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June 2010 TAX POLICY NEWS
a monthly newsletter about Texas tax policy

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FRAUD DETECTED UNDER NEW LAW

Convenience Store Owner Sentenced for Tax Fraud Detected Under New Law

A Hidalgo County convenience store owner recently received a punishment of 10 years deferred adjudication after pleading guilty to two counts of sales tax fraud; failure to remit tax collected from customers and making false entries in sales tax records.

Rogelio Ramirez agreed to pay the state more than $116,000 in restitution as part of his plea bargain, paying $60,000 prior to sentencing. He will pay the balance as a condition of his deferred adjudication and perform 200 hours of community service.

House Bill 11, passed by the 80th Legislature, gave the Comptroller the authority to require Texas distributors and wholesalers who sell ale, beer, malt liquor, wine, cigarettes, cigars and tobacco to Texas retailers to report basic information about those sales to the Comptroller's office. In December 2009, Ramirez was the first person arrested for tax fraud using the tools provided by that law.

“This case should send a strong message that we are serious about prosecuting those who commit tax fraud,” Texas Comptroller Susan Combs said. “By going after the bad guys, we protect the good guys - the honest business owners - against unfair competitors.”

Visit the Criminal Investigation Division section of our website to read more about the cases they investigate.

9-1-1 PREPAID WIRELESS EMERGENCY SERVICE FEE

New 9-1-1 Prepaid Wireless Emergency Service Fee is Due July 30

In 2009, the 81st Legislature's House Bill 1831 made changes to the law that affect retail sellers of prepaid wireless telecommunications services.

Beginning June 1, 2010, retail sellers of prepaid wireless telecommunications services must collect a 9-1-1 Prepaid Wireless Emergency Service Fee from customers and remit the fee to the Comptroller's office.

The fee is 2 percent of the purchase price of each prepaid wireless telecommunications service purchased in person; via telephone, the Internet or other method; or used by a seller in Texas.

“Prepaid wireless telecommunications services” are mobile telecommunications services that are paid for in advance and that allow a person to access 9-1-1 emergency communication services.

Retailers who received a letter from our office in April or June 2010, concerning the new fee, were automatically set up to collect and remit the fee.

The first Prepaid 9-1-1 Wireless Emergency Service Fee Report (Form 54-104) (PDF, 172KB) is due on or before July 30, 2010, to cover sales of prepaid wireless telecommunications services for June 2010. All other subsequent reports are due quarterly on the 30th day following the end of the quarter in which the fee was collected. Reports must be filed even if no fee is due.

Retailers who do not sell prepaid wireless telecommunications services should notify us in writing, and include their name, business name and 11-digit Texas taxpayer number.

Letters can be faxed to (512) 936-5381, e-mailed to tax.help@cpa.state.tx.us or mailed to:

Texas Comptroller of Public Accounts
Attn: Revenue Accounting Division
P. O. Box 149356
Austin, Texas 78714-9356

For more information about the new fee, please see the 9-1-1 Prepaid Wireless Emergency Service Fee section of our website.

FRANCHISE TAX

Treatment of Specific Items in Computing Texas Gross Receipts for Apportionment

Apportionment is the key to how much tax an entity will ultimately owe. Once a taxable entity's margin is calculated, the margin is apportioned to Texas using a single gross receipts factor to determine the percentage of business the entity has done in the state. The proper tax rate is then applied to the apportioned (or taxable) margin.

The gross receipts apportionment factor is a fraction. The numerator is the entity's gross receipts from business done in Texas and the denominator is the entity's gross receipts from its entire business. With few exceptions, gross receipts everywhere will equal total revenue.

Following is guidance for determining how the most common items of revenue (receipts) are to be apportioned to Texas. For further details on apportioning these and other receipts, see Rule 3.591(e).

Computer software services and programs

Gross receipts from the sale of computer software services are apportioned to the location where the services are performed. Receipts from the sale or license of a computer program (as the term “computer program” is defined in Rule 3.308) are receipts from the sale of an intangible asset and are apportioned to the legal domicile of the payor.

Dividends and interest

Dividends and interest that are received from a corporation or other sources are apportioned to the legal domicile of the payor. Dividends and interest that are received from a national bank are apportioned to Texas if the bank's principal place of business is located in Texas. Dividends and interest that are received from a bank that is organized under the Texas Banking Code are apportioned to Texas.

