TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER O. STATE AND LOCAL SALES AND USE TAXES

34 TAC §3.285

The Comptroller of Public Accounts proposes amendments to §3.285, concerning resale certificate; sales for resale. The section is being amended to reflect the changes made to Tax Code, §151.006 ("Sale for Resale") by House Bill 3319, 80th Legislature, 2007; Senate Bill 1, 82nd Legislature, First Called Session, 2011; Senate Bill 755, 84th Legislature, 2015; and Senate Bill 1396, 84th Legislature, 2015, which added new Tax Code, Chapter 163, relating to sales and use taxation of aircraft. Additional changes are made to incorporate guidance regarding sales for resale provided by the Texas Supreme Court in Combs v. Health Care Services Corp., 401 S.W.3d 623 (Tex. 2013); to memorialize longstanding comptroller policies that are not addressed in the existing section; and to make various other revisions to improve the clarity of the section.

Subsection (a) is amended to define several additional terms which are used but not defined in the current section.

Paragraph (1) is added to define the term "equipment." The definition is based upon the definition of the term provided in §3.300 of this title (relating to Manufacturing; Custom Manufacturing; Fabricating; Processing).

Paragraph (2) is added to define the term "federal government." The definition is consistent with the definition of that term provided in §3.322 of this title (relating to Exempt Organizations).

Paragraph (3) is added to define the term "integral part," which appears in current §3.285 but is not defined therein. The proposed definition is consistent with existing comptroller policy as expressed in Comptroller's Decisions, including Comptroller's Decision Nos. 28,441 (1992) and 36,743 (1998), and the existing service-related sections of this title, including §3.330 (concerning Data Processing Services) and §3.354 (concerning Debt Collection Services).

Paragraph (4) is added to define the term "internet hosting service" as defined in §3.286 of this title (relating to Seller's and Purchaser's Responsibilities, including Nexus, Permits, Returns and Reporting Periods, and Collection and Exemption Rules).

Paragraph (5) is added to define the term "machinery" as defined in §3.300 of this title.

Former paragraph (1), defining the term "Mexico," is renumbered as paragraph (6). Former paragraph (2), defining the term "Sale for resale," is deleted. A revised definition of the term incorporating recent legislative changes is provided in subsection (b).

Paragraph (7) is added to define the term "purchaser" to conform with Tax Code, §151.054(b) (Gross Receipts Presumed Subject to Tax) and §151.104(b) (Sale for Storage, Use, or Consumption Presumed), both of which require the purchaser to be "in the business of selling, leasing, or renting taxable items."

Paragraph (8) is added to define the term "seller" as defined in §3.286 of this title.

Paragraph (9) restates the Tax Code's definition of the term "taxable item." See Tax Code, §151.010 (Taxable Item).

Paragraph (10) is added to define the term "tax-free inventory." This definition is based upon Tax Code, §151.011(e) ("Use" and "Storage"), which establishes that the keeping or retaining of tangible personal property "for sale in the regular course of business" does not constitute a taxable use of that tangible personal property, as well as longstanding comptroller policy established in decisions such as Comptroller's Decision Nos. 31,088 (1995) and 32,194 (1998).

Former paragraph (3), defining the term "United States," is renumbered as paragraph (11).

New subsection (b) is added to define the term "sale for resale." Subsequent subsections are relettered accordingly. Paragraph (1)(A) implements Tax Code, §151.006(a)(1). The language is derived from subsection (a)(2)(A) and (D) of the current section. Additional language is added to require that the purchaser acquire the taxable item for the purpose of selling it "with or as a taxable item." This phrase was added to Tax Code, §151.006(a)(1) by Senate Bill 1, 82nd Legislature, First Called Session, 2011. This legislative change affirms the comptroller's longstanding policy that a sale for resale may only be made to a purchaser engaged in the business of selling, leasing, or renting taxable items who intends to resell the tangible personal property or taxable service acquired with or as a taxable item--a transaction that is subject to sales and use tax as provided in Tax Code, Chapter 151. Additional language incorporates the limitation set out in Tax Code, §151.058(a) (Property Used to Provide Taxable Services and Sales Price of Taxable Services) and Tax Code, §151.302(c) (Sales for Resale).

Subsection (b)(1)(B) addresses the purchase of tangible personal property for the sole purpose of leasing or renting the tangible personal property to another person. This subsection follows the language of current subsection (a)(2)(B) and Tax Code, §151.006(a)(2). A reference is added to §3.294 of this title (relating to Rental and Lease of Tangible Personal Property).

Subsection (b)(1)(C) implements Tax Code, §151.006(a)(3) and restates subsection (a)(2)(C) of the current section with non-substantive changes.

Subsection (b)(1)(D) implements Tax Code, §151.006(a)(4) and restates subsection (a)(2)(E) of the current section with non-substantive changes.

Subsection (b)(1)(E) restates Tax Code, §151.006(a)(5), which was added to the Tax Code by Senate Bill 1, 82nd Legislature, First Called Session, 2011.

Subsection (b)(1)(F) implements House Bill 3319, 80th Legislature, 2007, which added Tax Code, §151.006(b), revising the definition of a sale for resale to include the sale of a wireless voice communication device to be transferred as an integral part of a taxable service if payment for the service is a condition for receiving the wireless voice communication device.

Subsection (b)(1)(G) implements Senate Bill 755, 84th Legislature, 2015, effective June 10, 2015, which added Tax Code, §151.006(d) to modify the definition of "sale for resale" to include the sale of a computer program to a provider of Internet hosting services who sells a license to use the program to an unrelated user of Internet hosting services, provided that the reseller does not retain a right to use the program under that license.

Subsection (b)(2) states the regular course of business requirement of Tax Code, §§151.054(b), 151.104(b), 151.151, 151.152, and 151.154.

Subsection (b)(3) adds new language which incorporates the limitation set out in Tax Code, §151.302(c) that wrapping, packing, and packaging supplies cannot be purchased for resale.

Subsection (b)(4) provides that an item sold to a purchaser for use in performing a service that is not taxed under Tax Code, Chapter 151, is not a sale for resale, except in certain specified circumstances. This provision implements Senate Bill 1, 82nd Legislature, First Called Session, 2011, which enacted Tax Code, §151.006(a)(5) and (c). This provision restates the language in Tax Code, §151.006(c) without change.

Subsection (b)(5) memorializes longstanding comptroller policy that the sale of tangible personal property to a purchaser who acquires the tangible personal property for the purpose of reselling or transferring the tangible personal property outside of the United States or Mexico does not fall within the definition of a sale for resale. See, for example, Comptroller's Decision No. 29,343 (1993), which states, "Sales of goods destined for another country must qualify for exemption under §151.307 rather than §151.302." The paragraph refers purchasers buying taxable items for sale outside of the United States and Mexico to §3.323 of this title (relating to Imports and Exports).

Subsection (b)(6) states the care, custody, and control requirement of Tax Code, §151.302(b) and explains that the care, custody, and control of tangible personal property is transferred to the purchaser of the service when the purchaser has primary possession of the tangible personal property. This provision implements Sharp v. Clearview Cable TV, Inc., 960 S.W.2d 424 (Tex. App.--Austin 1998, pet. denied).

Subparagraph (A) explains when a purchaser has primary possession of tangible personal property. Subparagraph (B) explains that a purchaser may also have primary possession if the purchaser or the purchaser's designee has physical possession of the tangible personal property and completely consumes it. Subparagraph (C) addresses when a purchaser has primary possession of a computer program. The standard established in this subparagraph is based upon §151.006(d), which addresses purchases of software by providers of Internet hosting services.

Subsection (b)(7) adds new language which incorporates the limitation set out in Tax Code, §151.058(a), which states that a taxable service provider is the consumer of the machinery and equipment used to perform the taxable service. As the consumer of the machinery and equipment, the service provider cannot purchase the machinery and equipment tax-free as a sale for resale, unless the service provider transfers primary possession of the machinery and equipment to a customer. Subsection (b)(7) further provides that a taxable service provider is not using the machinery and equipment in performing the service if the person has transferred primary possession of the machinery or equipment to the purchaser of the service.

Finally, subsection (b)(8) refers taxpayers to §3.280 of this title (relating to Aircraft) for information relating to the "sale for resale" of aircraft to reflect the changes resulting from new Tax Code, Chapter 163, relating to sales and use taxation of aircraft, enacted by Senate Bill 1396, 84th Legislature, 2015.

