Texas ~ Sales and Use Tax: Nexus, Tax Holiday, Resale, and Penalty Changes Enacted

Texas Governor Rick Perry has signed an omnibus fiscal matters bill that includes changes to sales and use tax nexus, tax holiday, resale, prepayment, and penalty provisions. The franchise tax (TAXDAY 2011/07/21, S.41) and property and other tax (TAXDAY 2011/07/21, S.39) changes contained in the bill are discussed in separate stories.

Sales Tax Nexus

Effective January 1, 2012, the following retailers will be considered to be engaged in business in Texas for use tax collection purposes: (1) a retailer that holds a substantial ownership interest in, or is owned in whole or in substantial part by, a person who maintains a business location in Texas, provided certain conditions are met; and (2) a retailer that holds a substantial ownership interest in, or is owned in whole or in substantial part by, a person who maintains a distribution center, warehouse, or similar location in Texas and who delivers property sold by the retailer to consumers.

In addition, the definition of a “seller” or “retailer” is expanded to include a person who has been entrusted with the possession of property and has the power to sell, lease, or rent the property without further action by the owner.

Sales Tax Holiday

The sales tax holiday period for back-to-school purchases (qualified clothing, footwear, backpacks, and school supplies) will be changed. Currently, the tax holiday period begins at 12:01 a.m. on the third Friday in August each year. The bill has changed this to “the Friday before the eighth day preceding the earliest date on which any school district, other than a district operating a year-round system, may begin instruction for the school year as prescribed by Section 25.0811(a), Education Code.” The holiday period would end at 12 midnight on the following Sunday.

Resale Exemption on Federal Contracts

Effective October 1, 2011, the definition of “sale for resale” is amended to include a sale of tangible personal property to a purchaser who acquires the property for the purpose of transferring it as an integral part of performing a contract, or a subcontract of a contract, with the federal government only if the purchaser (1) allocates and bills to the contract the cost of the property as a direct or indirect cost; and (2) transfers title to the property to the federal government under the contract and applicable federal acquisition regulations.

A sale for resale does not include the sale of tangible personal property or a taxable service to a purchaser who acquires the property or service for the purpose of performing a service that is not taxed, regardless of whether title transfers to the service provider’s customer, unless the tangible personal property or taxable service is purchased for the purpose of reselling it to the United States in a contract or subcontract with any branch of the Department of Defense, Department of Homeland Security, Department of Energy, National Aeronautics and Space Administration, Central Intelligence Agency, National Security Agency, National Oceanic and Atmospheric Administration, or National Reconnaissance Office to the extent allocated and billed to the contract with the federal government.

Prepayment of Taxes in August 2013

In August 2013, a taxpayer who is required to pay sales and use taxes on or before the 20th day of that month, who pays the taxes by electronic funds transfer, and who does not prepay the taxes based on a reasonable estimate of tax liability under §151.424 must remit a tax prepayment that is equal to 25% of the amount the taxpayer is required to remit during August 2013. This prepayment is in addition to the amount the taxpayer is otherwise required to remit during August.

A taxpayer who remits the additional payment above may take a credit in the amount of the tax prepayment on the tax report due in September 2013. The special prepayment provisions will expire September 1, 2015.

Penalty for Failure to File Tax Report

A $50 penalty will be assessed against a person who fails to file a sales and use tax or hotel occupancy tax report as required by law, an owner of a motor vehicle subject to the tax on gross rental receipts who fails to file a tax report on time, and a seller of a motor vehicle sold in a seller-financed sale who fails to file a motor vehicle sales and use tax report on time. The penalty will be assessed without regard to whether the taxpayer subsequently files the report or whether any taxes were due for the reporting period.

The current $50 additional penalty imposed on a person who has failed to file a timely sales and use tax report on two or more previous occasions is repealed.

S.B. 1, Laws 2011, First Special Session, effective September 28, 2011, except as noted


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