The State Tax Automated Research (STAR) system has recently been updated to allow for a reverse topical index search.

This new feature is found on the "Topical Index Query" webpage below the "Topical Index - Open Records" search form and allows you to enter an accession number in the search field to see the topical index headings that are appended to the document. The index heading shows a current column and a superseded column. If the document you are researching is a superseded document and it does not have a summary to explain why the document was superseded, the index heading will at least give you an idea as to what information in the document no longer reflects current agency policy.

Also, if you are doing a word search on STAR through the "Simple" or "Advanced" Query options and you find a document that matches or nearly matches your search criteria, you can enter that accession number in the reverse topical index search field to see if the topical index heading appended to that document contains other documents that are helpful.

Please keep in mind that the database comprising STAR has been in existence for nearly 40 years and now contains nearly 30,000 documents, some of which do not have assigned index headings, so you will not find an index heading for every accession number.

We hope you find this new STAR feature helpful. If you have any questions or comments, please write us at star.taxhelp@cpa.state.tx.us

Since October 1, 2001, fireworks retailers have been collecting a 2 percent fireworks tax. The fireworks tax is in addition to existing sales taxes and is not affected by the 2 percent cap on local sales and use taxes.

The tax only applies to the small fireworks in the U.S. Department of Transportation's 1.4G category that may legally be sold to the general public each year in Texas from June 24 to July 4 and from December 20 to January 1. This category includes such items as firecrackers, rockets, roman candles, and fountains.

Each fireworks seller must have a Texas sales tax permit and must also hold a permit issued by the Texas Department of Insurance, which regulates fireworks sales by manufacturers, distributors, jobbers, and retailers.

Fireworks tax is reported and paid separately from sales tax. Sellers should file or postmark their fireworks tax reports on or before February 20th and August 20th each year. Additionally, fireworks sellers must collect and report Texas state and applicable local sales tax on fireworks sales.

Distributors who make consignment sales of fireworks are considered the retailers of those fireworks for both sales tax and fireworks tax purposes, and thus must collect and remit fireworks tax and sales tax on all Texas sales made by their consignees. (Consignment sales are when the consignee pays the distributor only for items sold and return those left unsold.)

Retailers, distributors, manufacturers, and jobbers must collect sales tax and fireworks tax on each sale of fireworks unless the purchaser provides a valid exemption certificate. Exempt entities include organizations qualifying under Section 501(c) (3), (4), (8), (10), or (19), of the Internal Revenue Code. Exemption certificates do not require tax exemption numbers.

For additional information please refer to the Comptroller's bulletin entitled 94-162, Fireworks, and Comptroller Rule 3.1281.

The taxpayer paid tax on gasoline and diesel fuel that was sold to the federal government tax free, even though it did not hold Texas gasoline and diesel fuel distributor licenses authorizing it to make such exempt sales.

The taxpayer filed a refund claim for the tax paid on the motor fuel. The claim was denied, and the taxpayer timely filed a request for hearing.

The taxpayer applied for and received licenses that became effective after the periods in which the fuel in question was sold. The taxpayer argued that because it now holds the proper licenses, it should be able to file returns for periods when it was not licensed and take credit for exempt sales.

Tax Code sections 162.125 and 162.227 allow only a licensed distributor or a licensed supplier to take a credit for tax paid on gasoline and diesel fuel resold to the United States government. And the distributor or supplier must take the credit on its monthly returns for the periods in which the exempt sales were made.

The Administrative Law Judge found that since the taxpayer was not licensed as a distributor at the time the sales were made to the federal government, the taxpayer has no statutory right to a refund of the tax paid on fuel purchased for resale, and that the taxpayer was not eligible to take a credit.

The taxpayer in Hearing No. 38,836 operated a microbrewery. The previous owner had a sales tax permit and, at the time, was advised by an official with the Texas Alcoholic Beverage Commission to collect sales tax on brewed beer sales. Later, the previous owner received a mixed beverage permit. Unaware that a mixed beverage permit would make all alcohol sales subject to the 14 percent mixed beverage gross receipts tax, the previous owner continued to report sales tax on beer sales. The taxpayer, after purchasing the microbrewery, did the same.

In Hearing No. 45,922, the taxpayer also operated a business that had a sales tax permit, and later a mixed beverage permit. Like the owner of the microbrewery, the taxpayer reported sales tax on beer sales after receiving the mixed beverage permit.

The Administrative Law Judges in both hearings denied the taxpayers' claim that employees of the Comptroller's office should have informed them that the change in type of permit changed the tax rate. The judge in Hearing No. 38,836 explained that, "(p)etitioner has an obligation to be aware of the law that applies to its situation." The judge in Hearing No. 45,922 pointed out that, although the Comptroller attempts to inform taxpayers of the law, "there is no duty to inform others of the law because all persons are presumed to know the law."

"Independently procured insurance" refers to insurance coverage purchased outside of Texas from a company not authorized or licensed to sell insurance in the state if all negotiations for the policy have occurred outside Texas. Premium tax on independently procured insurance should be reported and paid using Form 25-103, due on May 15 each year for policies effective in the prior calendar year.

The Texas Insurance Code Section 101.051 lists the activities that constitute the business of insurance. If such activities occur and tax is not paid on the independently procured coverage, the policy becomes "unauthorized insurance." Timely payment of the independently procured tax provides a "safe harbor" from the unauthorized insurance tax and penalties. The insured, the agent, and the insurer of unauthorized insurance are subject to a 4.85 percent tax and regulatory penalties by the Texas Department of Insurance.

To avoid the assessment of unauthorized insurance tax, many policyholders elect to report and pay the independently procured insurance tax or out-of-state insurers may require policyholders to provide proof of tax payment. Comptroller publication 98-376, which discusses both the independently procured insurance tax and the unauthorized insurance tax, is available online at http://www.window.state.tx.us/taxinfo/taxpubs/tx98_376.html.

Since 1991, it has been my pleasure and privilege to share with you each month some of the most recent administrative hearings, tax-related legislation and taxability rulings. The June 2006 issue (the first no-Adina issue) will summarize the margins tax and the new way to compute and pay tax on used vehicles. Enjoy and thanks for the memories--Adina