Subsection (c), formerly subsection (b), is retitled from "Acceptance of resale certificate" to "Issuance and acceptance of resale certificates" because the subsection includes information related to a purchaser's issuance of a resale certificate as well as a seller's acceptance of a certificate. New paragraph (2) addresses when a purchaser may issue a resale certificate instead of paying sales or use tax on the purchase of a taxable item. Paragraph (2)(A) memorializes current comptroller policy that a purchaser must hold a Texas sales and use tax permit to issue a resale certificate. Refer to Comptroller's Decision No. 18,660 (1986). This requirement is consistent with the requirement that a sale for resale be made to a purchaser engaged in the business of selling taxable items. Paragraph (2)(A) also restates the information currently found in subsection (b)(3) and adds language to memorialize the comptroller's longstanding policy that a sale for resale includes the sale of tangible personal property for the purpose of maintaining the tangible personal property in a tax-free inventory. This is based on Tax Code, §151.011(e) ("Use" and "Storage") and Comptroller's Decision Nos. 31,088 (1995) and 32,194 (1998).

New paragraph (2)(B) adds language providing that a purchaser may not issue a resale certificate for items that the purchaser knows, at the time of purchase, will be used or consumed by the purchaser. This provision, stated differently, is found in current subsection (f), relating to the improper use of a resale certificate.

The remainder of the information currently provided in subsection (b)(1) of the current section is reorganized under new subsection (c)(3)(A). Current subsection (b)(2) is deleted and new subsection (c)(3)(B) is proposed to explain the good faith safe harbor in greater detail. This subparagraph memorializes longstanding comptroller policy regarding the elements required for such good faith acceptance. See STAR Accession No. 9105L1110D06 (May 20, 1991) and Comptroller's Decision Nos. 35,834 (1997), 48,258 (2009), and 105,608 (2012). This subparagraph also revises the statement in the current section that, in order to accept a resale certificate in good faith, a seller must lack actual knowledge that the sale is not a sale for resale and must take responsibility to notice the type business generally engaged in by the purchaser as shown on the resale certificate. For clarity and readability, these requirements are now described as follows: "the seller does not know, and does not have reason to know, that the sale is not a sale for resale." See Comptroller's Decision No. 48,258 (2009) ("The Comptroller has construed her rule to require 'no reason or basis for the seller to suspect that the certificate is invalid.' It reflects the 'should have known' concept.").

Current subsection (b)(3) is deleted, as the information contained in that subsection is now provided in subsection (c)(2)(A). Current subsection (b)(4) is relettered as subsection (c)(3)(C) and the title to referenced §3.286 is deleted.

New subsection (c)(3)(D) is added to alert sellers of the related record-keeping requirements by cross-referencing §3.281 of this title (relating to Records Required; Information Required) and providing that resale certificates are subject to the record-keeping requirements set out in that section.

Current subsection (c), relating to blanket resale certificates, is renumbered as subsection (c)(4). The subsection is also amended to delete the word "only," so that the section now reads, "a purchaser who purchases items for resale." This amendment is made to reflect current comptroller practice.

New subsection (c)(5) memorializes prior comptroller guidance, not reflected in the current section, that a broker or dealer who only buys and sells raw commodities, such as natural gas, raw cotton bales, or raw aluminum, in bulk is not required to hold a sales tax permit and is not required to issue a resale certificate when making such purchases. A broker or dealer may issue a resale certificate, if requested by the seller, even if the broker or dealer does not hold a tax permit. See, for example, STAR Accession Nos. 8909L0957A03 (September 29, 1989), 9608300L (August 15, 1996), and 200710196L (October 18, 2007).

Subsection (d), which addresses resale certificates issued by retailers outside Texas, is amended to add paragraphs (4) - (6) and to make minor revisions that are intended to make the subsection easier to read, not to change the meaning of the subsection. New paragraph (4) is added to advise taxpayers that retailers not located inside the United States or Mexico may issue resale certificates to purchase items for resale outside Texas but within the United States or Mexico. This provision is consistent with the definition of sale for resale set out in Tax Code, §151.006 and subsection (b) of this section. New paragraph (5) provides a cross-reference to §3.286 of this title to assist resellers located outside of Texas in obtaining information about their obligations under Texas law. New paragraph (6) memorializes existing comptroller policy that a purchaser may not issue a resale certificate to purchase items for resale outside the United States or Mexico. Such sales do not fall within the definition of a sale for resale provided in subsection (b). Purchasers are directed to §3.323 of this title. Other minor changes to the wording of subsection (d) are made for readability and are not intended to change the meaning of the subsection.

Subsection (e) is amended by changing the heading from "Improper use of items purchased for resale" to "Taxable use of items purchased for resale; items removed from tax-free inventory." The information currently provided in this subsection is reorganized, additional headings are added, and the words "tangible personal property" and "tangible personal property or a taxable service" have been replaced, when appropriate, with the defined term "taxable item." Information regarding property used outside the state is moved to new paragraph (4). Paragraphs (2) through (4) of the current subsection are relettered as paragraph (1)(A), (B), and (C). Paragraphs (5) and (6) are renumbered accordingly. Other minor changes to the wording are intended to make the subsection easier to read, and are not intended to alter the meaning of the subsection.

New subsection (e)(4) addresses items that are used outside of Texas. New subsection (e)(5) memorializes comptroller policy, which is not reflected in the current section, that tax is not due on tangible personal property that is totally destroyed or permanently disposed of in a manner other than for use or sale in the normal course of business. See Comptroller's Decision No. 28,901 (1993) and STAR Accession No. 9606L1417A08 (June 10, 1996).

Subsection (f), concerning the improper use of a resale certificate, is amended by adding "criminal offenses" to the heading and replacing language relating to the specific criminal penalties with a reference to §3.305 of this title (relating to Criminal Offenses and Penalties).

Subsection (g), concerning the content of a resale certificate, is amended to delete the use of the term "permanent" in connection with a permit number issued by the comptroller, as the term is no longer used. Subsection (g)(2) is further amended to delete a reference to 11 digit Texas tax permit numbers beginning with the number 2, as such numbers no longer exist.

Subsection (h), concerning the proper form of a resale certificate, is amended to reflect that the comptroller will no longer adopt by reference the Texas Sales and Use Tax Resale Certificate or a Border States Uniform Sale for Resale Certificate; to update instructions for taxpayers to obtain a copy of a Texas resale certificate; and to advise taxpayers that a seller may accept the Uniform Sales and Use Tax Certificate-Multijurisdiction as a resale certificate, but may not accept the Streamlined Sales and Use Tax Agreement Certificate of Exemption.

Tom Currah, Chief Revenue Estimator, has determined that for the first five-year period the rule will be in effect, there will be no significant revenue impact on the state or units of local government.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, the public benefit anticipated as a result of enforcing the rule will be by conforming the rule to current statutes and agency policy. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rule.

Comments on the proposals may be submitted to Teresa G. Bostick, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

The amendments are proposed under Tax Code, §111.002 (Comptroller's Rules, Compliance, Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.

The amendments implement Tax Code, §§151.006, ("Sale for Resale"), 151.010 (Taxable Item), 151.011 ("Use" and "Storage"), 151.025 (Records Required to be Kept), 151.054 (Gross Receipts Presumed Subject to Tax), 151.058 (Property Used to Provide Taxable Services and Sales Price of Taxable Services), 151.104 (Sale for Storage, Use, or Consumption Presumed), 151.151 (Resale Certificate), 151.152 (Resale Certificate: Form), 151.154 (Resale Certificate: Liability of Purchaser), and 151.302 (Sales for Resale).

§3.285.Resale Certificate; Sales for Resale [(Tax Code, §§151.006, 151.054, 151.151, 151.152, 151.153, 151.154, 151.302, 151.707)].

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Equipment--Any apparatus, device, or simple machine used to perform a service.

(2) Federal government--The government of the United States of America and its unincorporated agencies and instrumentalities, including all parts of the executive, legislative, and judicial branches and all independent boards, commissions, and agencies of the United States government unless otherwise designated in this section.

(3) Integral part--An essential element without which the whole would not be complete. One taxable item is an integral part of a second item if the taxable item is necessary, as opposed to desirable, for the completion of the second item, and if the second item could not be provided as a whole without the taxable item.

(4) Internet hosting service--The provision to an unrelated user of access over the Internet to computer services using property that is owned or leased and managed by the service provider and on which the unrelated user may store or process the user's own data or use software that is owned, licensed, or leased by the unrelated user or service provider. The term does not include telecommunications services as defined in §3.344 of this title (relating to Telecommunications Services).

(5) Machinery--All power-operated machines.

(6) [(1)] Mexico--Within the geographical limits of the United Mexican States.

