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S.A.L.T. Select Developments: Texas

Baker Donelson's S.A.L.T. Select Developments will identify important state and local tax developments from Texas.

State and local taxes impact almost every taxpayer. S.A.L.T developments in any one jurisdiction can be frequent and sometimes confusing. Where multiple jurisdictions are involved, staying current with state and local tax developments can be overwhelming for any taxpayer.

To assist you with staying current on a periodic basis, Baker Donelson's S.A.L.T. Select Developments will identify one or more recent state and local tax developments from Texas.

August 2021

2022 Water-Efficient Products Sales Tax Holiday: The Comptroller's Office announced that the Texas Water-Efficient Products Sales Tax Holiday for 2022 will begin Saturday, May 28, 2022, through Monday, May 30, 2022. During that holiday time period, certain water-efficient and water-conserving products can be purchased online or by telephone, mail, custom order, or other means (including in-store purchases) that qualify for sales tax exemption when either the item is both delivered to, and paid for, by the customer during the exemption period; or the customer orders and pays for the item, and the retailer accepts the order during the exemption period for immediate shipment, even if the delivery is made after the exemption period ends. During that period, purchases of product displaying a WaterSense label or logo can be purchased tax-free, and such items can be bought for either personal or business purposes. Additionally, water-conserving products can be purchased tax-free during this holiday period, such as items used or planted for conserving or retaining ground water; recharging water tables; or decreasing ambient air temperature, and so limiting water evaporation. Examples of items that qualify for this exemption include a soaker or drip-irrigation hose; moisture control for sprinkler or irrigation system; mulch, among many other examples as set forth in the announcement. Additionally, the announcement provided examples of items that do not qualify for the exemption, such as construction/building materials; air conditioners; ceiling fans, among other items (assuming no other exemption is applicable). The announcement stated that if a sales tax is paid on these exempt items during the sales tax holiday, a sales tax refund can be requested in the manner set forth in the announcement. More information can be found here.

July 2021

Enhanced Sales Tax Reporting Feature: The Comptroller's Office recently announced that a new feature will help provide sellers with more information about their tax responsibilities at the time of a sale. According to the Comptroller's announcement, and beginning June 30, 2021, sellers are now able to download files which can be incorporated into their tax reporting and point-of-sale software. These files include a comprehensive dataset of Texas addresses and associated state and local sales and use tax responsibilities, as well as a local jurisdiction tax rate file. The Comptroller's Office stated that these files will be updated quarterly to account for new tax jurisdictions and tax rate changes within jurisdictions, and that such tax responsibility and rates will be valid for that quarter. More information can be found here.

June 2021

Sales Tax Exemption For Firearm Safety Equipment: On June 14, 2021, Governor Abbott signed into law Senate Bill No. 313 providing a sales tax exemption for certain "firearm safety equipment." According to this new legislation, which is effective September 1, 2021, that phrase means a "gun lock box, a gun safe, a barrel lock, a trigger lock, a firearm safety training manual or electronic publication, or another item designed to ensure the safe handling or storage of a firearm." Under this new law, the sale, storage, use or other consumption of firearm safety equipment is exempt from the sales tax. More information can be found here.

May 2021

Deadline Extension for Disaster Areas: The Texas Comptroller of Public Accounts issued a Release dated May 20, 2021, advising that most businesses in State declared disaster areas impacted by recent severe weather will be granted an extension to file certain tax reports. Tax reports due on the date of that Release and on May 25 can now be filed by June 1 without penalty, according to the Release. Some of those tax reports include sales and use tax, mixed beverage gross receipts tax and gasoline tax; however, a complete list of the due dates for Texas taxes can be found on the Comptroller's website. This extension, according to the Release, is for taxpayers in Calhoun, Jasper, Jefferson, Kleberg, Newton and Tyler counties, which Governor Abbott declared a state of disaster on May 19, 2021. Those counties were hard hit by significant flooding, tornadoes, hail and damaging winds, according to the Release. More information may be found here.

March 2021

Updates Reported – Because of the statewide severe winter weather, the Texas Comptroller of Public Accounts in late February announced the extension of the due date for the 2021 Texas Franchise Tax Reports from May 15 to June 15, 2021. The Texas Comptroller stated that this extension aligns the agency with the Internal Revenue Service, which on February 22, extended the April 15 tax filing and payment deadline to June 15 for all Texas residents and businesses. The Comptroller stated that the due date extension applies to all franchise taxpayers, that the extension is automatic, and that taxpayers do not need to file any additional forms. More information can be found here.

