Tax Policy News

This year the 87th Legislature passed House Bill 1445, which amends Texas Tax Code Section 151.0039 changing the definition of insurance services to exclude medical or dental billing services performed prior to the original submission of a medical or dental insurance claim. Although the bill is not effective until Jan. 1, 2022, the Comptroller’s office will immediately treat these services as excluded from the definition.

Therefore, effective immediately, medical or dental billing services that occur before an original insurance claim is submitted are excluded from the definition of insurance services and are not taxable services. For more information, see State Tax Automated Research (STAR) document 202106003L.

The Comptroller’s office has developed a new feature that will help provide sellers with more information about their tax responsibilities at the time of a sale.

Beginning June 30th, sellers will be 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
• a local jurisdiction tax rate file

The Comptroller’s office will update these files quarterly to account for new tax jurisdictions and rate changes within jurisdictions. The tax responsibility and rates will be valid for that quarter.

For more information, email the Tax Allocation Section at Taxalloc.RevAcct@cpa.texas.gov or visit the Sales Tax Rate Locator webpage.

Webfile is a secure, online tool for filing and paying taxes and fees. And now it's even better!

If you file and pay sales tax via Webfile, get ready for a streamlined experience! We've updated this tool with an easy-to-follow user interface, so you can

• navigate quickly to frequently used services
• update your accounts
• save and resume your filing progress

Webfile users (including franchise taxpayers) who have not accessed their profile since Feb. 1, 2021, will be required to set up three new security questions before they can use the enhanced Webfile system. Taxpayers will also be asked to add an optional mobile number to their profile. Adding a mobile number helps make password resets simple and secure.

If your profile is locked and you haven’t set up security questions in the new system, you will need to contact Taxpayer Services at 800-252-5555 or Electronic Reporting at 800-442-3453 for password assistance.

Don’t forget that beginning Oct. 1, 2021, local tax sourcing will have a few changes:

• Orders received by salespersons while working away from their office will be sourced to the location from where the salesperson works, provided that location meets the definition of a place of business.*
• Orders received by a shopping website or shopping application will be sourced to the customer’s location unless fulfilled by a place of business* of the seller.

We will provide additional updates soon.

*As defined in Rule 3.334 – Local Sales and Use Taxes.

Our office offers video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

The Comptroller's office offers Sales and Use Tax Seminars throughout the year. New taxpayers are especially encouraged to attend these overviews of tax responsibilities for buyers, sellers and service providers.

Currently we are offering virtual Taxpayer Seminars conducted via Webex Events. For more information, visit the Taxpayer Seminars webpage.

Visit our Tax Training Resources webpage to

• find out more about our training resources
• register for upcoming webinars
• view the Podcast and Webinar Archive sections for previous recordings

As temperatures rise in Texas, people enjoy venturing outside to work on their outdoor living spaces. You may be thinking of purchasing seasonal plants and gardening products. This article discusses the tax responsibilities for such items, including some reminders about what is taxable and what is not for items purchased for both the budding gardener and the gardening professional.

Generally, Texas Tax Code Section 151.316 (a)(5), Agricultural Items exempts seeds and annual plants that are

• food for humans;
• inventory for resale in the normal course of business; or
• feed for animals.

Annual Plants

An annual plant normally grows, flowers and dies in a year or season. Annual plants that produce food for humans are exempt from tax. An exemption certificate and Ag/Timber exemption number is not required.

Examples of annual plants that qualify for this exemption include

• tomatoes
• corn
• lettuce
• peas
• herbs that reseed each year. These include herbs that must be replaced because they cannot survive winter temperatures; dill; fennel; and a few others.

Perennial Plants

Perennial plants, which live for more than two years or produce in successive years, including plants that produce food for humans, are taxable.

Examples of perennial plants include

• blueberry
• raspberry
• blackberry
• strawberry
• grape vines
• nut and fruit trees, such as
  • pecan
  • walnut
  • peach
  • pear
  • apple
  • orange
• herbs, such as
  • rosemary
  • basil
  • sage
  • thyme
  • lavender
  • chives
  • mint

The produce harvested from perennial plants for human consumption is exempt.

Perennial plants qualify for exemption when the buyer is engaged in the business of

• selling the product of the plants in the regular course of business. The buyer may purchase the seeds or plants tax free by issuing their vendor a properly completed Form 01-924, Texas Agricultural Sales and Use Tax Exemption Certification (PDF) with an AG/Timber Number; or
• reselling the plants by issuing a properly completed Form 01-339 (front), Texas Sales and Use Tax Resale Certificate (PDF) to the supplier instead of paying the tax.