[(2) Sale for resale--A sale of:]

[(A) tangible personal property to a purchaser who acquires the property for the purpose of reselling it in the United States or Mexico in the normal course of business either in the form or condition in which it is purchased, or as an attachment to, or as an integral part of other tangible personal property;]

[(B) tangible personal property to a purchaser who acquires the property for the sole purpose of leasing or renting it in the United States or Mexico to another person, but not if incidental to the leasing or renting of real estate;]

[(C) tangible personal property to a purchaser who acquires the property for the purpose of transferring care, custody, and control of the property to a customer in the United States or Mexico as an integral part of a taxable service;]

[(D) a taxable service to a purchaser who obtains the service for the purpose of reselling it in the United States or Mexico in the normal course of business as an integral part of a taxable service; or]

[(E) a taxable service performed on tangible personal property that is held for sale by the purchaser of the taxable service.]

(7) Purchaser--A person who is in the business of selling, leasing, or renting taxable items.

(8) Seller--Every retailer, wholesaler, distributor, manufacturer, or any other person who sells, leases, rents, or transfers ownership of tangible personal property or performs taxable services in this state for consideration. Specific types of sellers, such as direct sales organizations, pawnbrokers, and auctioneers, are further defined in §3.286 of this title (relating to Seller's and Purchaser's Responsibilities, including Nexus, Permits, Returns and Reporting Periods, and Collection and Exemption Rules).

(9) Taxable item--Tangible personal property and taxable services. Except as otherwise provided by Tax Code, Chapter 151, the sale or use of a taxable item in an electronic form instead of on physical media does not alter the item's tax status.

(10) Tax-free inventory--A stock of tangible personal property purchased tax-free for resale, whether from out-of-state or by issuing a properly completed resale certificate, by a purchaser who, at the time of purchase:

(A) holds a valid Texas sales and use tax permit;

(B) makes sales of taxable items in the regular course of business; and

(C) does not know whether the tangible personal property will be resold in the normal course of business or used in the performance of a service.

(11) [(3)] United States--Within the geographical limits of the United States of America or within the territories and possessions of the United States of America.

(b) Sale for resale.

(1) Except as provided in paragraphs (3) - (6) of this subsection, each of the following is a sale for resale:

(A) the sale of a taxable item to a purchaser who acquires the taxable item for the purpose of reselling it with or as a taxable item in the United States or Mexico in the normal course of business:

(i) in the form or condition in which it is acquired; or

(ii) as an attachment to or as an integral part of another taxable item;

(B) the sale of tangible personal property to a purchaser who acquires the property for the sole purpose of leasing or renting it in the United States or Mexico in the normal course of business to another person, but not if incidental to the leasing or renting of real estate, as described in §3.294(k) of this title (relating to Rental and Lease of Tangible Personal Property);

(C) the sale of tangible personal property to a purchaser who acquires the property for the purpose of transferring the property to a customer in the United States or Mexico as an integral part of a taxable service;

(D) the sale of a taxable service performed on tangible personal property that the purchaser of the service holds for sale, lease, or rental;

(E) the sale of tangible personal property to a purchaser who acquires the tangible personal 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:

(i) allocates and bills to the contract the cost of the tangible personal property as a direct or indirect cost; and

(ii) transfers title to the tangible personal property to the federal government under the contract or subcontract and applicable federal acquisition regulations;

(F) the sale of a wireless voice communication device, such as a cellular telephone, to a purchaser who acquires the device for the purpose of transferring the device as an integral part of a taxable telecommunication service when the purchase of the service is a condition for receiving the device, regardless of whether there is a separate charge for the device or whether the purchaser is the provider of the taxable service. See §3.344 of this title (relating to Telecommunications Services) for information about telecommunication services); and

(G) the sale of a computer program to a provider of Internet hosting services who acquires the computer program from an unrelated vendor for the purpose of selling the right to use the computer program to an unrelated user of the provider's Internet hosting services in the normal course of business and in the form or condition in which the provider acquired the computer program, without regard to whether the provider transfers care, custody, and control of the computer program to the unrelated user. The performance by the provider of routine maintenance of the computer program that is recommended or required by the unrelated vendor of the computer program does not affect the application of this subsection. For purposes of this subsection, the purchase of the computer program by the provider qualifies as a sale for resale only if:

(i) the provider offers the unrelated user a selection of computer programs that are available to the public for purchase directly from an unrelated vendor;

(ii) the provider executes a written contract with the unrelated user that specifies the name of the computer program sold to the unrelated user and includes a charge to the unrelated user for computing hardware;

(iii) the unrelated user purchases the right to use the computer program from the provider through the acquisition of a license; and

(iv) the provider does not retain the right to use the computer program under that license.

(2) To qualify as a sale for resale, the taxable item must be acquired for the purpose of selling, leasing, or renting it in the regular course of business or for the purpose of transferring it as an integral part of a taxable service performed in the regular course of business.

(3) A sale for resale does not include the sale of internal or external wrapping, packing, or packaging supplies to a purchaser who acquires the supplies for use in wrapping, packing, or packaging tangible personal property, or in the performance of a service, for the purpose of furthering the sale of the tangible personal property or the service. See §3.314 of this title (relating to Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, Export Packers, and Stevedoring Materials and Supplies).

(4) 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 under this chapter, 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 a subcontract of a contract, 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.

(5) A sale for resale does not include the sale of a taxable item to a purchaser who acquires the taxable item for the purpose of reselling or transferring the taxable item outside the territorial limits of the United States or Mexico. Refer to §3.323 of this title (relating to Imports and Exports).

(6) Tangible personal property used to perform a taxable service is not considered resold unless the care, custody, and control of the tangible personal property is transferred to the purchaser of the service. The care, custody, and control of tangible personal property is transferred to the purchaser of the service when the purchaser has primary possession of the tangible personal property.

(A) Except as provided in subparagraphs (B) and (C) of this paragraph, to have primary possession, the purchaser or the purchaser's designee must have:

(i) physical possession of the tangible personal property off of the premises of the service provider;

(ii) a contractual duty to care for the tangible personal property. At a minimum, the contract must prohibit the purchaser from damaging the tangible personal property or impose liability if the purchaser damages the tangible personal property; and

(iii) a superior right to use the tangible personal property for a contractually specified period of time.

(B) The purchaser may have primary possession of tangible personal property if the purchaser or the purchaser's designee has physical possession of the tangible personal property and directly consumes the tangible personal property during the provision of the taxable service. Property is considered consumed if it can no longer be used for its intended purpose in the normal course of business or is not retained or reusable by the service provider.

(C) A purchaser may have primary possession of a computer program if the purchaser acquires a license to use the computer program from the service provider and the service provider does not retain the right to use the computer program under that license.

(7) A person performing services taxable under Tax Code, Chapter 151 is the consumer of machinery and equipment used by the person in performing the services. A person performing a taxable service is not using the machinery or equipment in performing the service if the person has transferred primary possession, as that term is described in paragraph (6) of this subsection, of the machinery or equipment to the purchaser of the service.

(8) Aircraft. See §3.280 of this title (relating to Aircraft) for the definition of "sale for resale" as it applies to aircraft.

(c) [(b)] Issuance and acceptance [Acceptance] of resale certificates [certificate].

(1) A sale for resale as defined in subsection (b) [(a)(2)] of this section is not taxable.

(2) Who may issue a resale certificate.

(A) In general, a purchaser who holds a Texas sales and use tax permit may issue a resale certificate instead of paying tax at the time of purchase of a taxable item that the purchaser intends to resell, lease, rent, or transfer as an integral part of a taxable service in the normal course of business. A purchaser may also issue a resale certificate instead of paying tax at the time of purchase of a taxable item that the purchaser intends to maintain in a valid tax-free inventory, if the purchaser does not know at the time of purchase whether the item will be resold or used in the performance of a service. The purchaser must collect, report, and remit tax to the comptroller as required by §3.286 of this title when the purchaser sells, leases, or rents taxable items.

(B) A purchaser may not issue a resale certificate in lieu of paying tax on the purchase of a taxable item, including tangible personal property to maintain in a valid tax-free inventory, that the purchaser knows, at the time of purchase, will be used or consumed by the purchaser.

(3) Accepting a resale certificate.

(A) All gross receipts of a seller are subject to sales or use tax unless a properly completed resale or exemption certificate is accepted by the seller. A properly completed resale certificate contains the information required by subsection (g) of this section. See also §3.287 of this title (relating to Exemption Certificates).