February 2021

Updates Reported – The Texas Comptroller has recently announced that certain proposed rules were filed with the Texas Register on January 20, 2021, for publication on February 5, 2021. The announcement stated that the 30-day comment period begins when the rule proposals are published and ends March 7, 2021. Among the rule proposals are modifications to the continuation of the residential homestead exemption while the replacement structure is being constructed, and modifications to the property tax exemption for certain leased motor vehicles. The Comptroller's announcement states that comments on the proposed rules may be submitted to the Director of the Property Tax Assistance Division at the physical or email addresses set forth in that announcement. More information can be found here.

January 2021

Updates Reported – The Texas Comptroller has announced on its website that most franchise tax filers will receive an email in lieu of a mailed reminder to file or seek an extension of the franchise tax return before the May 17, 2021 due date. The website also notes that if a taxpayer does not have an email address on file (or if the taxpayer is a first-year filer) the Comptroller's Office will mail a reminder notice to that taxpayer. However, the website also notes that electronic filing is highly encouraged for faster account updates and is mandatory for no-tax-due returns. More information can be found here.

December 2020

Updates Reported – On November 20, 2020, the Texas Comptroller filed with the Texas Secretary of State proposed amendments to Texas Administrative Code Rule Section 3.586 addressing nexus for purposes of the Texas franchise tax. That Rule was previously amended to adopt economic nexus for purposes of the franchise tax, providing that a foreign taxable entity has nexus in Texas and is subject to the Texas franchise tax, even if it has no physical presence in Texas, if during a federal income tax accounting period ending in 2019 or later the entity had gross receipts from business done in Texas of $500,000 or more consistent with that Rule. Under the proposed amendment, the term "gross receipts" is defined to mean "all revenue reportable by taxable entity on its federal return, without deduction for the cost of property sold, materials used, labor performed, other costs incurred."

Further, and to clarify timing with respect to when a foreign taxable entity has nexus for purposes of the Texas franchise tax, this Rule is being further amended so as to provide that: (1) prior to January 1, 2019, a foreign taxable entity begins doing business in Texas on the day the entity has physical presence as described in that Rule; and (2) on or after January 1, 2019, a foreign taxable entity begins doing business in Texas on the earliest of (a) the date the entity has physical presence as described in that Rule, (b) the date the entity obtains a Texas use tax permit if obtained on or after January 1, 2019 or January 1, 2019 if the entity obtained a use tax permit prior to that date (subject to the entity overcoming the presumption of nexus because of said permit), or (c) the first day of the federal tax income accounting period ending in 2019 or later in which the entity had gross receipts from business done in Texas of $500,000 or more. More information can be found here.

November 2020

Updates Reported – The Texas Comptroller, in the Tax Policy News publication issued October 27, 2020, addresses a number of concerns relative to the impact of COVID-19. In that publication, the Comptroller's office states that it understands the tremendous strain the pandemic and its related closures have placed on businesses throughout Texas. The Comptroller also states that payment deadlines for the motor vehicle tax due on purchases will continue to be extended until the Governor's state disaster declaration expires. Any tax penalty will be automatically waived, according to that publication, if the tax payment is received within 60 days of the expiration of the state disaster declaration. For businesses struggling to pay the full amount of sales taxes they collect from customers, the publication states that a short-term payment agreement may be available through the Comptroller's office. More information can be found here.

October 2020

Updates Reported – The Texas Comptroller has recently issued disaster relief information to assist taxpayers impacted by Tropical Storm Beta and Hurricanes Hanna and Laura. With respect to Tropical Storm Beta, the published information indicates that taxpayers in identified counties are eligible for an automatic penalty waiver for state taxes due September 21, 2020 if the taxes are paid within 30 days of the original due date; and an automatic 30-day extension of time to file and pay any state taxes due on September 25 and September 30, 2020. Taxpayers are not required to request a waiver or an extension of time to file and pay taxes that have been automatically waived or extended, according to that publication. As to Hurricanes Hanna and Laura, taxpayers affected by the severe weather may be eligible for an extension of time to file and pay taxes, and such extensions are available upon request only and will be granted by the Comptroller's Office in 30-day increments; however, if a taxpayer is unable to file and pay within 30 days, a request may be made for additional extensions up to 90 days total. More information can be found here.

