than 30 miles each way to a location to perform a qualifying service without causing a loss of the exemption. A person claiming the exemption must make available to the Comptroller flight records for all uses of the aircraft.
Note that predator control and wildlife management, including surveys and census counts, are considered qualifying agricultural use only in connection with aircraft under 151.328. This amendment does not affect longstanding policy that these activities do not constitute agricultural production for purposes of the exemptions in Tax Code Section 151.316.
Finally, the bill provides that if the aircraft is exempt, repairs, remodeling and maintenance services to the aircraft, including an engine or other component part, is exempt.
Refunds and Credits
Senate Bill 1199 (Effective Sept. 1, 2009)
This bill specifies that for purposes of obtaining a refund or claiming a credit for sales tax, a religious, educational or public service organization is not considered exempt from sales tax before the earlier of the date the organization applied for the exemption with the Comptroller or the date of assessment of the organization's tax liability by the Comptroller as a result of an audit.
The bill also entitles a seller to a credit or reimbursement of sales tax equal to the amount of sales tax refunded to a purchaser when the purchaser receives a full or partial refund of the sales price of a returned taxable item.
Major Events Trust
Senate Bill 1515 (Effective Sept. 1, 2009)
This bill amends Article 5190.14, Vernon's Texas Civil Statutes, to create a Major Events Trust Fund and an Event Trust Fund to replace current provisions for the Other Events Trust Fund and the Sporting Event Trust Fund. The bill also expands the list of eligible events to include “sporting and non-sporting games or events.”
Media Production Zones
Senate Bill 1929 (Effective Sept. 1, 2009)
This bill provides for the creation of “media production development zones” and “qualified media production locations” in Texas, as well as sales tax exemptions for “qualified persons” who construct, maintain, expand, improve or renovate a “media production facility” at a qualified media production location. The legislation is loosely similar to other incentivizing law (e.g., Enterprise Zones), except it provides for outright exemptions for taxable items rather than refunds.
“Qualified persons” will be able to claim an exemption on the sale, lease or rental of a taxable item used:
- for the construction, maintenance, expansion, improvement or renovation of a media production facility at a qualified media production location;
- to equip a media production facility at a qualified media production location; or
- for the renovation of a building or facility at a qualified media production location that is to be used exclusively as a media production facility.
SALES AND USE TAX - LOCAL TAX
Residential Gas and Electricity
Senate Bill 575 (Effective Jan. 1, 2010)
The bill amends Chapter 321 of the Tax Code to allow certain special purpose districts to impose a local sales and use tax on the residential use of gas and electricity. A fire control, prevention, and emergency medical services district or a crime control and prevention district located in all or part of a municipality that imposes a tax on the residential use of gas and electricity will be allowed to impose the tax throughout the district.
The board of directors of a district (by order or resolution adopted in a public hearing by a vote of a majority of the membership of the board) may impose, exempt or reimpose sales and use tax on receipts from the sale, production, distribution, lease or rental of, and the use, storage or other consumption within the district of, gas and electricity for residential use.
Local Sales Tax Information for a County or Other Local Governmental Entity
Senate Bill 636 (Effective Sept. 1, 2009)
This bill requires that the Comptroller provide sales and use tax information to taxing counties, transit authorities and other local governmental entities in the same manner as the information the Comptroller already provides to municipalities in the “Confidentiality Report” as provided by Texas Tax Code Section 321.3022.
Upon request, these local taxing entities may receive aggregate sales and use tax amounts paid to them each month from businesses that annually remit to the Comptroller state and local sales and use tax payments totaling more than $25,000.
Information received by the governmental entity is confidential, not open to public inspection, and may only be used for economic forecasting and other limited purposes as set forth in the bill.