(B) A seller does not owe tax on a sale, lease, or rental of a taxable item if the seller accepts a properly completed resale certificate in good faith. A resale certificate is deemed to be accepted in good faith if:

(i) the resale certificate is accepted at or before the time of the transaction;

(ii) the resale certificate is properly completed, meaning that all of the information required by subsection (g) of this section is legible; and

(iii) the seller does not know, and does not have reason to know, that the sale is not a sale for resale. It is the seller's responsibility to be familiar with Texas sales tax law as it applies to the seller's business and to take notice of the information provided by the purchaser on the resale certificate. For example, a jewelry seller should know that a resale certificate from a landscaping service is invalid because a landscaping service is not in the business of reselling jewelry.

[(2) A sale is exempt if the resale certificate is accepted in good faith and the seller lacks actual knowledge that the sale is not a sale for resale. It is the seller's responsibility to take notice of the type business generally engaged in by the purchaser as shown on the resale certificate.]

[(3)] [A resale certificate may be signed by a purchaser at the time of purchase if the purchaser intends to resell, lease, or rent the taxable item or transfer it as an integral part of a taxable service in the regular course of business.]

(C) [(4)] The seller should obtain a properly executed resale certificate at the time the taxable transaction occurs. All certificates obtained on or after the date the comptroller's auditor actually begins work on the audit at the seller's place of business or on the seller's records after the entrance conference are subject to verification. All incomplete certificates will be disallowed regardless of when they were obtained. The seller has 60 days from the date written notice is received by the seller from the comptroller in which to deliver the certificates to the comptroller. Written notice shall be given by the comptroller upon the filing of a petition for redetermination or claim for refund. For the purposes of this section, written notice given by mail is presumed to have been received by the seller within three business days from the date of deposit in the custody of the United States Postal Service. The seller may overcome the presumption by submitting proof from the United States Postal Service or by other competent evidence showing a later delivery date. Any certificates delivered to the comptroller during the 60-day period will be subject to independent verification by the comptroller before any deductions will be allowed. Certificates delivered after the 60-day period will not be accepted and the deduction will not be granted. See §3.282 of this title (relating to Auditing Taxpayer Records) and §3.286 of this title [(relating to Seller's and Purchaser's Responsibilities)].

(D) Resale certificates are subject to the provisions of §3.281 of this title (relating to Records Required; Information Required). A seller is required to keep resale certificates for a minimum of four years from the date on which the sale is made and throughout any period in which any tax, penalty, or interest may be assessed, collected, or refunded by the comptroller or in which an administrative hearing or judicial proceeding is pending.

(4) [(c)] Blanket resale certificate. A purchaser may issue to a seller a blanket resale certificate describing the general nature of the taxable items purchased for resale [may be issued to a seller by a purchaser who purchases only items for resale]. The seller may rely on the blanket certificate until it is revoked in writing.

(5) Bulk commodities. A resale certificate is not required to be issued by a broker or dealer that buys and sells only raw commodities in bulk, such as natural gas, raw cotton bales, or raw aluminum, from producers or other commodity brokers or dealers solely for resale in the normal course of business. However, if requested by the seller, a properly completed resale certificate, absent a sales tax permit number, may be issued by the purchaser of such raw commodities even if the purchaser does not hold a sales and use tax permit.

(d) Retailers outside Texas.

(1) A seller in Texas may accept a resale certificate in lieu of tax from a [bona fide] retailer located outside Texas who purchases taxable items for resale in the United States or Mexico in a transaction that is a sale for resale, as defined in subsection (b) [(a)] of this section.

(2) The resale certificate must show the signature and address of the purchaser, the date of the sale, the state in which the purchaser intends to resell the item, the sales tax permit number or the registration number assigned to the purchaser by the state in which the purchaser is authorized to do business or a statement that the purchaser is not required to be permitted in the state in which the purchaser is authorized to do business. Mexican retailers who purchase taxable items for resale must show their Federal Taxpayers Registry (RFC) identification number for Mexico on the resale certificate and give a copy of their Mexican Registration Form to the Texas seller. An invoice describing the taxable item purchased and showing the exact street address or office address from which the taxable item will be resold must be attached to the resale certificate. The resale certificate must also state the type business engaged in by the purchaser and the type items sold in the regular course of business. A resale certificate may be accepted from the [bona fide] out-of-state retailer even if the Texas retailer ships or delivers the taxable item directly to a recipient located inside Texas.

(3) The Texas retailer is not responsible for determining whether the out-of-state retailer is required to hold a Texas sales and use tax permit or to enter a Texas permit number on the resale certificate.

(4) Foreign purchasers, other than purchasers from Mexico, who are not engaged in business in Texas and do not hold a Texas sales and use tax permit, may issue a properly completed resale certificate, as described in paragraph (2) of this subsection, in lieu of paying tax on the purchase of taxable items for sale in the normal course of business when the items are delivered or shipped to a location outside of Texas but within the United States or Mexico.

(5) An out-of-state or foreign purchaser who acquires goods or services from a Texas seller for resale in Texas should refer to §3.286 of this title for information on their responsibilities.

(6) A purchaser, whether from Texas, Mexico, or another foreign country, may not issue a resale certificate for taxable items purchased for resale outside the United States or Mexico. See subsection (b)(5) of this section. Purchasers who purchase taxable items in Texas for sale outside the United States or Mexico must comply with the requirements of §3.323 of this title to claim exemption from the Texas sales tax.

(e) Taxable [Improper] use of items purchased for resale; items removed from tax-free inventory.

(1) Divergent use; paying tax on fair market rental value. When a taxable item [tangible personal property] is removed from a valid tax-free inventory for use in Texas, Texas sales tax is due. [Texas sales tax is not due on tangible personal property removed from a valid tax-free inventory for use outside the state.] When a taxable item [tangible personal property or a taxable service] purchased under a resale certificate is used for any purpose other than retention, demonstration, or display while holding it for sale, lease, or rental, or for transfer as an integral part of a taxable service, the purchaser is liable for sales tax based on the value of the taxable item [tangible personal property or taxable service] for the period of time used.

(A) [(2)] The value of tangible personal property is the fair market rental value of the tangible personal property. The fair market rental value is the amount that a purchaser would pay on the open market to rent or lease the tangible personal property for use. If tangible personal property has no fair market rental value, sales tax is due based upon the original purchase price.

(B) [(3)] The value of a taxable service is the fair market value of the taxable service. The fair market value is the amount that a purchaser would pay on the open market to obtain that taxable service. If a taxable service has no fair market value, sales tax is due based upon the original purchase price.

(C) [(4)] At any time the person using a taxable item [tangible personal property or a taxable service] may stop paying tax on the value of the taxable item [tangible personal property or the value of a taxable service] and instead pay sales tax on the original purchase price. When the person elects to pay sales tax on the original purchase price, credit will not be allowed for taxes previously paid based on value.

(2) [(5)] Donation of taxable item. A purchaser who gives a valid resale certificate instead of paying tax on the purchase of a taxable item [for tangible personal property or a taxable service] is not liable for sales tax on the taxable item when [tangible personal property or a taxable service] donated to an organization exempt under Tax Code, §151.309 (Governmental Entities), or §151.310(a)(1) and (2) (Religious, Educational, And Public Service Organizations), provided the purchaser did [does] not make a taxable use of the donated taxable item prior to its donation [tangible personal property or the donated taxable service].

(3) [(6)] Use of taxable item as a trade-in. A purchaser who gives a valid resale certificate instead of paying tax on [for] the purchase of a taxable item is liable for sales tax if the purchaser uses the taxable item as a trade-in on the purchase of another taxable item. Tax must be paid on the original purchase price of the taxable item used as a trade-in.

(4) Use of taxable item outside Texas. Texas sales or use tax is not due on a taxable item removed from a valid tax-free inventory for use by the purchaser outside the state.

(5) Lost or destroyed inventory. Texas sales or use tax is not due on tangible personal property purchased under a valid resale certificate that is totally destroyed or permanently disposed of by the purchaser in a manner other than for use or sale in the normal course of business. For example, documented theft, casualty damage or loss, or disposal in a landfill. This does not apply to consumable items that are completely used up or destroyed by the purchaser in the course of performing a service in Texas.

(f) Improper use of a resale certificate; criminal offenses.

(1) A person may not issue a resale certificate at the time of purchase for a taxable item if the person knows the item is being purchased for a specific taxable use.

(2) Any person who intentionally or knowingly makes, presents, uses, or alters a resale certificate for the purpose of evading Texas sales or use tax is guilty of a criminal offense. For more information, see §3.305 of this title (relating to Criminal Offenses and Penalties).

[(A) If the tax evaded by the invalid certificate is less than $20, the offense is a Class C misdemeanor.]

[(B) If the tax evaded by the invalid certificate is $20 or more but less than $200, the offense is a Class B misdemeanor.]