September 2020

Coronavirus Tax Payment and Return Filing Responsibilities - Updates Reported (September 30): On September 1, 2020, the Texas Comptroller issued Publication 96-259 which addresses taxable services for sales and use tax purposes. Those taxable services, as set forth in Subsection (a) of Texas Code Section 151.0101, include 17 different broad categories of services, such as amusement services, data processing services, debt collection services, internet services, telecommunication services, and security services, among others. Under Subsection (b) of that Section, the Comptroller "shall have exclusive jurisdiction to interpret" those taxable services. In that regard, Publication 96-259 addresses each of those taxable services so as to provide taxpayers with examples and references to additional relevant information. More information can be found here.

August 2020

Coronavirus Tax Payment and Return Filing Responsibilities - Information Reported (August 20): In the August 2020 Tax Policy News, the Texas Comptroller reminded taxpayers that the deadline for filing a franchise tax second extension request for mandatory electronic payers was August 17, 2020. The reminder also stated that entities that properly secured a second extension (after filing a first extension by July 15) will have until January 15, 2021 to file their report (the due date is extended from November 15, 2020 as a relief from the COVID-19 pandemic). To have properly secured a second extension entities must have electronically submitted payment using the appropriate electronic payment method set forth in that edition of Tax Policy News. More information can be found here.

July 2020

Coronavirus Tax Payment and Return Filing Responsibilities - Updates Reported (July 27): Texas has changed sales tax sourcing rules for internet orders effective October 21, 2021. Under the current version of 34 Tex. Admin. Code § 3.334(h)(3)(C), when an order is placed over the internet and the seller fulfills that order at a location that is a place of business in Texas, the sale is considered to be consummated at that place of business where the order is fulfilled and the local sales tax is sourced to that fulfillment location. However, under the Texas Comptroller’s newly-enacted regulation at 34 Tex. Admin. Code § 3.334(b)(5), "[o]rders not received by sales personnel, including orders received by a shopping website or shopping software application … are received at locations that are not places of business of the seller." (underscore added) As a result, under the newly adopted regulations, when an order is placed over an internet website, that order is sourced to the purchaser’s address. This rule does not go into effect until October 21, 2021 in order to give "interested parties an opportunity to seek a legislative change." More information can be found here.

May 2020

Coronavirus Tax Payment and Return Filing Responsibilities - Further Updates Reported (May 8): On April 27, 2020, the Texas Comptroller updated its website regarding certain relief offered to Texas taxpayers. For example, this update again noted that in order to aid Texas franchise taxpayers, the Comptroller is automatically extending the due dates to file and pay 2020 Texas franchise tax reports to July 15, 2020. Additionally, an extension of up to 90 days past the original due date is provided in order to pay the motor vehicle tax due on purchases. Further, with respect to businesses struggling to pay the full amount of sales taxes they collect from customers, the Comptroller is offering short-term payment agreements and, in most instances, waivers of penalties and interest. More information regarding these accommodations can be found here.

April 2020

Coronavirus Tax Payment and Return Filing Responsibilities - Further Updates Reported (April 16): On April 2, 2020, the Texas Comptroller issued a release extending the due date for 2020 franchise tax reports to July 15. The release stated that this due date extension applies to all franchise taxpayers, and that the extension is automatic without the need to file additional forms. The Texas franchise tax, as noted in the release, is a tax imposed on each taxable entity formed or organized in Texas or doing business in the state. The release also noted that franchise taxpayers who need an extension beyond July 15 have the following options:

  • Non-electronic funds transfer taxpayers who cannot file by July 15 may file an extension request on or before that date and must pay 90 percent of the tax due for the current year or 100 percent of the tax reported as due for the prior year with the extension request, and that those taxpayers who request an extension will have until January 15, 2021 to file a report and pay the remainder of the tax due.
     
