Tax Policy News

Coin-operated amusement machine owners and operators must file renewal applications for their 2022 General Business License, Registration Certificate, Import License or Repair License by Nov. 30, 2021. A $60 Occupation Tax Permit for each coin-operated amusement machine that is exhibited or displayed in Texas is also due by Nov. 30. An occupation tax permit decal must be affixed to each machine in use.

Under the Occupations Code Sec. 2153.154 and Sec. 2153.405, the Comptroller’s office cannot refund the license fee once a license is issued. The Comptroller’s office also cannot refund the occupation tax to an owner who ceases to exhibit or display a coin-operated machine before the end of the calendar year for which the tax is imposed.

Although owners and operators need to renew their licenses on or before Nov. 30, 2021, for 2022, they may minimize the upfront costs to their businesses by choosing not to purchase the occupation tax permits (decals) that allow them to exhibit or display the coin-operated machines. However, before the coin-operated machines can be exhibited or displayed, owners and operators must purchase decals at the appropriate rate found in Rule 3.602 (e)(2), Licenses and Certificates, Renewals and Due Dates, Occupation Tax Permits and Exemptions.

The Comptroller's office mailed renewal application packets in early October. Coin-operated amusement machine owners and operators who have not received renewal packets by Oct. 31 should contact our office at 512-463-3731.

While millions of motor vehicles are sold in the U.S. each year, some people choose to lease a vehicle from a lessor as an alternative to purchasing a new vehicle. In the first quarter of 2020, 30 percent of motor vehicles in the U.S. were leased.

There are various reasons an individual might choose to lease, rather than purchase, a new vehicle. For example, according to an article from statista.com (a global business data provider), depreciation is the largest portion of the average annual cost of owning a vehicle. When leasing a vehicle, however, this cost is absorbed by the lessor, rather than the lessee. Similarly, maintenance costs are also often absorbed by the lessor.

At the end of the lease agreement, some lessees elect to purchase the vehicle. This article helps Texas residents understand their motor vehicle tax responsibilities when purchasing a leased vehicle.

Motor Vehicle Leases

There are two types of lease agreements for motor vehicles in Texas: an operating lease agreement and a conditional sale (lease/purchase) agreement.

Operating Lease Agreement

An operating lease agreement is an agreement by an owner (i.e., lessor) to give exclusive use of a motor vehicle to a lessee for consideration for a specified period of more than 180 days.

"Consideration" is defined as the amount paid or to be paid for a motor vehicle, valued in money or anything of monetary value. See Texas Motor Vehicle Tax Rule 3.80 (a)(6), Motor Vehicles Transferred as a Gift or for No Consideration.

Under the terms of an operating lease agreement, a lessor remains the title owner of a motor vehicle and a lessee has no ownership rights. The lessee does not owe tax on its lease payments. The tax responsibility belongs to the lessor and is paid when the vehicle is titled in the lessor’s name.

Purchase of a Motor Vehicle Leased Under an Operating Lease Agreement

When a motor vehicle is purchased, tax is due from the purchaser since a new taxable sale has occurred. The tax is based on the sales price, or total consideration, paid for the motor vehicle. Standard presumptive value (SPV) procedures apply if the lessor is not a motor vehicle dealer.

Conditional Sale (Lease/Purchase) Agreement

In a conditional sale (lease/purchase) agreement, one taxable sale has occurred. The lessor retains title to the vehicle while payments are being made by the lessee. To be a conditional sale agreement, it must meet one of the following conditions:

• The lessor transfers the motor vehicle to a lessee under a "must purchase" clause;
• The lessor transfers the motor vehicle to a lessee under an "option to purchase" clause at nominal value; or
• The lessor transfers the motor vehicle to a lessee at nominal value.

Note: Residual value is not nominal value.

Purchase of a Motor Vehicle Under a Conditional Sale Agreement

If the contract terms do not firmly establish at the onset that the contract is a conditional sale (lease/purchaser) agreement, the lessor owes tax on the acquisition of the vehicle, and tax is due on the subsequent purchase by the lessee.

When a lessee takes title under a conditional sale agreement, the tax due from the lessee is based on the lessee’s total consideration, which includes the down payment, sum of payments and any additional payments made. Only separately stated interest may be excluded from the total consideration to determine tax due.

No additional motor vehicle tax is due at the time the purchaser takes title to the vehicle, provided the correct amount of tax was previously paid. The purchaser receives credit for the tax paid up front at the time the motor vehicle was initially titled in the lessor’s name if this person is the initial lessee/purchaser. SPV procedures may apply if the lessor is not a dealer.

We hope this article helped answer questions you may have regarding motor vehicle tax responsibilities for a Texas resident who purchases a leased vehicle.

More Information

• Texas Tax Code Chapter 152 – Taxes on Sale, Rental, and Use of Motor Vehicles
• Motor Vehicle Sales Tax Rule 3.70 – Motor Vehicle Leases and Sales
• Publication 96-254 - Motor Vehicle Tax Guide

When making a charitable donation, it is important to distinguish between a monetary donation and the purchase or sale of a taxable item to determine potential tax responsibility.

Donations to Charitable Organizations

A monetary donation is cash given voluntarily and without an exchange for anything. This type of donation is not subject to Texas sales and/or use tax.

An individual purchasing taxable items to be donated to qualifying exempt entities can give the seller a Texas Sales and Use Tax Exemption Certification (PDF) to make the purchase tax free. The purchased items must be donated directly to an exempt organization. Qualifying exempt organizations include religious, charitable and educational entities; nonprofits exempt under Internal Revenue Code Sections 501(c)(3), (4), (8), (10) or (19); federal government entities; and Texas state and local government entities.