[(C) If the tax evaded by the invalid certificate is $200 or more but less than $750, the offense is a Class A misdemeanor.]

[(D) If the tax evaded by the invalid certificate is $750 or more but less than $20,000, the offense is a felony of the third degree.]

[(E) If the tax evaded by the invalid certificate is $20,000 or more, the offense is a felony of the second degree.]

(g) Content of a resale certificate. A resale certificate must show:

(1) the name and address of the purchaser;

(2) the number from the sales tax permit held by the purchaser or a statement that an application for a permit is pending before the comptroller with the date the application for a permit was made. If the application is pending, the resale certificate is valid for only 60 days, after which time the resale certificate must be renewed to show the [permanent] permit number. If the purchaser holds a Texas sales and use tax permit, the number must consist of 11 digits that begin with a 1[, 2,] or 3. Federal employer's identification (FEI) numbers or social security numbers are not acceptable evidence of resale. See also subsection (d)(2) of this section regarding registration numbers for retailers outside Texas;

(3) a description of the taxable items generally sold, leased, or rented by the purchaser in the regular course of business and a description of the taxable items to be purchased tax free by use of the certificate. The item to be purchased may be generally described on the certificate or itemized in an order or invoice attached to the certificate;

(4) the signature of the purchaser or an electronic form of the purchaser's signature authorized by the comptroller and the date; and

(5) the name and address of the seller.

(h) Form of a resale certificate. A resale certificate must be substantially either in the form of a Texas Sales and Use Tax Resale Certificate or a Border States Uniform Sale for Resale Certificate. [The comptroller adopts both certificates by reference. ] Copies of both certificates are available at comptroller.texas.gov [for inspection at the office of the Texas Register] or may be obtained [from the Comptroller of Public Accounts, Tax Policy Division, 111 W. 6th Street, Austin, Texas 78701-2913. Copies may also be requested ] by calling our toll-free number 1-800-252-5555. A seller may also accept as a resale certificate the Uniform Sales and Use Tax Certificate-Multijurisdiction promulgated by the Multistate Tax Commission and available online at http://www.mtc.gov. The Streamlined Sales and Use Tax Agreement Certificate of Exemption may not be accepted as a resale certificate. [In Austin, call 463-4600. (From a Telecommunication Device for the Deaf (TDD) only, call 1-800-248-4099 toll free. In Austin, the local TDD number is 463-4621.)]

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on May 1, 2017.

TRD-201701748

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Earliest possible date of adoption: June 11, 2017

For further information, please call: (512) 475-0387


SUBCHAPTER GG. INSURANCE TAX

34 TAC §3.834

The Comptroller of Public Accounts proposes amendments to §3.834 concerning volunteer fire department assistance fund assessment. This section is being amended to implement House Bill 7, 84th Legislature, 2015. Effective for fiscal years beginning on or after September 1, 2015, the calculation of the total amount of the Volunteer Fire Department Assistance Fund Assessment is amended to take into account appropriations for contributions to the Texas Emergency Services Retirement System under Government Code, §614.104(d) (Fund). In addition, effective for the fiscal years beginning on September 1, 2015 and September 1, 2016 only, the calculation of the total amount of the Volunteer Fire Department Assistance Fund Assessment is amended to take into account appropriations to the Texas A&M Forest Service for grants to volunteer fire departments.

Subsection (a) is amended to add a definition of the term "state fiscal year." This term appears in Insurance Code, Chapter 2007 (Assessment for Rural Fire Protection), but is not defined. The subsequent paragraph is renumbered accordingly.

Subsection (b) is reformatted and revised to include additional information. The subsection is reorganized into four paragraphs. Paragraph (1) addresses the total amount of the assessment for state fiscal years beginning September 1, 2013 and September 1, 2014 only. The term "fiscal year" is replaced with the defined term "state fiscal year." Paragraph (2) addresses the total amount of the assessment for state fiscal years beginning September 1, 2015 and September 1, 2016 only. This paragraph implements Sections 24 and 57 of House Bill 7, which reduce the calculation of the Volunteer Fire Department Assistance Fund Assessment for these years based upon appropriations to the Texas Emergency Services Retirement System and the Texas A&M Forest Service. Paragraph (3) addresses the total amount of the assessment for state fiscal years beginning on or after September 1, 2017. This paragraph implements Section 24 of House Bill 7. Paragraph (4) contains information from current subsection (b) relating to data used to calculate each insurer's portion of the assessment. The existing language is amended to incorporate the specific method for determining this amount based on the graphic that is currently attached to the rule. The graphic is no longer necessary and is deleted.

In addition, amendments are made throughout the section to include the titles of the statutes referenced.

Tom Currah, Chief Revenue Estimator, has determined that for the first five-year period the rule will be in effect, there will be no significant revenue impact on the state or units of local government.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, the public benefit anticipated as a result of enforcing the rule will be by conforming the rule to current statutory provisions. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rule.

Comments on the proposal may be submitted to Teresa G. Bostick, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

The amendment is proposed under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture) and §111.0022 (Application To Other Laws Administered By Comptroller), which provide the comptroller with authority to prescribe, adopt, and enforce rules relating to the administration and enforcement provisions of Tax Code, Title 2, and taxes, fees, or other charges which the comptroller administers under other law.

This section is being amended to implement House Bill 7, 84th Legislature, 2015, Sections 24 and 57 and Insurance Code, Chapter 2007.

§3.834.Volunteer Fire Department Assistance Fund Assessment.

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Annual statement--A comprehensive statement, in the format promulgated by the National Association of Insurance Commissioners (NAIC), of an insurer's financial condition, business operations, and activities, required to be filed with state insurance departments and the NAIC.

(2) Insurer--An insurance entity that is authorized to engage in business in this state, including a stock company, mutual, farm mutual, county mutual, Lloyd's plan, or reciprocal or interinsurance exchange, as of the assessment date.

(3) Net direct premium--The total gross direct premium written by an insurer, as reported to the Texas Department of Insurance and reflected on the insurer's NAIC Annual Statement State Page Exhibit for:

(A) policies of:

(i) homeowner's insurance;

(ii) fire insurance;

(iii) farm and ranch owner's insurance;

(iv) private passenger automobile physical damage insurance; and

(v) commercial automobile physical damage insurance; and

(B) the nonliability portion of a commercial multiple peril policy.

(4) State fiscal year--The time period from September 1 through August 31.

(5) [(4)] Twelve-month period--The time period from January 1 through December 31, which is the same as the tax year and NAIC Annual Statement period.

(b) Calculation of the assessment.

(1) For state fiscal years [Effective ] beginning September 1, [with tax year] 2013 and September 1, 2014, the comptroller shall assess against all insurers to which this section applies amounts necessary for each state fiscal year, as determined by the Commissioner of Insurance, to collect a combined total equal to the lesser of:

(A) $30 million; or

(B) the total amount that the General Appropriations Act appropriates from the volunteer fire department assistance fund account in the general revenue fund for that state fiscal year [or $30 million].

(2) For state fiscal years beginning September 1, 2015 and September 1, 2016, the comptroller shall assess against all insurers to which this section applies amounts necessary for each state fiscal year, as determined by the Commissioner of Insurance, to collect a combined total equal to the lesser of:

(A) $30 million; or

(B) the total amount that the General Appropriations Act appropriates from the volunteer fire department assistance fund account in the general revenue fund for that state fiscal year other than:

(i) appropriations for contributions to the Texas Emergency Services Retirement System made under Government Code, §614.104(d) (Fund); and

(ii) appropriations to the Texas A&M Forest Service for grants to volunteer fire departments in a total amount not to exceed $11,500,000.

(3) For state fiscal years beginning on or after September 1, 2017, the comptroller shall assess against all insurers to which this section applies amounts necessary for each state fiscal year, as determined by the Commissioner of Insurance, to collect a combined total equal to the lesser of:

(A) $30 million; or

(B) the total amount that the General Appropriations Act appropriates from the volunteer fire department assistance fund account in the general revenue fund for that state fiscal year other than appropriations for contributions to the Texas Emergency Services Retirement System made under Government Code, §614.104(d).

(4) Based [The comptroller will use the following formula, based] on premium data provided by the Texas Department of Insurance [that was] compiled from the NAIC Annual Statements filed by insurers, the comptroller will [to] calculate the amount of each insurer's assessment as follows:

(A) Divide each insurer's Texas net direct premiums written for the twelve-month period by the total of all insurers' Texas net direct premiums written for the twelve-month period.

(B) Multiply the ratios obtained in subparagraph (A) of this paragraph by the total assessment that the Commissioner of Insurance provides to the comptroller. The result is the assessment due from the insurer.