  • Taxpayers who are mandatory electronic funds transfer payers may request an extension of time to file by August 15 and must pay 90 percent of the tax due for the current year or 100 percent of the tax reported as due for the prior year with the extension request and that a second extension of time to file may be requested with the initial extension request to obtain an extension of the report due date to January 15. The release also noted that any payments made after August 15 will be subject to penalty and interest.

More information can be found here.

Coronavirus Tax Payment and Return Filing Responsibilities - Further Updates Reported (April 3): As updated through March 31, the Texas Comptroller's Office addressed situations involving taxpayers that have existing payment plan agreements with that Office. Pursuant to this update, the Comptroller stated that postponement of deadlines to remit payments under existing payment plans will be considered on a case-by-case basis. However, that update also stated that postponement of payment deadlines will only apply to existing payment plan agreements for periods prior to the February 2020 tax report. The update also stated that potential postponements will not extend or delay a taxpayer's due dates for remitting or reporting tax collected on behalf of state and local governments, and that it will also not apply to resolution agreements that specify a deadline to make a single lump sum payment of the entire liability. The update further stated that the total amount due under the payment plan will not be reduced and that after expiration of the postponement period, all payment deadlines will resume on the next periodic payment deadline as provided in the payment plan agreement and that postponed payments will be added to the end of the term of the agreement. Separately, the Comptroller's Office announced that business owners affected by COVID-19 can request, in writing to the chief appraiser, an extension of the deadline to May 15 to file most property tax renditions with their county appraisal districts, assuming the district has not already implemented extensions. More information can be found here.

March 2020

Coronavirus Tax Payment and Return Filing Responsibilities - No Due Date Changes Are Being Made (March 25): The Comptroller of the State of Texas has recently issued a few messages reminding businesses to use the agency's online tools for tax filing and payment. In these messages, the Comptroller recognizes the hardships businesses are facing during these uncertain times. However, the Comptroller has stated that taxes based on sales made in February and collected by businesses on behalf of state and local governments in February must be remitted by the March due dates for state and local sales taxes, hotel taxes, mixed beverage gross receipts and sales taxes, motor vehicle rental tax, seller-financed motor vehicle sales tax and motor fuel taxes. The Comptroller stated that this is a complex and rapidly evolving situation where many businesses are facing devastating economic conditions such as bars, restaurants, retail outlets and other businesses, and that the looming health emergency may strain the state's ability to provide adequate care and emergency services. The Comptroller further stated that Texans must pull together to ensure the state meets the inevitable needs; and, as part of pulling together, the Comptroller asks businesses to remit the taxes they collect from Texans by the established due date. The Comptroller further stated that each tax due date will be examined as it approaches, and the Comptroller's Office will keep lawmakers and stakeholders informed as the agency evaluates rapidly changing conditions. In closing, and recognizing that businesses are struggling to pay the full amount of sales taxes that they collect in February, the Comptroller's Office just announced that the agency is offering assistance in the form of short-term payment agreements and, in most instances, waivers of penalties and interest. More information can be found here and here.

Coronavirus Tax Payment and Return Filing Responsibilities - No Broad Changes Reported (March 19): Pursuant to a recent message from the Comptroller of the State of Texas, taxpayers are strongly urged to use online tools, tutorials, and other resources for tax services and to establish 24/7 account access on the State's Webfile. The Comptroller noted that the Webfile account can be accessed at any time and taxpayers can submit sales tax reports, make payments, and conduct other tax return-related activities through that Webfile. The Comptroller also noted that enforcement offices have reduced staffing and modified the configuration of waiting areas and urged taxpayers to use online services. More information can be found here.

February 2020

Franchise Tax: In response to South Dakota v. Wayfair, Inc., the Texas Comptroller of Public Accounts amended regulation 34 Tex. Admin. Code Section 3.586 requiring out-of-state entities to file Texas franchise tax reports beginning January 1, 2020 and providing an economic nexus standard for out-of-state entities that do not have a physical presence in Texas.

Sales and Use Tax: The Texas Comptroller of Public Accounts has amended regulation 34 Tex. Admin. Code Section 3.286 to implement newly-enacted statutes that created tax obligations for marketplace providers and marketplace sellers.