Net gain or loss on the sales of intangibles held as capital assets or investments

Net gain or loss on the sales of intangibles held as capital assets or investments is apportioned to the location of the payor. Examples of intangibles include, but are not limited to, stocks, bonds, commodities, futures contracts, patents, copyrights, licenses, trademarks, franchises, goodwill and general receivable rights.

Leases and subleases

Revenues from the lease or sublease (or rental or subrental) of real property are apportioned to the location of the property. Revenues from the lease or sublease (or rental or subrental) of tangible personal property are apportioned to the location where the property is used. If the property is used both inside and outside Texas, then lease payments are apportioned based on the number of days that the tangible personal property was used in Texas divided by the number of days that the tangible personal property was used everywhere.

Loans and Securities

Receipts from the sale of loans and securities are apportioned based on the location of the payor. If securities are sold through an exchange, and the buyer cannot be identified, then 7.9 percent of the revenue is a Texas receipt.

Services

Receipts from a service are apportioned to the location where the service is performed. If services are performed both inside and outside Texas, then such receipts are Texas receipts on the basis of the fair value of the services that are performed in Texas.

Tangible personal property

Receipts from the sale of tangible personal property that is delivered in Texas to purchasers are Texas receipts. Throwback was repealed under House Bill 3, 79th Legislature, Third Called Session, and is not in effect for reports due on or after Jan.1, 2008.

Transportation

Transportation companies must report Texas receipts from transportation services in intrastate commerce only. “Intrastate commerce” means the transportation of goods that are picked up from one point in Texas and delivered to another point in Texas. Transportation receipts can be apportioned to Texas in one of two ways:

  • Identifying the revenues that are derived from the transportation of goods or passengers in intrastate commerce within Texas; or
  • Multiplying the total transportation receipts by a fraction with a numerator that is the total mileage in the transportation of goods and passengers that move in intrastate commerce within Texas and a denominator that is the total mileage everywhere.
INSURANCE TAX

Automobile Burglary and Theft Prevention Authority Assessment (ABTPA): Semi-Annual Payment is Due August 1

The Comptroller's office collects the Automobile Burglary and Theft Prevention Authority (ABTPA) assessment under interagency contract with the Texas Department of Motor Vehicles. The assessment is due as prescribed in Vernon's Texas Civil Statutes, Title 70, Chapter 9, Article 4413(37).

All licensed property and casualty insurance companies that have written any form of motor vehicle insurance in Texas, as defined in Article 5.01(e), Insurance Code, are required to compute and pay the ABTPA assessment. These types of insurance companies include interinsurance or reciprocal exchanges, mutual associations, Mexican Casualty companies or Lloyd's Plans.

Insurers must pay the assessment by August 1 of each year for policies delivered, issued for delivery or renewed from January 1 through June 30. Since August 1 is a Sunday this year, the payment is due by August 2. Payments should be made using Form 25-107 (PDF, 89KB) and must reflect the actual assessment due. If no motor vehicle policies have been written for the first six months of the year, Form 25-107 is not due.

The assessment for policies that are delivered, issued for delivery or renewed from July 1 through December 31 of each year must be paid by March 1 of the next calendar year using Form 25-106 (PDF, 95KB) . This form must be filed even if no assessment is due.

Note that insurers making overpayments for the first six months of a year will not receive a refund of any overpayment if they wait until they file Form 25-106 in March of each year. In order to qualify for a refund, a written request must be filed with the ABTPA within six months after the date the assessment is paid as prescribed by Rule 57.51 related to refund determinations.

If you have refund requests or questions regarding the assessment, please contact the ABTPA at (512) 374-5101. If you need help completing these forms, please call our office at (800) 252-1387, or e-mail us at tax.help@cpa.state.tx.us.

INSURANCE TAX

Volunteer Fire Department Assistance Fund Assessment - It's That Time Again

The Texas Forest Service administers the Volunteer Fire Department Assistance Fund to provide rural fire departments with assistance, training and funding to purchase equipment and train personnel. An assessment on a property and casualty insurer's net direct premiums in specific categories in proportion to the premiums of all licensed companies for these categories funds the program. The Comptroller administers the assessment under Chapter 2007, Insurance Code.

The Legislature authorized $15 million for the original assessment in 2001. In 2007, the Legislature increased the assessment to $30 million and repealed the expiration of the program, originally set as Sept. 1, 2011.