[Figure: 34 TAC §3.834(b)]

(c) Billing date and due date. The comptroller will bill the assessment on or before May 31. Payment of the assessment is due by August 1.

(d) Enforcement provisions. Tax Code, Title 2, Subtitles A (General Provisions) and B (Enforcement and Collection) , apply to the comptroller's administration, collection, and enforcement of the assessment under Insurance Code, Chapter 2007 (Assessment for Rural Fire Protection).

(e) Retaliatory taxes. The assessment may not be included on the retaliatory tax worksheet since insurers may recoup the assessment from policyholders.

(f) Recoupment of assessment. An insurer may recover an assessment under this section as provided under Insurance Code, §2007.005 (Recovery of Assessment). An insurer that recovers the assessment from its policyholders is required by Insurance Code, §2007.006 (Notice to Policyholders) to provide notice to each policyholder regarding the amount of the assessment being recovered on the declarations page, the renewal certificate, or a billing statement.

(g) Assessment final date. The amount that is assessed an insurer under Insurance Code, Chapter 2007, is final as of the date the billings are generated by the comptroller. The comptroller will not recalculate the amount due under this section to reflect any amendments to an insurer's Annual Statement. The assessment under Insurance Code, Chapter 2007 is not a deficiency determination under Tax Code, §111.008 (Deficiency Determination).

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 25, 2017.

TRD-201701669

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Earliest possible date of adoption: June 11, 2017

For further information, please call: (512) 475-0387


CHAPTER 9. PROPERTY TAX ADMINISTRATION

SUBCHAPTER F. LIMITATION ON APPRAISED VALUE ON CERTAIN QUALIFIED PROPERTIES

34 TAC §§9.1051, 9.1052, 9.1055, 9.1058

The Comptroller of Public Accounts proposes amendments to §9.1051 concerning definitions, §9.1052 concerning forms, §9.1055 concerning comptroller application review and agreement to limit appraised value and §9.1058 concerning miscellaneous provisions.

The amendment to §9.1051 updates the name of the division of the comptroller's office responsible for administration of Tax Code, Chapter 313 in paragraph (13) from the Economic Development and Analysis Division or ED&A to the Data Analysis and Transparency Division or DAT; updates the website for the United States Census Bureau in paragraph (25); and defines the term "assignment" in new paragraph (31) to clarify that it does not include partial assignments.

The amendments to §9.1052 updates the toll-free phone number for requesting forms from the comptroller and the web address for viewing and downloading forms on the comptroller's website, and changes "web site" to "website" in subsection (b). The amendment to §9.1052 also adopts by reference two existing forms with changes. In the form adopted by reference in subsection (a)(2), Section 4 on qualified property is being changed to request the county appraisal district in which the project is located, the total market value of all qualified property from all county appraisal district property records subject to the 313 agreement, the total value of all applicable exemptions for the qualified property, the total taxable value for school interest and sinking tax purposes for the qualified property, the limitation amount on appraised value specified as qualified in the 313 agreement, and the total taxable value for school maintenance and operations tax purposed for the qualified property. In the form adopted by reference in subsection (a)(2), Section 5B on wage and employment information for applications after January 1, 2014 is being changed to include the same questions in Section 5A, number 8; the rule defining qualifying jobs, that is, 34 TAC §9.1051(30), is being included in Section 5B question 6; parts of the titles for Sections 5A and 5B are being modified to boldface font; and Section 7 is being changed to state that it is only applicable to certain 3 digit projects. In the form adopted by reference in subsection (a)(3), the instructions are being updated to reflect that only 3 digit projects may have multiple applicants under a partial assignment.

The amendment to §9.1055, subsection (a)(5) requires documents that are submitted to the comptroller in an electronic format to be in compliance with the accessibility standards and specifications described in 1 TAC Chapters 206 and 213.

The amendments to §9.1058 corrects a typographical error in subsection (a) by replacing the word "contract" with "contact" and changes "web site" to "website" in subsection (d)(1). New subsection (f) clarifies the scope of "series of agreements" as referenced in Tax Code, §313.027.

Tom Currah, Chief Revenue Estimator, has determined that for the first five-year period the rule will be in effect, there will be no significant revenue impact on the state or units of local government.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, the public benefit anticipated as a result of enforcing the rule will be by improving the administration of local property valuation and taxation. The proposed amendment would have no fiscal impact on small businesses. There is no significant anticipated economic cost to individuals who are required to comply with the proposed rule.

Comments on the amendments may be submitted to Will Counihan, Director, Data Analysis and Transparency Division, Comptroller of Public Accounts, at Will.Counihan@cpa.texas.gov or at P.O. Box 13528, Austin, Texas 78711. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

The amendments are proposed under Tax Code, §313.031, which authorizes the comptroller to adopt rules necessary for the implementation and administration of Tax Code, Chapter 313.

The amendments implement Tax Code, Chapter 313.

§9.1051.Definitions.

The following phrases, words and terms, when used in this subchapter shall have the following meanings, unless the context clearly indicates otherwise. Words defined in Tax Code, Chapter 313 and not defined in this subchapter shall have the meanings provided by Tax Code, Chapter 313.

(1) Agreement--The written agreement between the governing body of a school district and the approved applicant on the form adopted by reference in §9.1052 of this title (relating to Forms) to implement a limitation on the appraised value for school district maintenance and operations ad valorem property tax purposes on an entity's qualified property, required by Tax Code, §313.027(d).

(2) Applicant--An entity that has applied for a limitation on appraised value for school district maintenance and operations ad valorem property tax purposes on the entity's property as provided by Tax Code, Chapter 313.

(3) Application--An application for limitation of appraised value limitation for school district maintenance and operations ad valorem property tax purposes on an entity's qualified property on the form adopted by reference in §9.1052 of this title, the schedules attached thereto, and the documentation submitted by an entity for the purpose of obtaining an agreement for a limitation on appraised value from a school district.

(4) Application amendment--Information submitted by an applicant intended to be considered as part of or in support of the application that amends by replacing information that was previously submitted by applicant.

(5) Application supplement--Information submitted by an applicant intended to be considered as part of or in support of the application that has not been previously submitted.

(6) Approved applicant--An applicant whose application has been approved by a school district for a limitation on appraised value agreement according to the provisions of Tax Code, Chapter 313, including any assignees of that applicant.

(7) Application review start date--The later date of either the date on which the school district issues its written notice that an applicant has submitted a completed application or the date on which the comptroller issues its written notice that an applicant has submitted a completed application.

(8) Appraisal district--The county appraisal district that would appraise the property which is the subject of an application.

(9) Appraised value--The value of property as defined by Tax Code, §1.04(8).

(10) Completed application--An application in the form and number and containing all the information required pursuant to §9.1053 of this title (relating to Entity Requesting Agreement to Limit Appraised Value) that has been determined by the school district and the comptroller to include all minimum requirements for consideration.

(11) Comptroller--The Texas Comptroller of Public Accounts or the designated representative of the Texas Comptroller of Public Accounts acting on behalf of the comptroller.

(12) Entity--Any entity upon which a tax is imposed by Tax Code, §171.001 including a combined group as defined by Tax Code, §171.0001(7) or members of a combined group, provided however, an entity as defined herein does not include a sole proprietorship, partnership or limited liability partnership.

(13) Data Analysis and Transparency Division or DAT [Economic Development and Analysis Division or ED&A]--The Data Analysis and Transparency Division [Economic Development Division and Analysis Division] of the comptroller's office, or the division of the comptroller's office responsible for the administration of Tax Code, Chapter 313, acting through the designated division director or a representative thereof.

(14) Non-qualifying job--A permanent position of employment to perform work:

(A) that includes at a minimum the following requirements:

(i) that is based on the qualified property;

(ii) that is in direct support of activity identified in Tax Code, §313.024(b);

(iii) for at least 1,600 hours a year;

(iv) over which the applicant has significant degree of control of:

(I) the creation of the job;

(II) the job description;

(III) the job characteristics or performance of the job through either a business, contractual or vendor relationship; and

(B) is not a qualifying job as that term is defined in Tax Code, §313.021(3) and these rules.

(15) Qualified investment--Property that meets the requirements of Tax Code, §313.021(1).