Definition of a “Place of Business”
Senate Bill 636 (Effective Sept. 1, 2009)
Texas Tax Code Section 321.002 is amended to state that a place of business does not include a kiosk. A “kiosk” is defined as a small stand-alone area or structure located within another place of business, such as a department store or shopping mall, that is used solely to display merchandise and/or to submit orders through a data entry device and that does not have inventory ready for immediate delivery or transfer to a customer.
For the purposes of this legislation and the collection of Texas local sales and use taxes, the term “kiosk” does not include:
- booths, stalls or similar structures or data entry devices that are not located within a place of business of another retailer;
- any location where inventory is available for immediate transfer to customers (over-the-counter sales); or
- temporary locations operated in Texas for the purpose of receiving orders for taxable items if the retailer does not operate another place of business in Texas.
For example, a booth set up in a shopping mall to sell cosmetics is not considered a “kiosk” if customers can receive the items purchased at the time of the sale. Similarly a mobile food vendor selling prepared foods at a street fair or carnival is not a “kiosk.” In these scenarios, the seller is operating a place of business and local sales tax is due based on the location of the booth, stall or cart at the time of the sale.
Retailers Operating Multiple Places of Business - Local Tax Collection Changes
Senate Bill 636 (Effective June 19, 2009)
Tax Code Sections 321.203 and 323.203 are amended to specify that each sale of a taxable item is now consummated at the retailer's place of business in Texas where the retailer first accepts the order, provided that the order is placed in person by the purchaser or lessee of the taxable item. Now, when a purchaser places an order in person, retailers should collect local sales tax based on the location of the place of business where the order is received rather than the place of business from which the item is shipped.
Retailers should continue to collect local sales tax based on the “ship from” location on all delivery sales of taxable items that are shipped from a place of business in Texas when the order is not placed in person by the purchaser or lessee. Orders placed over the Internet, by telephone or through the mail are still consummated at the retailer's place of business in this state from which the items are shipped if the items are shipped from a place of business of the seller in Texas.
Also temporarily excluded from this change are warehouses that are places of business of a retailer as defined under 321.002, if the retailer has an existing economic development agreement with the municipality or county in which the warehouse is located that was entered into under Local Government Code Chapters 380, 381, 504 or 505 or a predecessor statute before Jan. 1, 2009.
To be eligible for the exclusion, the county or municipality must, before Sept. 1, 2009, provide the Comptroller's office with a copy of the economic development agreement as well as a list of all retail outlets in existence and identified as being served by the warehouse as of Jan. 1, 2009. We are providing additional information (PDF, 58KB) about this reporting requirement to municipalities and counties. This exclusion expires Sept. 1, 2014.
It is important to note that regardless of how an order is placed (e.g., in person, Internet, telephone), or whether the temporary exclusion discussed above applies, sellers engaged in business in multiple local taxing jurisdictions in Texas are still responsible (when applicable) for collecting local use taxes for other local taxing jurisdictions based on the point of delivery, in addition to collecting local sales taxes based on the place of business.
SALES AND USE TAX - LOCAL JURISDICTIONS AUTHORIZED
The Legislature authorized the creation of the following new special purpose districts that can levy local sales and use taxes:
Tornillo Management District
House Bill 4759 (Effective June 19, 2009)
League City Improvement District
House Bill 4798 (Effective June 19, 2009)
Goodwater Municipal Utility District No. 1
House Bill 4817 (Effective June 19, 2009)
Driftwood Economic Development Municipal Management District
House Bill 4825 (Effective June 19, 2009)
Harris County Improvement District No. 17
House Bill 4829 (Effective June 19, 2009)
Aliana Management District
Senate Bill 1295 (Effective May 23, 2009)
Waller Town Center Management District
Senate Bill 2467 (Effective June 19, 2009)
Maverick Improvement District of Palo Pinto County
Senate Bill 2470 (Effective Sept. 1, 2009)
Harris County Improvement District No. 18
Senate Bill 2510 (Effective June 19, 2009)
Travis County Improvement District No. 1
Senate Bill 2526 (Effective June 19, 2009)