For the latest news and updates on Texas state and local tax
November 22, 2022
Texas Court of Appeals Held Determination That Cost-of-Performance Data Can Be Used To Establish Fair Value of Services
In the continuing saga of Hegar, et al. v. Sirius XM Radio, Inc., the Texas Court of Appeals ruled that Sirius XM reasonably used cost of performance information to determine the percentage of its receipts derived from Texas sources in computing its margin tax liability. Previously, the Texas Supreme Court ruled in Sirius that Texas was a cost of performance jurisdiction and remanded the case back to the lower courts to determine the fair value of the service rendered in Texas. In the instant case, the Court of Appeals sided with the taxpayer that its methodology for determining the fair value of services rendered in Texas was reasonable under the statute.
August 29, 2022
Texas Comptroller Support Repeal of Sales Tax on Feminine Hygiene Products
On August 18, 2022, the Texas Comptroller Glenn Hegar announced that he has joined with state Senator Joan Huffman to exempt feminine hygiene products from state and local sales tax. The efforts to exempt feminine hygiene products from state and local sales tax will require new legislation and likely would not be finalized until the 2023 legislative session. Prior to sending to Governor Greg Abbott for his consideration, legislation to create this exemption must still pass through several levels in the Texas Legislature.
April 15, 2022
Texas Comptroller Revises Information About Local Jurisdictions Imposing Sales and Use Tax on Telecommunication Services
The Texas Comptroller of Public Accounts revised information about local jurisdictions that require a local sales tax on telecommunications services. Although State law says that telecommunications services are subject to sales and use tax and exempt from local taxes, the governing body of a county, city, or special purpose district may vote to enforce a sales tax on telecommunications services occurring between locations within the state. For additional information and a list of the cities, counties, and special districts that implement the tax, see publication 96-339.
April 8, 2022
Texas Supreme Court Rules Service Receipts are Sourced to the Location Where the Work is Performed in Sirius XM v. Hegar
On March 25, 2022, Texas Supreme Court delivered an opinion in favor of Sirius XM Radio Inc.’s petition that the receipts used to calculate Texas franchise tax should be based on where the people and equipment that performed the services are physically located, as opposed to where the services are received. The Comptroller argued that Sirius’s subscribers receive the signal through radios located in Texas and therefore those receipts should be sourced to Texas. While Sirius has many subscribers in Texas, it barely creates content in the state, and as such, it argued that its Texas sales factor should be based on where the work was physically performed. The Texas Supreme Court agreed with Sirius and held that receipts from services are sourced to the physical location where employees and equipment perform the services, not the location where services are received.
April 1, 2022
Texas Comptroller Publishes Information on Sales and Use Tax Holiday for Emergency Preparation Supplies
Texas Comptroller of Public Accounts has announced a sales tax holiday from April 23, 2022 at 12:01 a.m. until April 25, 2022 at midnight for emergency preparation supplies. Taxpayers can purchase qualifying emergency preparation supplies tax-free during this period. These items include portable generators, emergency ladders, and hurricane shutters costing less than $300. Additionally, taxpayers can purchase batteries, coolers, carbon monoxide detectors, first aid kits, fuel containers, radios, light sources, and many other supplies so long as those items cost less than $75. Taxpayers cannot purchase medical masks, cleaning supplies, toilet paper, plywood, tents, or gloves tax-free. There is no limit on the quantities of items purchased however, the sales tax holiday is based on the total sales price, including shipping and other charges. If the total sales price is over the applicable threshold, buyers will be charged sales tax on the total invoice. Taxpayers can buy these items online, in-store, by telephone, or mail. View the list of items exempt from sales tax during this sales tax holiday.
November 10, 2021
Texas – Taxability of Food Delivery Portals
In a letter ruling dated September 17, 2021, the Texas Comptroller determined the fees charged by a marketplace facilitator for providing a mobile ordering and payment platform for restaurants were taxable as data processing services. The marketplace facilitator offers a mobile platform that allows customers to order food from participating restaurants and pay for the order (including tips). The marketplace facilitator charges the participating restaurants multiple fees for every order it receives via the mobile platform for processing customer orders and payments. The service fees, credit card fees, payment remittance fees, setup fees, and subscription fees that the marketplace facilitator charges restaurants were deemed taxable as data processing services. [See https://star.comptroller.texas.gov/view/202109055L?q1=202109055L]
June 25, 2021
Texas Amends Definition of Data Processing Services for Sales Tax Purposes
Effective October 1, 2021, Texas has amended the definition of “data processing services” under Section 151.0035 of the Texas Tax Code to exclude certain payment processing services for sales and use tax purposes. The “data processing service” definition is updated to exclude “the processing of a payment made by credit or debit cards” and “services exclusively to encrypt electronic payment information for acceptance onto a payment card network”. “Settling of an electronic payment transaction” is also not included in the definition of “data processing services” if settled by a federally insured financial institution. For the specific text of the enacting legislation, please see Senate Bill 153.
May 26, 2021
Texas Updates Guidance on Administration of Unclaimed Property in Texas
Effective May 18, 2021, Texas has updated and clarified the State provisions governing the Texas unclaimed property program to reduce administrative burden, improve effectiveness and efficiency, and eliminate ambiguities. The written notice required to be given by a holder to the owner of property valued at more than $250, must be delivered by mail to the last known address of the owner or by email. The notice must be delivered no later than the 60th day before the date the property is delivered to the Texas Comptroller of Public Accounts. The comptroller can sell or otherwise liquidate a security delivered to the comptroller. However, the comptroller cannot sell a security listed on an established stock exchange for less than the price prevailing on the exchange at the time of sale. The comptroller can sell a security not listed on an established exchange by any commercially reasonable method. The comptroller can waive the requirement of filing a claim and pay or deliver property directly to a person who does not file a claim if: (1) the person receiving the property is the reported owner of the property; (2) the comptroller reasonably believes the person is entitled to receive the property or payment; and (3) the property has a value of less than $5,000. For specific text of the bill, please see L. 2021, H1514.
