Recent changes in Texas sales tax laws

New legislation in Texas has triggered several sales and use tax changes in the Lone Star State.

For the gross receipts tax on utilities, as of May 23, 2017, Senate Bill 559 instructs utility companies to base the rate on the location of the customer, not the utility company itself.

House Bill 4042 amends rules regarding the sale at auction of alcoholic beverages by certain alcoholic beverage permit holders. It allows the holder of a temporary auction permit (no longer merely a temporary charitable auction permit) to conduct an auction at the premises of another permit or license holder under certain conditions.

It also allows the holder of a temporary auction permit to conduct more than one auction per calendar year, and prohibits the Texas Alcoholic Beverage Commission (TABC) from imposing a surcharge for a temporary auction permit.

Finally, the measure allows the TABC to issue a temporary auction permit to “a person or group of persons who are subject to recordkeeping requirements under Chapter 254, Election Code.” Previously, temporary auction permits were only issued to organizations exempt under Section 501(a) of the Internal Revenue Code.

HB 4042 took effect Sept. 1, 2017.

Prior to Sept. 1, 2017, there was a good deal of confusion surrounding the taxability of baked goods sold at bakeries in Texas. “Food sold in a heated state or heated by the seller” was taxable, as was “two or more food ingredients mixed or combined by the seller for sale as a single item.” However, “bakery items sold without plates or other eating utensils” were exempt. Clear as mud pie.

Now, however, “If it’s bought at a bakery, it’s tax exempt.” House Bill 4054 exempts “bakery items sold at a bakery,” whether they’re heated or chilled, served in a bag, or presented on a plate with a fork. Bakery is defined as a retail location selling bakery items from a display case or counter, predominantly for eating off site.

HB 4054 also exempts bakery items sold by other retailers, provided they don’t provide plates or other eating utensils, and don’t heat the baked goods.

Thanks to House Bill 3101, alcohol can now be sold — and sold tax free — on a passenger bus in possession of a passenger bus beverage permit.

Prior to the enactment of the bill, alcohol could only be sold on properly permitted planes and trains. Now, according to Alex Danza (founder and president of a premium bus service servicing major metropolitan areas in Texas), there is a “level playing field with airline carriers and roadways.” He says he’s delighted to be able “to serve our passengers a cold beer or glass of wine after a long day.”

The change took effect May 29, 2017.

Senate Bill 1083 broadens the list of exempt services to include insurance services:

• Performed by a certified public accountancy (CPA) firm, provided less than 1 percent of the firm’s total revenue in the previous calendar year is from insurance services provided in Texas
• Performed on behalf of a CPA firm by an owner of the firm or a member of an affiliated group, provided less than 1 percent of the owner’s or member’s total revenue from the previous calendar year is from insurance services provided in Texas.

This change takes effect Jan. 1, 2018.

Temporary employment is rampant in these “gig economy” times, so it isn’t surprising that Texas has clarified how tax applies to temp services.

As of Sept. 1, Senate Bill 745 exempts a service performed by an employee of a temporary employment service for a host employer temporarily supplementing its existing work force if:

• The service is normally provided by a regular employee
• The host employer provides all supplies and equipment necessary to perform the services (other than personal protective equipment provided by the temp agency pursuant to federal law or regulation)
• The host employer doesn’t rent, lease, purchase, or otherwise acquire for use any supplies and equipment from the temp agency or an affiliated entity (other than personal protective equipment as prescribed by federal law or regulation)
• The host employer has the sole right to supervise, direct, and control the work performed by the temporary employee

Texas has very specific rules governing which, if any, organizations can purchase vehicles without tax. Effective Sept. 1, 2017, House Bill 897 broadens the list of agencies entitled to this exemption to include open-enrollment charter schools, so long as the vehicle is operated with an exempt license plate issued by the Texas Department of Motor Vehicles.

It also adds “trailer” to the definition of exempt “motor vehicle used for religious purposes,” and it expands the exemption to include all vehicles used primarily by a church or religious society, not merely those used for “the purpose of providing transportation to and from a church or religious service or meeting.”

For additional information, see the Texas Comptroller Tax Policy News, August 2017.