in this issue...
SALES TAX: HEARING NO. 44,143
Strict Constructionist
Issue: Whether a "tax-included" contract can shift sales tax liability to the contractor
Source Document: 200407830H
The taxpayer, a resort condominium association, entered into a lump-sum contract for repair and remodeling of its property. A Comptroller audit later assessed the taxpayer for sales tax relating to the work. The taxpayer contested the assessment, contending that the terms of the contract shifted the tax liability to the contractor, who was to pay sales and other similar taxes in effect when the negotiations concluded or bids were received.
Under Texas Tax Code Section 151.052, "a seller who makes a sale subject to the sales tax … shall add the amount of the tax to the sales price." Rule 3.286(d)(3) further provides that the sales tax must be invoiced as a separate item, or there must be a written statement to the customer that the stated price includes tax.
A prior administrative hearing decision (STAR document 9704383H) addressed similar contract language where the "contractor shall pay all sales, consumer, use, and other similar taxes for the work provided by the contractor, which are legally enacted at the time the bids are received." This decision held that the contract did not shift liability to the contractor because it did not contain a written statement that the amount paid included tax, and no other evidence was submitted to indicate that the requirement of the rule had been satisfied.
Finding the contract language in the prior decision "strikingly similar" to the contract in issue, the Administrative Law Judge denied the taxpayer's claim.
SALES TAX: HEARING NO. 43,799
As Ye Collect, So Shall Ye Remit
Issue: Whether a taxpayer collected miscellaneous material charges or sales taxes
Source Document: 200405680H
The taxpayer, a motor vehicle repair shop, paid sales tax to its vendors when buying parts and materials and did not have a Texas sales and use tax permit. The taxpayer invoiced customers a lump sum for materials and labor as well as an additional 8.25 percent, the sum of the state and local sales tax rates. The invoice labeled the additional charge "Sales Tax" but the taxpayer did not remit any sales tax to the Comptroller's office.
A Comptroller audit found the invoiced tax amounts to be sales tax collected but not reported or remitted. The taxpayer contested the assessment, claiming that a posted sign on its premises advised customers that the 8.25 percent was a miscellaneous material charge, not sales tax. During both the audit and the hearing process, the taxpayer was given the opportunity to refund the scheduled amounts to customers but declined. Taxes refunded to customers would have been credited against the assessed taxes, interest and penalties.
Charges for the repair or maintenance of a motor vehicle are not taxable. (See Tax Code Section 151.0101(a)(5)(C).) A repair shop that charges customers a lump sum for materials and labor is considered the consumer and thus must pay tax when buying all supplies, tools, parts and materials used. (See Section 151.060(b) and Rule 3.290(g)(1)-(2).) The shop may not collect tax from customers on any portion of the lump-sum charge.
The Administrative Law Judge denied the taxpayer's claim and confirmed the assessment. Under Texas Tax Code Section 111.016(a), any person who receives or collects a tax, or any money represented to be a tax, holds the amount in trust for the state. Because the taxpayer's invoices represented the amounts as sales tax, Section 111.016(a) applied despite any sign on the premises declaring otherwise.
FRANCHISE TAX: FYI
Before the End of the Year
Issue: You must file appropriate documentation by December 31, 2004 if you want to avoid
franchise tax liability for 2005
Texas corporations and limited liability companies (LLCs) that have not dissolved, merged or converted on or before December 31, 2004, will be liable for the 2005 annual franchise tax report. Non-Texas corporations are liable for franchise tax through the last date of business in Texas.
A corporation or LLC must be current with all tax filing requirements before it can dissolve, merge, convert or withdraw. To verify all tax requirements have been met, the Comptroller's office will issue, upon request, a Certificate of Account Status to the taxpayer to file with the Secretary of State. To obtain a Certificate of Account Status submit Form 05-359, Request for Certificate of Account Status. This may be done by mail or by visiting one of our field offices.
Additionally, the Secretary of State now offers filing of dissolutions through the SOS Direct System online at http://www.sos.state.tx.us/corp/sosda/index.shtml. To assist you in filing electronically, you can also request the Certificate of Account Status in .pdf format. Please note that Certificates of Account Status from the Comptroller's Web site are NOT suitable for filing with the Secretary of State.
The Secretary of State must receive all appropriate fees and properly executed documents by 5 p.m. on December 31, 2004, for a Texas corporation or LLC to avoid responsibility for the 2005 annual franchise tax report.
See Publications 98-336D, Requirements to Dissolve, Merge or Convert a Texas Entity, and 98-336F, Requirements to Withdraw or Terminate a Certificate of Authority to Transact Business in Texas, for specific filing requirements.