Seeds and Bulbs

Seeds for annual and perennial plants whose products are commonly recognized as food for humans or animals, or are usually only raised to be sold in the regular course of business, are exempt from Texas sales and use tax. See Tax Code Section 151.316 (a)(5). These include corn, oats, culinary herbs, soybeans and cotton seed.

An exemption certificate is not required to purchase these items tax free.

Grass seed is taxable. A farmer or rancher may, however, claim an exemption on grass seed that will be used to produce turf or grass for sale in the regular course of business; or to produce feed for farm or work animals, such as

• cattle
• horses
• mules

The farmer or rancher therefore must issue an agricultural exemption certificate or confirmation letter with an Ag/Timber Number to the seed supplier in order to claim the exemption.

Flower bulbs, flower seeds and seeds for non-edible plants are generally taxable. But, persons who grow and sell the agricultural products grown from these seeds in the regular course of business may claim an exemption from the tax by providing the seller with a properly completed agricultural exemption certificate complete with an Ag/Timber Number at the time of purchase.

For example, a garden center that grows and sells flowers may claim an exemption on the purchase of flower seed.

Trees

Trees, including fruit and nut trees, are taxable.

A commercial grower who sells the fruit or nuts produced by the trees in the regular course of business may claim the agricultural exemption when buying the trees by providing the seller with an agricultural exemption certificate or confirmation letter complete with an Ag/Timber Number in order to claim the exemption.

Similarly, a commercial timber producer may buy seedlings that are used in the production of timber for sale tax free by providing the seller with a timber exemption certificate or confirmation letter complete with an Ag/Timber Number at the time of purchase. Examples of trees commonly grown for commercial timber include hardwood or pine trees.

More Information

• Texas Tax Code Section 151.316 – Agricultural Items
• Sales Tax Rule 3.296 – Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer
• Agriculture and Timber Industries Frequently Asked Questions

In the third article in our series about exempt organizations, we will discuss the taxability of food sales made by religious groups, schools and other nonprofit groups. For previous articles, please see the April and May issues of Tax Policy News.

Many nonprofit organizations hold food sales throughout the year to support their exempt purpose and raise funds for their organization. Generally, these organizations do not have to register for a sales tax permit if they only sell exempt items, or only conduct their sales during tax-free fundraisers. An exempt organization can purchase food items tax free for the fundraiser by issuing to its vendors Form 01-339 (back), Texas Sales and Use Tax Exemption Certificate (PDF).

Churches and Religious Groups

Exempt organizations do not have to collect sales tax on meals and food products, including candy and soft drinks, if the items are sold by churches or at church functions conducted under the authority of a church. Although such food items are normally taxable, a qualified religious organization that has been granted exempt status by the Comptroller’s office does not collect sales tax. For example, based on this exemption, if a group of church volunteers operate a café in the parish hall and sell prepared breakfast and lunch food items during service times, the food sales are not taxable.

Youth Athletics

Youth sports organizations engaged exclusively in providing athletic competition among persons under 19 years of age can make nontaxable food sales as part of a fundraising drive sponsored by the organization for its exclusive use. Food sales made at a concession stand during a youth athletic event qualify, as long as all proceeds raised go to the organization. Youth athletic organizations include groups such as peewee sports clubs, but do not include adult athletic groups such as intramural sports leagues or teams.

Schools

Sales of meals and food products (including candy and soft drinks) are nontaxable when sold by a public or private elementary or secondary school, school district, student group, parent-teacher association, booster club, or other school support organization. The exemption applies to food sales made during the school day and by agreement with proper school authorities, and includes food and beverages sold through school vending machines. Under this exemption, a bona fide student group such as a varsity football club can sell food items tax free during the school day.

Food sales by PTOs/PTAs, booster clubs or other school organizations conducted outside of the school day are exempt from sales tax if the sales are part of an organization’s fundraising drive and all proceeds go to the group for its exclusive use. An exempt school organization can purchase food items tax free for the fundraiser by issuing to its vendors a fully completed exemption certificate Form 01-339 (back), Texas Sales and Use Tax Exemption Certificate (PDF).

Food sales by a booster club or other school organization during a school-sanctioned or school-sponsored event are also exempt from sales tax. For example, a band booster club is selling snacks and drinks at a concession booth during a school football game. All proceeds will be used to purchase new uniforms for the marching band. In this case, the food sales are exempt from tax.