May 21, 2021
Texas Will Exclude Federal Loans and Grant Relief due to COVID-19 from Franchise Tax
Effective May 8, 2021, and applicable only to a report originally due on or after January 1, 2021, Texas will exclude from Texas Franchise Tax certain federal loans and grants issued due to the coronavirus (COVID-19) pandemic. Under Franchise Tax regulations, a taxable entity must exclude from its total revenue qualifying loan or grant proceeds. “Qualifying loan or grant proceeds” means the amount of money received by a taxable entity that: (1) is: (a) a loan or grant under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended by the Paycheck Protection Program (PPP) Flexibility Act; Consolidated Appropriations Act (CAA); American Rescue Plan Act (ARPA); and the PPP Extension Act; (b) a shuttered venue operator grant under the CAA, as amended by the ARPA; (c) microloan program recovery assistance under the CAA; or (d) a grant from the restaurant revitalization fund established under the ARPA; and (2) is not included in the taxable entity’s gross income for purposes of federal income taxation under certain sections the CAA or ARPA.
April 28, 2021
Texas Proposes Amendment to State Research and Development Tax Credit
Texas has proposed amendments to the franchise tax research and development activities tax credit, and the research and development sales tax exemption. Taxpayers may only claim one of the two offerings—either the franchise tax credit or the sales tax exemption—for any qualifying research expenses that occur in Texas.Specifics of the proposals can be found in Texas Register Volume 46, Number 16 (April 16, 2021). Some highlights of the proposed changes offered by the Texas Comptroller include, among other things: adoption of the federal Four-Part test that determines whether research activities are “qualified research” conducted in Texas; expansion of the definition of “qualified research expense” to include definitions of “in-house research expenses” and “contract research expenses”; any research with respect to internal use software would be an excluded research activity (but there would be guidance on certain types of software that are not excluded as such); a taxpayer would be prohibited from claiming a manufacturing or resale sales tax exemption for tangible property claimed as a research expense; and taxpayers would be required to establish expenses claimed are eligible for the credit with clear and convincing evidence supported by contemporaneous documentation.
March 23, 2021
Texas Update on Extension of Filing Deadline
The Texas Comptroller of Public Accounts has announced that the due date for 2021 Texas Franchise Tax Reports is automatically extended from May 15, 2021 to June 15, 2021. The extension is in response to the recent winter storm and power outages in the state, and aligns the agency with the Internal Revenue Service, which extended the April 15 tax filing and payment deadline to June 15 for all Texas residents and businesses. Since the report extension is automatic, franchise taxpayers do not need to file any additional forms. Franchise taxpayers who need an extension beyond the June 15 deadline have the following options. Non-electronic funds transfer (non-EFT) taxpayers who cannot file by June 15 can file an extension request on or before June 15. They must pay 90% of the tax due for the current year, or 100% of the tax reported as due for the prior year, with the extension request. Non-EFT taxpayers who request an extension have until November 15 to file their report and pay the remainder of the tax due. Mandatory EFT taxpayers who cannot file by June 15 can file an extension request on or before June 15. They must pay 90% of the tax due for the current year, or 100% of the tax reported as due for the prior year, with the extension request. Mandatory EFT taxpayers who request an extension have until August 15 to file their report. However, on or before August 15, EFT taxpayers can request a second extension of time to file their report and must pay the remainder of any tax due with their extension request. The August 15 extension request extends the report due date to November 15. Any payments made after August 15 will be subject to penalty and interest. ( News Release, Texas Comptroller of Public Accounts, 02/25/2021 .)
March 21, 2020
Sales Tax Collected in February Was Due on March 20, 2020
Texas Comptroller Glenn Hegar reminds businesses that the sales tax collected in February 2020 was due by March 20, 2020. Although this may be difficult for businesses due to COVID-19, the tax represents money collected from individual Texans and expected to be available to provide emergency health care and support other emergency operations. The Comptroller urges businesses to make use of the agency’s online tools to meet deadlines.
Texas Enacts Economic Nexus Regulation for Franchise (Margin) Tax
On December 20, 2019, the Texas Comptroller of Public Accounts (Comptroller) finalized proposed amendments to Rule 3.586 to implement an economic nexus based on a threshold of $500,000 of gross receipts in Texas. Some months ago, the Comptroller’s office proposed making such amendments to the regulation to implement the decision in Wayfair which pertained to sales tax within the Supreme Court ruling; with the state extending such application to the Franchise tax.
In most states, corporate tax nexus standards is commonly applied using a “doing business” standard, often resulting in broad activities establishing nexus unless otherwise federally protected. In many cases, such activity includes deriving income attributable to sources within the state, or directing activities at state customers for the purpose of selling them goods or services. Although many states are unclear if they incorporate a sales type threshold in determining nexus, it is unquestionable that in many of these states, economic nexus could be triggered with sales sourced to the state.
In contrast to most states, previously Texas has explicitly applied a physical nexus standard for the franchise tax. Even after the Wayfair decision in 2018, the state expressed that they have not moved away from the physical presence requirement for franchise tax.
The State and Local Tax (SALT) laws vary from state to state and are constantly changing. Reach out to Withum’s SALT Team for guidance on how to navigate your state’s local tax laws.