Sales Tax Exemptions
Download: Sales
Tax Exemption Certificate [PDF - 83KB] |
IMPORTANT: The information below refers only to Texas sales tax exemptions as applicable to computer and video game companies. For Texas sales tax exemptions applicable to filmmakers, visit the Filmmaking Sales Tax Exemption information on our Web site. For general Texas tax information, visit the Texas Comptroller's Web site or call them at (800) 252-5555. |
This summary is intended as an informal educational tool. It is not a complete text of the law covering sales tax exemptions for computer and video game companies, nor is it written in the exact language of the law. These exemptions are covered in the Texas Tax Code, Section 151.318, and the Comptroller of Public Accounts Administrative Code Rule 3.300. Under Texas law, computer and video game developers are recognized as software manufacturers. As a developer, you may claim sales tax exemptions on many of the items and services used in the manufacturing of your final product (i.e., a gold master). Exemptions apply to the entire amount of state sales tax (6.25 percent) and local sales taxes (usually 0.25-2.0 percent). You may claim exemptions on qualified purchases; rentals or leases of qualifying equipment and machinery, provided that the rent/lease is for at least a one-year term; and qualified services performed during development. Eligible software includes computer games, console games, online games, mobile games or other software for which the company will be compensated and that is intended for commercial publication (even if publication is very limited, as in the case of serious games for training purposes). Student games and games not intended for publication (such as those made by hobbyists) are not eligible for these exemptions. Still photography done for research purposes is not included in these exemptions, unless the still photograph is directly incorporated into the software (i.e., used in game cinematics). Location stills, texture and character references, casting photos and other still photographs are not exempt. To qualify for an exemption, an item or service must be necessary and essential to the making of the gold master, and it must be used directly and exclusively in development. Items used indirectly in production (such as office supplies, accounting software, and soft drinks) are not exempt. Items are tax-exempt only if they are used exclusively in production and not retained for other use. Similar exemptions are also available to producers of live action and animated motion pictures. Please visit the Film/TV-related Sales Tax Exemption information on our Web site for more information. "Use tax," at the same rates as sales tax, is due on items purchased outside the state and used in Texas, but the State of Texas may allow credit for any sales or use tax that has been paid in another state. Items exempt from Texas sales tax are also exempt from Texas use tax. Examples of Qualifying Items and Services Services: motion capture; sound mixing; Foley services; repairs to qualifying machinery, equipment or supplies. (Also see "Exceptions," below). Note: Server equipment can be sales tax exempt as long as it is solely used for game development. General office use, i.e., emails and Word documents, are not considered directly related to development, and cannot be stored on the same exempt equipment. Examples of Non-Qualifying (i.e., Taxable) Items and Services Services: catering; landscape maintenance. Duplication of a gold master is taxable unless the copies are being made for resale. For information on resale tax exemptions, contact the Comptroller of Public Accounts, (800) 252-5555. Exceptions How To Claim Sales Tax Exemptions You may make copies of the form as needed, and it is also available on our Web site. Incomplete forms are invalid, so be sure to fill out each section. In the section marked "Purchaser claims this exemption for the following reason," an appropriate entry would be, "These items are to be used directly in the development of [name of project], [a computer game/video game, etc.] for sale." If the project has not yet been named, you may call it "Untitled". Provide a completed certificate to each vendor from which you are buying or renting qualifying goods or services. Even on exempt purchases, the vendor may include sales tax on your invoice; just deduct the sales tax from the total, pay the balance and include a completed certificate with your payment. Most vendors, especially those that regularly deal with software manufacturers, will accept the certificates in lieu of sales taxes, but they're not required to do so. If the vendor refuses the certificate, your choices are to use another vendor, or to pay the tax and get it refunded afterward. Refunds on Taxes Already Paid The vendor may refund the tax to you on the spot and claim a credit on their next sales tax return. In that case, you're done; no further action is needed. But the vendor may also choose to assign their right to refund to you. In that case, and assuming the exemption is valid, your refund will be mailed from the Comptroller. To start the process of obtaining a refund from the Comptroller, the
vendor should fill out the Assignment of Right to Refund form and give
it to you. Assemble the completed Assignment of Right to Refund form;
photocopies of each receipt for which you're requesting a refund, showing
the amount of tax paid; and a cover letter, which must include the following:
It's wise to include details on the use of items that might not be immediately understood to be "necessary or essential" to production. By answering questions before they're asked, you're giving the Comptroller every reason to quickly approve your request. Your refund request to the Comptroller must be made within four years from the date on which the tax that you paid was due to the State; that's usually the 20th day of the month following the month in which the item was purchased. After four years, refunds are not available. Send the assignment form, letter and receipts to: |
OTHER TAX EXEMPTIONS / REFUNDSState Income Tax and Franchise Tax Selling Items |
ADDITIONAL SALES TAX INFORMATION CONTACTSFor more information on Texas' sales tax exemptions for computer and video games, please contact: Katy Daiger or David Somerville |