Banquets

Any volunteer nonprofit organization (church, youth athletic group, or school) can hold a tax-free food sale (including an annual banquet) as long as the fundraiser

• is not professionally catered;
• is not held in a restaurant, hotel or similar place of business;
• is not in competition with a seller required to collect tax; and
• involves only members of the organization in the preparation, serving, and selling of the food.

If the organization sells non-food items during the banquet (t-shirts, stickers, etc.) or alcoholic beverages, the exemption does not apply to these items and sales tax must be collected and remitted to the Comptroller’s office, unless the sale qualified as the organization’s two one-day, tax-free sale.

More Information

• Sales Tax Rule 3.293, Food; Food Products; Meals; Food Service
• Sales Tax Rule 3.322, Exempt Organizations
• Sales Tax Publication 94-183, School Fundraisers
• Sales Tax Publication 96-122, Nonprofit and Exempt Organizations – Purchases and Sales

Pest Control Services help to remove unwanted creatures, such as roaches, rats, ants, bedbugs, and termites, from certain structures and surrounding areas. These services typically require inspecting these structures and areas for signs of pests, determining the necessary treatment, and estimating the cost of services for customers.

Structural Pest Control Services

As long as a pest control business provides structural pest control services, it is required to have a sales tax permit. Structural pest control services are taxable real property services.

Structural pest control services include activities performed for the purpose of identifying, preventing, controlling, or eliminating, by use of chemical or mechanical means, infestation of any of the following:

• insects, spiders, mites, ticks, ants, bees, and other related pests; wood-infesting organisms; rodents; weeds; nuisance birds; or any other obnoxious or undesirable animals which may infest households, railroad cars, ships, docks, trucks, airplanes or other structures or their contents; and
• pests or diseases of trees, shrubs or other plantings in a park or adjacent to a residence, business establishment, industrial plant, institutional building, or street.

The term "structural pest control services" includes related activities, such as inspection or evaluation concerning the nature or extent of an infestation; reports; or performance of services to control pest or insect infestation.

Nontaxable Pest Control Services

Although structural pest control services are taxable, there are some services that are considered nontaxable:

• the removal of aquatic pests such as duckweed from lakes
• pest control services performed on timberland or for agricultural purposes
• the use of a raptor to control or relocate birds
• physical removal of pests or their habitat while cleaning a chimney
• use of a live trap to remove animals from residences, businesses and agricultural operations
• installing and maintaining a non-pesticidal barrier to remove or prevent infestation of nuisance animals

Nontaxable Pest Control Services for Developers, Builders and Contractors

Structural pest control services are also nontaxable if purchased by a developer, builder, contractor or other person acting as a builder as part of a contract to build a new residential structure or other structure improvement immediately adjacent to the new residence and used in the residential occupancy of the structure. This exclusion from tax also applies to pest control services purchased in connection with the construction of model or speculative homes that will be sold as residences.

A person who provides structural pest control services for a developer, builder, contractor or other person acting as a builder to improve real property is responsible for collecting tax on the service until certification is obtained from the developer, builder, contractor or other person acting as a builder to improve real property.

The certification must state the service is part of a contract to build a new residential structure. If it is later determined that the services do not qualify as nontaxable, the person who issued the improper certification will be held liable for the tax due.

Purchasing Materials

Sales and use tax are due on most materials, supplies and equipment used to perform a taxable pest control service. However, with an active sales tax permit, a purchaser may give a resale certificate (PDF) to their supplier instead of paying tax when buying the chemicals used to perform the service. These two rules apply even when the service is provided to a tax-exempt organization or political subdivision.

Tax Treatment

Using bee removal as an example, the following helps explain the tax treatment for Pest Control Services:

• If bees are removed from under eaves, porch, attic, etc., sales tax should be collected on the charge.
• If bees are removed from a ranch or farm field or pasture, sales tax is not due.
• If bees are removed from a yard, and there is no removal of a pest or disease from trees, then it is not a structural pest control service even if it is adjacent to a structure. Therefore, no tax is due.
• If bees are removed through the use of a live trap not involving pesticides from residences, commercial, or agricultural operations, sales tax is not due.

A sales tax permit would not be required unless providing structural pest control services.

More Information

• Sales Tax Rule 3.356 – Real Property Service
• Publication 94-114, Pest Control Services (PDF) and
• State Tax Automated Research (STAR) document 200009728L.

To see the latest items added to our State Tax Automated Research (STAR) system, use the New Documents link on the STAR home page.

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