An insurer may recover the assessment by including it as an expense in a rate filing or by directly charging policyholders as provided under Section 2007.005, Insurance Code.

The Comptroller's office mailed billings to affected taxpayers on May 27, 2010. The assessment is due Aug. 2, 2010.

All property and casualty insurers licensed to do business in Texas (including stock companies, farm mutual companies, county mutual companies, Lloyd's Plans and reciprocal or interinsurance exchanges) are subject to the assessment if they write homeowners insurance, fire insurance, farm and ranch owners insurance, private passenger auto physical damage insurance, commercial auto physical damage insurance or commercial multi-peril insurance.

If you have any questions regarding the assessment, please call our office at (800) 252-1387, or e-mail us at tax.help@cpa.state.tx.us

SALES TAX

Camps for Children

Camps for children, including day camps and boarding camps, are not considered amusement services. The same is true of instruction for any sport or musical discipline. Therefore, charges for children's camps or for instructional classes in sports or music are not taxable. See STAR Document 8709L0838G06 for further information.

SALES TAX

Sales Tax Holiday for School Supplies, Clothing, Shoes and Backpacks

Shoppers in Texas get a break from state and local sales and use taxes on purchases of most clothing, footwear and backpacks during our annual three-day sales tax holiday in August.

Shoppers also get a sales tax break on school supplies priced less than $100 purchased for use by a student in an elementary or secondary school.

This year's tax holiday begins at 12:01 a.m., Friday, Aug. 20, 2010, and ends at midnight on Sunday, Aug. 22, 2010.

School Supplies

The exemption applies only to school supplies priced less than $100 purchased for use by elementary or secondary school students. The exemption does not include computers, software, textbooks or similar items not included in the list below.

No Exemption Certificate (PDF, 76KB) is required — with one exception. If the purchaser is buying the supplies under a business account, the retailer must obtain an exemption certificate from the purchaser certifying that the items are purchased for use by an elementary or secondary school student. “Under a business account” means the purchaser is using a business credit card or business check rather than a personal credit card or personal check; is being billed under a business account maintained at the retailer; or is using a business membership at a retailer that is membership based.

The following is an all-inclusive list of qualifying school supplies (if priced less than $100):

Items Items
1. Binders
2. Book bags
3. Calculators
4. Cellophane tape
5. Blackboard chalk
6. Compasses
7. Composition books
8. Crayons
9. Erasers
10. Folders (expandable, pocket, plastic and manila)
11. Glue, paste and paste sticks
12. Highlighters
13. Index cards
14. Index card boxes
15. Legal pads
16. Lunch boxes
17. Markers
18. Notebooks
19. Paper (loose leaf ruled notebook paper, copy paper, graph paper, tracing paper, manila paper, colored paper, poster board and construction paper)
20. Pencil boxes and other school supply boxes
21. Pencil sharpeners
22. Pencils
23. Pens
24. Protractors
25. Rulers
26. Scissors
27. Writing tablets

Clothes, Shoes and Backpacks

Most clothes and shoes (including boots) that sell for less than $100 qualify for exemption during the sales tax holiday. The tax holiday does not extend to clothing and shoe rentals.

Backpacks sold for less than $100 for use by elementary and secondary students are also eligible for the holiday. A backpack is a pack with straps one wears on the back. The exemption includes backpacks with wheels, provided they can also be worn on the back like a traditional backpack, and messenger bags.

The exemption does not include items that are reasonably defined as luggage, briefcases, athletic/duffle/gym bags, computer bags, purses or framed backpacks. Ten or fewer backpacks can be purchased tax free at one time without providing an exemption certificate to the seller.

Tax is still due on sales of athletic and protective clothing and footwear not normally worn except during an athletic activity or as protection. For example, since basketball shoes are worn for many activities other than basketball, they can be sold tax free during the tax holiday. On the other hand, spiked golf shoes are rarely worn except when playing golf, so they are not exempt from tax.

Additionally, tax is still due on sales of luggage and accessories such as jewelry, handbags, umbrellas, wallets, watches and similar items; and on services such as tailoring, altering, cleaning or monogramming, even if performed on qualifying items purchased during the sales tax holiday weekend.

For more information about taxable and nontaxable clothing and footwear items, see our Sales Tax Holiday publication.