FRANCHISE TAX: FYI
SIA Designations for Calendar 2005
Issue: Counties and areas eligible for full-purpose and limited-purpose SIA designation
Many Texas counties and sub-county areas qualify as Strategic Investment Areas (SIAs) for calendar year 2005. SIAs are counties and sub-county areas where taxpayers can earn franchise tax credits through job creation, investment and research. The 2005 SIA determination is effective for business activity in calendar year 2005. For more information about the economic development credits, see Franchise Tax Rule 3.578.
Full-Purpose SIAs
Seventy-two counties qualify for full-purpose SIA designation based on their relative unemployment rate and per capita income. Corporations engaged in agricultural processing, manufacturing, warehousing, distribution, data processing, central administrative offices or research and development can establish eligibility for job creation and investment credits. Corporations with qualified research expenditures in a full-purpose SIA are eligible for a research-credit bonus.
The 72 counties eligible for the full-purpose SIA designation are:
| Aransas | Bee | Brazoria | Brooks | Caldwell |
| Calhoun | Cameron | Camp | Cass | Cochran |
| Coleman | Crane | Crosby | Culberson | Dimmit |
| Duval | Ector | El Paso | Ellis | Fannin |
| Floyd | Foard | Frio | Grayson | Gregg |
| Grimes | Hardeman | Hardin | Hidalgo | Hill |
| Hudspeth | Hunt | Hutchinson | Jasper | Jefferson |
| Jim Wells | Kaufman | Kinney | Lamar | Leon |
| Liberty | Marion | Matagorda | Maverick | Milam |
| Morris | Navarro | Newton | Orange | Panola |
| Polk | Presidio | Red River | Reeves | Sabine |
| San Patricio | Shelby | Somervell | Starr | Stephens |
| Terry | Tyler | Uvalde | Val Verde | Waller |
| Ward | Webb | Wharton | Willacy | Winkler |
| Zapata | Zavala | | | |
Limited-Purpose SIAs
Based on their population, another 141counties qualify only for the limited-purpose SIA designation. Corporations engaged in agricultural processing in these counties can apply for the job creation and investment credits.
The 141 counties eligible for the limited-purpose SIA designation are:
| Andrews | Archer | Armstrong | Atascosa | Austin | Bailey |
| Bandera | Baylor | Blanco | Borden | Bosque | Brewster |
| Briscoe | Brown | Burleson | Burnet | Callahan | Carson |
| Castro | Chambers | Cherokee | Childress | Clay | Coke |
| Collingsworth | Colorado | Comanche | Concho | Cooke | Cottle |
| Crockett | Dallam | Dawson | Deaf Smith | Delta | DeWitt |
| Dickens | Donley | Eastland | Edwards | Erath | Falls |
| Fayette | Fisher | Franklin | Freestone | Gaines | Garza |
| Gillespie | Glasscock | Goliad | Gonzales | Gray | Hale |
| Hall | Hamilton | Hansford | Hartley | Haskell | Hemphill |
| Hockley | Hood | Hopkins | Houston | Howard | Irion |
| Jack | Jackson | Jeff Davis | Jim Hogg | Jones | Karnes |
| Kendall | Kenedy | Kent | Kerr | Kimble | King |
| Kleberg | Knox | La Salle | Lamb | Lampasas | Lavaca |
| Lee | Limestone | Lipscomb | Live Oak | Llano | Loving |
| Lynn | Madison | Martin | Mason | McCulloch | McMullen |
| Medina | Menard | Mills | Mitchell | Montague | Moore |
| Motley | Nolan | Ochiltree | Oldham | Palo Pinto | Parmer |
| Pecos | Rains | Reagan | Real | Refugio | Roberts |
| Robertson | Runnels | Rusk | San Augustine | San Jacinto | San Saba |
| Schleicher | Scurry | Shackelford | Sherman | Sterling | Stonewall |
| Sutton | Swisher | Terrell | Throckmorton | Titus | Trinity |
| Upshur | Upton | Washington | Wheeler | Wilbarger | Wilson |
| Wood | Yoakum | Young | | | |
Sub-County Zones
Dallas, Harris, Bexar, McLennan and El Paso counties qualify as sub-county zones. These counties meet the criteria to qualify for the full-purpose SIA designation based on their selections as federal urban enterprise communities.
Based on El Paso County's unemployment and per capita income, the entire county is included in the SIA. Dallas, Harris, Bexar and McLennan counties are included in the SIA only to the extent of the sub-county zone boundaries.
Since January 1, 2002, areas designated as Defense Economic Readjustment Zones qualify for full-purpose SIA treatment. The four Defense Economic Readjustment Zones are located in Bee, Bexar, Lubbock and McLennan counties.
Bee County is also included in the SIA based on its unemployment and per capita income, qualifying the entire county as a SIA. Lubbock, McLennan and Bexar counties are included only to the extent of the sub-county zone boundaries.