(16) Qualified property--Land, new building, or new improvement erected or affixed to the land after the application review start date, or eligible tangible personal property first placed in service after the application review start date that:

(A) meets the requirements of Tax Code, §313.021(2), and that is used either as an integral part, or as a necessary auxiliary part, in manufacturing, research and development, a clean coal project, an advanced clean energy project, renewable energy electric generation, electric power generation using integrated gasification combined cycle technology, nuclear electric power generation, a Texas Priority Project, or a computer center;

(B) is clearly distinguished from any existing property and clearly distinguished from any proposed property that is not a new improvement;

(C) is separate from, and not a component of, any existing property;

(D) if buildings or improvements, did not exist before the application review start date or if tangible personal property, was first placed in service after the application review start date;

(E) is not used to renovate, refurbish, upgrade, maintain, modify, improve, or functionally replace existing buildings or existing improvements;

(F) does not replace or modify existing buildings other than expansion of an existing building; and

(G) is not used solely for the transportation of product prior to the commencement, or subsequent to the completion, of an applicable qualifying activity described in subparagraph (A) of this paragraph.

(17) School district--A school district that has received an application for a limitation on appraised value pursuant to Tax Code, Chapter 313 or the designated representative of the school district acting on behalf of the school district.

(18) SOAH--State Office of Administrative Hearings.

(19) Substantive document--A document or other information or data in electronic media determined by the comptroller to substantially involve or include information or data significant to an application, the evaluation or consideration of an application, or the agreement or implementation of an agreement for limitation of appraised value pursuant to Tax Code, Chapter 313. The term includes, but is not limited to, any application requesting a limitation on appraised value and any amendments or supplements, any economic impact evaluation made in connection with an application, any agreement between applicant and the school district and any subsequent amendments or assignments, any school district written finding or report filed with the comptroller as required under this subchapter, and any completed Annual Eligibility Report (Form 50-772A) submitted to the comptroller.

(20) Agreement holder--An entity that has executed an agreement with a school district.

(21) Average weekly wage for manufacturing jobs--Either the average weekly wage:

(A) for all jobs primarily engaged in activities described in Sectors 31 - 33 of the 2007 North American Industry Classification System in a county as identified by the Texas Workforce Commission's Quarterly Employment and Wages (QCEW) webpage at http://www.tracer2.com/cgi/dataanalysis/AreaSelection.asp?tableName=Industry; or

(B) for all manufacturing jobs or if the information for subparagraph (A) of this paragraph is not available, as determined by data published annually by the Texas Workforce Commission for the purposes of Tax Code, Chapter 313 for each Council of Government Region, based on Bureau of Labor Statistics, Texas Occupational Employment and Wages (OES) data, as it is posted at http://www.tracer2.com/admin/uploadedPublications/COGWages.pdf.

(22) Average weekly wage for non-qualifying jobs--The average weekly wage as identified by the Texas Workforce Commission Quarterly Employment and Wages (QCEW) average weekly wages for all private industries for the most recent four quarterly periods for which data is available at the time that an application is deemed complete, as it is posted at http://www.tracer2.com/cgi/dataanalysis/AreaSelection.asp?tableName=Industry.

(23) First placed in service--The first use of the property by the agreement holder.

(24) New improvement--A building, structure, or fixture that, after the application review start date:

(A) is a discrete unit of property erected on or affixed to land eligible to be qualified property; and

(B) is not erected or affixed as part of maintenance, renovation, refurbishment, improvement, modification, or upgrade of existing property, nor is newly added or proposed to be added property functionally replacing existing property, provided however that a proposed improvement may be considered a new improvement if it is an addition to an existing building that will contain new tangible personal property that did not exist before the application review start date.

(25) Per capita income--Per capita money income in the past 12 months as determined by the United States Census Bureau and reported at its website http://www.census.gov [http://quickfacts.census.gov/qfd/states/48000.html].

(26) Strategic investment area--An area that is:

(A) a county within this state with unemployment above the state average and per capita income below the state average;

(B) an area within this state that is a federally designated urban enterprise community or an urban enhanced enterprise community; or

(C) a defense economic readjustment zone designated under Government Code, Chapter 2310.

(27) Texas Economic Development Act Agreement--The form, adopted by reference in §9.1052 of this title, which provides a template for the terms of an agreement to implement a limitation on appraised value on property within a school district and that has the title Agreement For Limitation On Appraised Value Of Property For School District Maintenance And Operations Taxes.

(28) Texas Priority Project--A project on which the applicant commits to place in service qualified investment of more than $1 billion during the qualifying time period, based on the comptroller review of the application submitted by the school district.

(29) Unemployment--The most recent calendar year unemployment rate, not seasonally adjusted, as determined by the Labor Market & Career Information Department (LMCI) of the Texas Workforce Commission and reported at its website http://www.tracer2.com/cgi/dataanalysis/AreaSelection.asp?tableName=Labforce.

(30) Qualifying job--A permanent position of employment that includes at a minimum the following requirements:

(A) provides work for at least 1600 hours a year;

(B) is in direct support of activity identified in Tax Code, §313.024(b);

(C) is based on the qualified property;

(D) is a job over which the applicant has significant degree of control of:

(i) the creation of the job;

(ii) the job description;

(iii) the job characteristics or performance of the job through either a business, contractual or vendor relationship;

(E) is covered by a group health benefit plan for which the applicant offers to pay at least 80% of the premiums or other charges assessed for employee-only coverage under the plan, regardless of whether an employee may voluntarily waive the coverage;

(F) pays at least 110% of the county average weekly wage for manufacturing jobs in the county where the job is located;

(G) that has not been transferred from another part of the state; and

(H) that has not been created to replace a previous employee.

(31) Assignment--A transfer by an agreement holder of all rights, benefits, obligations, or interests in an agreement to a successor agreement holder. This term does not include a partial assignment.

§9.1052.Forms.

(a) The comptroller adopts by reference the following forms:

(1) Application for Appraised Value Limitation on Qualified Property (Form 50-296A);

(2) Annual Eligibility Report (Form 50-772A);

(3) Biennial Progress Report for Texas Economic Development Act (Form 50-773A);

(4) Job Creation Compliance Report (Form 50-825);

(5) Biennial School District Cost Data Request (CDR) (Form 50-827); and

(6) Texas Economic Development Act Agreement (Form 50-826).

(b) Copies of the forms are available for inspection at the office of the Texas Register or may be obtained from the Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3528. The forms may be viewed or downloaded from the comptroller's website [web site], at https://www.comptroller.texas.gov/economy/local/ch313/forms.php [http://www.texasahead.org/tax_programs/chapter313/legal.php]. Copies may also be requested by calling our toll-free number, (800) 531-5441, extension 34679 [(800) 252-9121].

(c) In special circumstances, a school district may obtain prior approval in writing from the comptroller to use an application or agreement form that requires additional information, or sets out the required information in different language or sequence than that which this section requires.

§9.1055.Comptroller Application Review and Agreement to Limit Appraised Value.

(a) Documents submitted to comptroller. Within 15 days of receiving or creating a substantive document, the comptroller shall post such document on the comptroller's Internet website, provided however, the comptroller shall not post any documents determined to be confidential in accordance with Tax Code, §313.028 and this section.

(1) The comptroller shall deem information as confidential only if the document:

(A) at the time that it is received by the comptroller, the party requesting confidentiality:

(i) has segregated the information for which confidentiality is being requested from the other information submitted to the comptroller and clearly and conspicuously labeled it confidential information;

(ii) provides a written list specifically identifying each document, portion of document, or entry in the form prescribed by the comptroller that applicant contends is confidential; and

(iii) provides in writing specific reasons, including any relevant legal authority, stating why the material is believed to be confidential; and

(B) the comptroller determines that the information for which confidentiality is sought describes:

(i) specific processes or business activities to be conducted by the applicant; or

(ii) specific tangible personal property to be located on real property covered by the application.

(2) Substantive documents deemed confidential will not be posted on the internet and will otherwise be withheld from public release unless and until the governing body of the school district acts on the application or the comptroller is directed to release the documents by a ruling from the Attorney General.

(3) All applications and parts of applications which are not segregated and marked as confidential as required under this section shall be considered substantive documents and shall be posted on the internet.

(4) When the governing body of the school district agrees to consider the application, information in the custody of a school district or the comptroller in connection with the application, including information related to the economic impact of a project or the essential elements of eligibility pursuant to Tax Code, Chapter 313, such as the nature and amount of the projected investment, employment, wages, and benefits, shall not be considered confidential business information.

(5) Any documents submitted in an electronic format (including searchable pdfs) to the comptroller must comply with the accessibility standards and specifications described in the 1 TAC Chapters 206 and 213.

(b) Application review. Upon receiving an application and accompanying documentation, the comptroller shall review the application to determine if it is complete.

(1) If the comptroller determines that the application was not submitted in compliance with or does not have documents or information required pursuant to §9.1053(a) and if applicable (b), of this title (relating to Entity Requesting Agreement to Limit Appraised Value), or does not provide all necessary information the comptroller determines is necessary to make the determinations required by Tax Code, §313.026, and subsection (d) of this section, the comptroller shall provide written notice to the school district, with a copy to applicant, identifying the information that is required or necessary to complete the application.