SALES TAX

Summer Fun in the Sun - Keeping it Cool and “Collected”

The sun is high in the Texas sky and that means sales are up on many warm-weather products. To help retailers beat the heat, here is a reminder about the taxability of many seasonal products. Remember, all food and drinks (except unflavored water, which is exempt) sold in individual serving sizes by a business with eating facilities are taxable when the items require no further preparation before eating.

Drinks and Ice

Water (including bottled and carbonated water) isn't taxable unless it's flavored.

Flavored water, sports drinks, sodas and frozen “slush” drinks are taxable.

Bottled or canned diluted juices that are not more than 50 percent juice are taxable.

Juice drinks containing more than 50 percent fruit or vegetable juice by volume are exempt unless sold ready for immediate consumption (such as with a cup or straw).

Sales tax is collected on sales of beer and wine unless they are sold by an establishment subject to the Mixed Beverage Gross Receipts Tax.

Ice is taxable.

Frozen Treats

Individual servings of ice cream sundries (such as ice cream bars and sandwiches, sherbet push-up pops or ice cream cones) and half pints of ice cream are taxable.

Tax is not due on ice cream sundries that are sold in prepackaged containers with two or more servings.

Ice pops, juice pops and popsicles that do not contain milk products are not ice cream sundries. These items are taxable regardless of how many are in the package unless they contain more than 50 percent fruit juice.

Fruits and Vegetables

Watermelons and other fresh fruit and vegetables are not taxable unless sold ready for immediate consumption (such as with a plate or eating utensils).

Grilling Items

Charcoal and firewood are taxable.

Grill bottles filled with propane and lantern bottles filled with kerosene are exempt from sales tax.

Miscellaneous Items

Sunscreen is taxable.

Mosquito and bug sprays are taxable.

Insect repellants for lawns and gardens are taxable.

TEXAS WORKFORCE COMMISSION NEWS YOU CAN USE

New Texas Workforce Commission Program Offers Employers Incentives to Hire Unemployed

Providing job opportunities to unemployed Texans and rewarding employers who hire them are the benefits of a new Texas Workforce Commission (TWC) initiative called Texas Back to Work. The program already has 800 participating employers who have hired more than 2,100 workers.

Participating private-sector businesses can offset the costs associated with hiring and training new workers when they hire those receiving unemployment benefits, or those who have exhausted their benefits. Employers hiring from this qualified pool of unemployed Texans may be eligible to receive up to $2,000 for each newly hired worker. The subsidies are provided for the first four months of employment.

Texas Back to Work is administered through 28 Texas workforce boards across the state. Local workforce business services representatives are available to help employers identify qualified job seekers and offer recruitment assistance and prescreening of eligible applicants. This wage-subsidy program is funded by the Texas Legislature, with additional funding made available through a Temporary Assistance for Needy Families (TANF) Emergency Contingency Fund grant from the U.S. Department of Health and Human Services.

Texas Back to Work was implemented in February and by mid-June, 863 employers had already signed on to take advantage of the program. As a result, 2,268 workers have found jobs.

For more information, see TWC's Texas Back to Work (PDF, 147KB) brochure.

RECENTLY ADOPTED RULES

Motor Vehicle Sales Tax

The following rule adoption was filed with the Secretary of State on April 26, 2010. The publication date was May 7, 2010, effective 20 days after filing.

Section 3.79 - Standard Presumptive Value

State Sales and Use Tax

The following rule adoption was filed with the Secretary of State on June 21, 2010. The publication date is July 9, 2010, effective 20 days after filing.

Section 3.286 - Seller's and Purchaser's Responsibilities, Including Nexus, Permits, Returns and Reporting Periods, Collection and Exemption Rules, and Criminal Penalties

RECENTLY PROPOSED RULES

Motor Fuel Tax

The following rule was submitted for filing with the Secretary of State. The publication date is June 4, 2010. The comment period is 30 days after publication.

Section 3.443 - Diesel Fuel Tax Exemption for Water, Fuel Ethanol, Biodiesel, Renewable Diesel, and Biodiesel and Renewable Diesel

State Sales and Use Tax

The following rule was submitted for filing with the Secretary of State. The publication date is July 2, 2010. The comment period is 30 days after publication.

Section 3.369 - Sales Tax Holiday - Certain Energy Star Products

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 Web site.

Contributors to This Month's Issue

Robin Corrigan, Jody Frierson, Gary Johnson, Carol McAnnally, Viki Smith, Karen Snyder, Jennifer Specchio, Karen Specht, Melanie Thompson and Steve White

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