October 2019

Sales and Use Tax: The Texas Comptroller of Public Accounts has issued guidance for remote sellers including, but not limited to, guidance related to collection obligations and marketplace sales. As anticipated, the Texas Comptroller has indicated that Texas plans to amend its franchise tax rules to create an economic nexus threshold for franchise tax purposes. Texas Tax Responsibilities and Resources for Sellers After Wayfair, Texas Comptroller of Public Accounts, 10/01/2019. For more information, click here.

September 2019

Franchise Tax: On August 30, 2019, the Texas Comptroller amended its rule codified at 34 TAC Section 3.584 resulting in some taxpayers no longer qualifying for the lower .375 percent franchise tax rate applicable to retailers and wholesalers and subjecting them to the higher .75 percent franchise tax rate. Specifically, the Comptroller added definitions of "produce" and "product" necessary for determining whether a taxpayer is a retailer or wholesaler. Generally, Section 3.584 allows retailers and wholesalers to claim the 0.375 percent franchise tax rate unless they or their affiliates produce a product that they sell. Under the new definition of "produce," an entity produces a product that it sells if the entity or affiliate: (1) asserts a software copyright with respect to the product or a component of the product; (2) asserts a patent right under Title 35 of the United States Code or comparable foreign law with respect to the product, a component of the product, or the packaging of the product; or (3) produces a component of the product, or acquires the product and makes a modification to the product, unless the entity can demonstrate that the component or modification does not increase the sales price of the product by more than ten percent. The new rule is effective beginning September 4, 2019. Refer to the following Rule for more details.

Property Tax: According to a recent Texas Court of Appeal decision, a business that constructed, installed and leased a solar system to a homeowner is not eligible for the solar and wind-powered energy devices exemption because the business did not own the residence on which it installed the system. Sunnova AP5 Conduit LLC v. Hunt County Appraisal District, Tex. Ct. App. (5th Dist.), No. 05-18-00995, 08/19/2019. Refer to the Notice for more details.

August 2019

Franchise Tax: In Vafaiyan v. The State of Texas, the Texas Court of Appeals held that a director of a Texas corporation was personally liable for penalties imposed by the Texas Commission on Environmental Quality because the corporation's status and corporate privileges were forfeited when it failed to pay Texas franchise tax. Vafaiyan v. The State of Texas, Tex. Ct. App. (13th Dist.), No. 13-18-00352-CV, 08/15/2019.

Sales and Use Tax: Guidance recently issued by the Texas Comptroller of Public Accounts indicates that music downloaded via the Internet by a coin-operated jukebox constitutes tangible personal property and, therefore, sales tax is owned on the downloads. Texas Private Letter Ruling No. 201907012L, 07/17/2019.

July 2019

Sales Tax/Remote Sellers: In light of the South Dakota v. Wayfair decision rendered in June 2018 by the U.S. Supreme Court, Texas will begin enforcing effective October 1, 2019 the collection and remittance obligations of sellers whose only activities in the state are the remote solicitation of sales. For purposes of providing a safe harbor for certain remote sellers, the Texas Comptroller will not require remote sellers with total Texas revenue of less than $500,000 in the preceding 12 calendar months to obtain a permit or collect and remit sales and use tax.

Additionally, the 2019 Legislature enacted HB 2153 (codified at Texas Tax Code § 151.0595), which provides a single local tax rate for remote sellers. A remote seller may choose to collect this single local tax rate by notifying the Account Maintenance Division via email or mail instead of calculating and remitting local tax based on the total local tax rate in effect at the destination. According to the Comptroller's Office, the applicable email address is Sales.applications@cpa.texas.gov, and the applicable mailing address is: Comptroller of Public Accounts, P.O. Box 149354, Austin, TX 78714-9354. For the period of October 1, 2019 through December 31, 2019, the single local tax rate will be 1.75 percent. Going forward, the Comptroller will compute the single local tax rate and publish it in the Texas Register prior to the beginning of each calendar year.

June 2019

Property Tax: Just recently, the Texas Property Tax Reform and Transparency Act of 2019 was enacted. This Act requires more voter approval before tax rates can be increased; provides certain caps for revenue increases from the property tax; requires taxing districts to post tax information on county websites; and provides tax protesters with the right to request a copy of data, schedules and other information, among many other provisions. Most of these provisions take effect January 1, 2020. A Legislative Explanatory Q&A regarding the Act can be found here.

For more information about state and local tax developments in Texas, please contact:

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