(A) Supplemental application information, amended application information, and additional information requested by the comptroller shall be promptly forwarded to the comptroller within 20 days of the date of the request.

(B) On request of the school district or applicant, the comptroller may extend the deadline for providing additional information for a period of not more than 10 working days.

(C) Additional information concerning investment, property value, property description, employment, and the qualifying time period that is not provided to the comptroller in a timely manner may or may not be used by the comptroller in making the determinations required by Tax Code, §313.026 or this section.

(2) Until the comptroller receives such information as is required and necessary to be submitted by applicant, the comptroller may discontinue further action on the application. The comptroller shall discontinue consideration of an application that remains incomplete for more than 180 days after the date the comptroller first received the application plus the number of days of any extension, notice of which has been provided to the comptroller pursuant to §9.1054(d) of this title (relating to School District Application Review and Agreement to Limit Appraised Value).

(3) When the comptroller determines that the documentation submitted in support of an application meets the requirements for an application pursuant to §9.1053(a) and if applicable (b), of this title, and the comptroller has received from the school district a request to provide an economic impact evaluation and all necessary documents for an appropriate evaluation of the requested appraised value limitation from the applicant and the school district, the comptroller shall provide:

(A) written notice to the school district and applicant that applicant has submitted a completed application; and

(B) a copy of the completed application to the Texas Education Agency.

(c) Action on completed application. After issuing a notice of a completed application, and after receipt of the information from the school district required by §9.1054(c)(2) of this title, the comptroller shall determine whether the property meets the requirements of Tax Code, §313.024 for eligibility for a limitation on appraised value pursuant to the provisions of Tax Code, Chapter 313, Subchapter B or C, whichever is applicable.

(1) If the comptroller determines that the property is not eligible for a limitation on appraised value, the comptroller shall:

(A) notify the governing body of the school district and applicant of the comptroller's determination by certified mail return receipt requested; and

(B) discontinue consideration of the application.

(2) If an applicant disagrees with a denial of eligibility for limitation of appraised value under Tax Code, §313.024, applicant may appeal the eligibility determination pursuant to the procedures set forth in Tax Code, Chapter 313 and in §9.1056 of this title (relating to Eligibility Determination Appeal). If an appeal under §9.1056 of this title, results in a determination that the project is eligible, the comptroller shall re-commence review of the application.

(d) Action on an eligible completed application. After determining that property identified in an application is eligible for limitation for appraised value and upon receiving a request from the school district to prepare an economic impact analysis, the comptroller shall:

(1) review any information available to the comptroller including:

(A) the application;

(B) public documents or statements by the applicant concerning business operations or site location issues or in which the applicant is a subject;

(C) statements by officials of the applicant, public documents or statements by governmental or industry officials concerning business operations or site location issues;

(D) existing investment and operations at or near the site or in the state that may impact the proposed project;

(E) announced real estate transactions, utility records, permit requests, industry publications or other sources that may provide information helpful in making the determination; and

(F) market information, raw materials or other production inputs, availability, existing facility locations, committed incentives, infrastructure issues, utility issues, location of buyers, nature of market, supply chains, other known sites under consideration, or any other information;

(2) prepare an economic impact analysis on the investment proposed by the application as required by Tax Code, §313.025 which may include:

(A) estimates of the maintenance and operations taxes for the 25 year period after the beginning of the limitation period;

(B) estimated tax revenue to the state generated by expenditures by the project, including wages, construction and operational expenditures, or other expenditures; and

(C) tax impacts, positive or negative, to the state based on indirect effects of the project, as estimated by the agency and using publicly available economic modeling systems;

(3) make the following determinations whether:

(A) it is reasonable to conclude from all the information available that the application is true and correct;

(B) the applicant is eligible for the limitation on the appraised value of the applicant's qualified property;

(C) the project proposed by the applicant is reasonably likely to generate tax revenue in an amount sufficient to offset the school district maintenance and operations ad valorem tax revenue lost as a result of the agreement before the 25th anniversary of the beginning of the limitation period; and

(D) the limitation on appraised value is a determining factor in the applicant's decision to invest capital and construct the project in this state;

(4) not later than 90 days after written notice that the school district and the comptroller have determined that applicant has submitted a completed application that is eligible for a limitation of appraised value under Tax Code, §313.025(b), provide to the school district:

(A) an economic impact evaluation as required pursuant to Tax Code, §313.025(b);

(B) the comptroller's conclusion for each made pursuant to paragraph (3) of this subsection; and

(C) one of the three following:

(i) a comptroller certificate for a limitation;

(ii) a comptroller certificate for a limitation, subject to:

(I) conditions identified in the comptroller certificate for a limitation being completed prior to execution of the agreement; or

(II) the agreement including additional provisions as identified in the comptroller certificate for a limitation; or

(iii) a written explanation of the comptroller's decision not to issue a certificate.

(e) Action after agreement review. No later than 10 business days after receiving an agreement for limitation on appraised value acceptable to an applicant, the comptroller:

(1) shall review the agreement for:

(A) compliance with Tax Code, Chapter 313, and this subchapter; and

(B) consistency with the application submitted to the comptroller and as amended or supplemented;

(2) if the comptroller determines that the agreement as submitted by the applicant does not comply with Tax Code, Chapter 313 or this subchapter or that the agreement contains provisions that are not consistent with or represents information significantly different from that presented in the application as submitted to the comptroller, may amend or withdraw the comptroller certificate for a limitation; and

(3) provide written notification to the school district of the actions taken under this subsection.

(f) Application changes after the notice of completed application. If the comptroller receives an amended application or a supplemental application by an applicant after the comptroller has prepared or sent written notice that applicant has submitted a completed application, the comptroller shall:

(1) reject the amended application, supplemental application, or application, in whole or in part, and discontinue consideration of any submission by applicant;

(2) with the written concurrence of the school district, consider the completed application, as amended or supplemented, before the 91st day from application review start date; or

(3) review the documents submitted by applicant and complete the requirements according to subsection (d) of this section.

(g) Applications and agreements for deferred qualifying time period. When an eligible completed application for an agreement for limitation on appraised value requests to begin the qualifying time period after the date that the application is approved, the comptroller:

(1) to the extent possible, shall prepare the economic impact analysis for an estimated impact of the qualified investment during the proposed qualifying time period;

(2) if an appraised value limitation agreement which defers the time at which the qualifying time period starts for more than one year is executed, may request at any time prior to the commencement of the qualifying time period additional information to revise the economic impact analysis for the qualified investment; and

(3) based on the revised economic impact analysis, may revise the comptroller certificate for a limitation that was previously submitted, or determine to not issue such a certificate; and

(4) if a revised comptroller certificate for a limitation is prepared, or a determination is made not to issue such a certificate, shall provide the revised comptroller certificate for a limitation, or a written explanation of the decision not to issue such certificate, and revised economic impact analysis to the school district and approved applicant.

§9.1058.Miscellaneous Provisions.

(a) A recipient of limited value under Tax Code, Chapter 313 shall notify immediately the comptroller, school district, and appraisal district in writing of any change in address or other contact [contract] information for the owner of the property subject to the limitation agreement for the purposes of Tax Code, §313.032. An assignee's or its reporting entity's Texas Taxpayer Identification Number shall be included in the notification.

(b) Changes in property values, population data, or strategic investment area designations that occur after an agreement is executed do not affect the job requirements or value limitation in the agreement.

(c) The comptroller may promulgate guidelines for the administration of Tax Code, Chapter 313.

(d) The comptroller shall provide information for determining the category in which a school district is classified pursuant to either Tax Code, §313.022 or §313.052 using the following procedure:

(1) No later than October 1 of each year, the comptroller shall publish on its website [web site] a list and map of the areas that qualify as a strategic investment area using the most recently completed full calendar year data available as of September 1 of that year.

(2) The school district and the comptroller shall apply the information from this list and property tax values published by the comptroller's Property Tax Assistance Division to determine school district categories applicable to applications for agreements for value limitation for the succeeding calendar year starting on January 1 of such year.

(e) Unless expressly stated otherwise, applications and the agreements executed for such application are governed by the statutes and applicable rules and guidelines in effect at the time the application is determined to be complete.

(f) To qualify as a series of agreements under Tax Code, §313.027(h), all agreements in the series must be held by the same agreement holder on closely related projects in which the first year of limitation for each agreement begins in different years.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2017.

TRD-201701705

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Earliest possible date of adoption: June 11, 2017

For further information, please call: (512) 475-0387