The exemption certificate must be properly completed, including the purchaser’s name and the name of the exempt organization accepting the donation. If the item is used by the purchaser before being donated, the exemption is lost, and the purchaser owes tax on the purchase price of the item.

A seller can remove an item purchased for resale from a tax-free inventory to donate to qualified exempt organizations without having to accrue use tax on the item. The seller must maintain proper documentation of the donation, and the qualified exempt organization’s acceptance of the donation, in its books and records.

Donation vs. Sale

A sale or purchase is defined as a transfer of title to or possession of tangible personal property or the performance of a taxable service.

In determining whether a transaction is a taxable sale or purchase transaction, or if a sales or purchase transaction is a donation made to an exempt organization, there are two criteria to consider: whether the donation is mandatory; and, if so, whether the donation is commensurate with the value of the item received.

If the donation is both mandatory and commensurate with the value of the item, the transaction is a taxable sale or purchase and not a donation. In that case, sales tax is due on the transaction unless otherwise exempt.

For example, if an exempt organization made gift baskets and then sold them and the sales price was approximately the fair market value of the gift basket, the transaction would be regarded as a sale and sales tax would be due unless the exempt organization could claim another exemption (e.g., a one-day tax free sale.)

By contrast, if a children’s after school organization sold the children’s artwork as a fundraiser, the sales would be nontaxable if the sales price far exceeded the fair market value of the artwork.

More Information

• Section 151.005 – "Sale" or "Purchase"
• Section 151.310 – Religious, Educational, and Public Service Organizations
• State Tax Automated Research System (STAR) document 200908440L

If you provide social media content for clients, you know that a lot of services can go into creating just one social media post! From photographing new products, to creating blog posts and other supporting content, this article discusses the taxability of many services that are involved in social media management.

Written Content

Writing a blog post or other original content and posting or responding to comments on social media is not taxable. Proofreading and editing are also not taxable services.

Advertising

No tax is due for placing an advertisement on a web page, such as Facebook or Instagram. Nontaxable internet advertising includes classified ads, banner ads, text links, skyscraper ads and vertical banners.

Website Management and Data Processing

Creating a report from your customer’s data, such as an informational report on the location of your customer’s "followers," is a taxable data processing service. Designing, developing, and hosting a website are also data processing services and are taxable, as are maintaining and modifying website content.

Be aware that 20 percent of your total taxable data processing service charge is exempt from sales tax. Sales tax is due on the remaining 80 percent.

Finished Art and Photography

Tax is due on the total charge for creating finished graphic artwork in any format. Finished art includes logos, images, marketing material designs and website graphics.

Photographs are taxable when given to a customer as physical prints, digital images, or electronic images. All expenses directly related to the production and sale of photographs (including reimbursements and sitting fees) and billed to the customer are subject to tax.

Multiple Services

If you provide both taxable and nontaxable services, you need to collect tax only on taxable services if you separately state the charges and the nontaxable service is distinct and identifiable.

If you do not separate the taxable charges from any distinct, identifiable, and nontaxable charges when billing your customer, and the taxable service charge represents 5 percent or less of the overall contract price, you do not have to collect tax. If the taxable service charge represents more than 5 percent of the overall contract price, you must collect tax on the entire charge.

For example, your customer purchases a new logo design ($60) and the service of placing a vertical ad with this logo on Facebook ($40). Because the taxable portion is more than 5 percent of the charge, the tax treatment depends on how you bill your customer. The entire charge is taxable if your invoice shows $100 for logo design and internet advertisement.

If your invoice shows a $60 charge for logo design and a $40 charge for internet advertisement, then you will only charge tax on the $60 for the finished art.

More Information

• Rule 3.312 – Graphic Arts or Related Occupations; Miscellaneous Activities
• Rule 3.321 – Advertising Agencies
• Rule 3.330 – Data Processing Services
• State Tax Automated Research system documents 200304802L and 202003061L

The Comptroller’s office updated the following resources:

• Nonprofit Animal Welfare Organizations and Nonprofit Animal Shelters webpage
• Publication 96-122, Nonprofit and Exempt Organizations – Purchases and Sales
• Publication 96-211, Fairs, Festivals, Markets and Shows
• Publication 96-211s, Ferias, Festivales, Mercados y Espectáculos

The following new webpages are available online:

• Local Sales and Use Tax Rule Changes
• Cambios a La Regla Del Impuesto Local Sobre Ventas y Uso
• E-Cigarette Retailer Permit
• E-Cigarette Retailer Permit Frequently Asked Questions

The following rules became effective October 2021:

Sales Tax

Franchise Tax

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

The Monthly Updates Search Form defaults to the current month and "All Taxes." Use the pull-down menu to choose a different month or a particular tax. Selecting "All Taxes" brings up the documents organized by tax type.

The Taxes webpage has links to:

• All Texas taxes and fees.
• Resources for taxpayers.
• Filing and paying taxes.
• Tax laws and rules.

Our Account Update Tools make it easy for you to:

• Change your address.
• Add a location.
• Close a location.
• Change return/email notifications.

The Comptroller’s office offers video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

Our office also offers virtual Sales and Use Tax Seminars conducted via Webex Events. New taxpayers are especially encouraged to attend these overviews of tax responsibilities for buyers, sellers, and service providers. 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.

The Practitioners’ Corner is a one-stop resource for information about filing and paying taxes, links to tax research sources and searchable databases.

• Tax Due Dates
• Holiday Schedule