The nine sub-county zones eligible for the full-purpose SIA are:
| Area Name | County |
| Dallas Urban Enterprise Community | Dallas |
| El Paso Urban Enterprise Community | El Paso |
| Houston Urban Supplemental Enterprise Community | Harris |
| San Antonio Urban Enterprise Community | Bexar |
| Waco Urban Enterprise Community | McLennan |
| Chase Field Defense Economic Readjustment Zone | Bee |
| Reese Center Defense Economic Readjustment Zone | Lubbock |
| McGregor Defense Economic Readjustment Zone | McLennan |
| San Antonio Defense Economic Readjustment Zone | Bexar |
To find out whether a particular business is located within one of the federal urban enterprise communities listed in the chart above, visit http://hud.esri.com/egis/cpd/rcezec/ezec_open.htm.
MOTOR FUELS TAX: FYI
Deadline for Filing Diesel Tax Refund Claims Is Almost Here
The Comptroller's office would like to remind you of changes in the law affecting your ability to claim a motor fuels tax refund.
PTO and auxiliary power units
Since January 1, 2004, tax paid on diesel fuel used in power take-off (PTO) units or auxiliary power units is no longer eligible for refund.
Under the new law, tax paid on diesel fuel that was used in a PTO or auxiliary power unit before January 1, 2004, is eligible for refund, but the claim must be postmarked within one year of the date of use. The law prohibits the Comptroller from approving refund claims postmarked after December 31, 2004.
Off-highway use
Since January 1, 2004, all purchases of undyed (clear) diesel fuel must include payment of state motor fuel tax. The only exceptions are purchases by the federal government, a Texas public school district, a company that provides transportation for a Texas public school district or a non-profit electric or telephone cooperative organized under the Texas Utilities Code when the diesel fuel is purchased from a license holder.
For diesel fuel used for exempt purposes before January 1, 2004, taxpayers have one year from the date of use to claim a refund. For fuel used on or after January 1, 2004, taxpayers must file refund claims by December 31, 2004. The law prohibits the Comptroller from approving refund claims postmarked after December 31, 2004.
Beginning January 1, 2005, tax on diesel fuel used in off-highway equipment, stationary engines and for other non-highway applications will no longer be eligible for refund. The only exceptions are purchases by the federal government, a Texas public school district or a non-profit electric or telephone cooperative organized under the Texas Utilities Code.
Kerosene
Since January 1, 2004, only dyed kerosene can be purchased tax-free for heating, cooking, lighting and similar non-highway uses.
Taxpayers have one year from the date of use to claim a refund of tax paid on kerosene that was used before January 1, 2004. All claims for refunds of tax paid on kerosene must be filed by December 31, 2004. The law prohibits the Comptroller from approving refund claims postmarked after December 31, 2004.
MOTOR FUELS TAX: FYI
Important Reminder of Changes in the Law
Issue: Reduced Tax Rates for Metropolitan Transit Systems
Under laws passed by the Texas Legislature, the reduced motor fuels tax rate for transit companies will be available as a refund only.
The provisions, which became effective January 1, 2004, require transit companies to pay the full motor fuels tax to their suppliers or distributors when buying gasoline and diesel fuel. A transit company may then request a refund from the state for tax paid on fuel used in qualified transit vehicles. Allowable refunds are one cent per gallon for gasoline and one-half cent per gallon for diesel fuel.
The transit company has one year from the date of use to file a refund claim and must keep a distribution log that shows the gallons of fuel removed from its storage and used in qualified vehicles.
INSURANCE TAX: FYI
Insurance Tax - Risk Retention Groups
Risk retention groups are liability insurance companies owned by their policyholders. The groups spread liability exposure among group members and provide an alternative method for financing risk liability. Membership in a group is limited to individuals or entities engaged in related businesses with similar exposures to risk.
Risk retention groups must be chartered and licensed as liability insurance companies and, at a minimum, licensed to engage in the business of insurance in their home state. A group can be registered to do business in other states.
The Federal Liability Risk Retention Act provides regulatory guidelines for risk retention groups. A group is exempt from state laws, rules or regulations except for those of its home state. Any state can require the groups to pay premium taxes, maintenance taxes and other fees levied on admitted insurers.
Risk retention groups doing business in Texas are regulated under Article 21.54, Insurance Code. The statute requires groups chartered in Texas to comply with all of the laws, rules, regulations and requirements applicable to all other domestic insurers, including payment of premium and maintenance taxes.
Article 21.54, section 4(f) requires risk retention groups not chartered in this state to pay premium and maintenance taxes and any applicable fines and penalties on the same basis as a foreign admitted insurer.
