Part 1.
COMPTROLLER OF PUBLIC ACCOUNTS
Chapter 3.
TAX ADMINISTRATION
Subchapter O. STATE SALES AND USE TAX
34 TAC §3.346
The Comptroller of Public Accounts proposes amendments
to §3.346, concerning use tax. The agency has determined that
amendments to this section effective February 9, 2011 relating to
direct pay permit holders and local tax allocations are inconsistent
with the Tax Code and do not clearly state agency policy. Accordingly,
subsections (f) and (g) are updated to reflect the correct information
and a cross reference is added to subsection (b)(2) of this section.
John Heleman, 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. Heleman 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 clarifying the applicability
and accrual of the use tax. 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 Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under Tax Code, §111.002,
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.
This amendment implements Tax Code, §§321.205(c) and
(d), 322.105(c), and 323.205(c) and (d).
§3.346.Use Tax.
(a)
Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1)
Storage--The keeping or retention of tangible personal
property in Texas for any purpose other than:
(A)
transporting property out of state to a location
outside Texas for use solely outside of Texas; or
(B)
processing, fabricating, or manufacturing of tangible
personal property into other property or attaching the tangible personal
property to or incorporating the tangible personal property into other
property that will be transported outside Texas for use solely outside
of Texas.
(2)
Use--The exercise of a right or power incidental
to the ownership of tangible personal property over tangible personal
property, including tangible personal property other than printed
material that has been processed, fabricated, or manufactured into
other property or attached to or incorporated into other property
transported into this state. With respect to a taxable service, use
means the derivation in this state of direct or indirect benefit from
the service. The term does not include the following:
(A)
the sale of tangible personal property or a taxable
service in the regular course of business;
(B)
the transfer of a taxable service as an integral
part of the transfer of tangible personal property in the regular
course of business;
(C)
the transfer of tangible personal property as an
integral part of the transfer of a taxable service in the regular
course of business;
(D)
the exercise of a right or power over tangible
personal property for the purpose of subsequently transporting the
property outside Texas for use solely outside of Texas; or
(E)
the exercise of a right or power over tangible
personal property for the purpose of processing, fabricating, or manufacturing
of tangible personal property into other property or attaching the
tangible personal property to or incorporating the tangible personal
property into other property that will be transported outside Texas
for use solely outside of Texas.
(3)
Use tax--A nonrecurring tax that is complementary
to the sales tax and is imposed on the storage, use, or other consumption
of a taxable item in this state.
(b)
Imposition of the use tax.
(1)
Out-of-state purchases. Use tax is due on taxable
items purchased out of state that are stored, used or consumed in
Texas.
(2)
Direct payment permit purchases. Use tax is due
on taxable items purchased under a direct payment permit that are
stored, used or consumed in Texas. See §3.288 of this title (relating
to Direct Payment Procedures and Qualifications)
and subsection
(g) of this section
.
(3)
Construction contracts.
(A)
Use tax is due on taxable items used, consumed
or incorporated into real property in Texas by a contractor in the
performance of a lump-sum contract for construction of a new improvement
to realty or for repair and remodeling of a residential improvement
to realty. See §3.291 of this title (relating to Contractors).
(B)
Use tax is due on taxable items used or consumed
in Texas by a person in the performance of a lump sum or separated
contract for nonresidential repair or remodeling, or in the performance
of a separated contract for construction of a new improvement to realty
or for repair or remodeling of a residential improvement to realty.
See §3.357 of this title (relating to Nonresidential Real Property
Repair, Remodeling, and Restoration; Real Property Maintenance) and §3.291
of this title.
(4)
Shipments of taxable items from out-of-state suppliers
and sellers to purchaser's designees. Use tax is due on taxable items,
such as gifts, catalogs and promotional goods purchased outside this
state by a purchaser engaged in business in this state if the taxable
items are delivered at the direction of the purchaser to a location
in Texas designated by the purchaser.
(A)
A purchaser is engaged in business in Texas if
the purchaser is required to collect sales or use tax under Tax Code,
Chapter 151 or if the purchaser has nexus or is engaged in business
in Texas as defined in §3.286 of this title (relating to Seller's
and Purchaser's Responsibilities, including Nexus, Permits, Returns
and Reporting Periods, Collection and Exemption Rules, and Criminal
Penalties).
(B)
Local use taxes (city, county, transit, special
purpose district) are also due, but only to the extent that the purchaser
is engaged in business in the local taxing jurisdictions into which
deliveries are made.
(5)
Raw materials manufactured or incorporated into
other tangible personal property. Use tax is due on raw materials
(tangible personal property), other than printed materials as provided
under paragraph (6) of this subsection, purchased outside this state
that have been processed, fabricated, or manufactured into other property
or attached to or incorporated into other property outside this state
and subsequently transported into this state, and, except as provided
by Tax Code, §151.056(b) regarding property incorporated under
a separated contract for the improvement of realty, includes the incorporation
of tangible personal property into real estate or into improvements
of real estate whether or not the real estate is subsequently sold.
(6)
Printed materials.
(A)
Use tax is due on the total cost of printed materials,
including printing, paper and ink, purchased out of state, such as
a book, brochure or catalog, and then shipped or delivered into Texas.
An example of such printed material is a catalog where either the
purchaser or the printer of the catalog first purchased ink and paper
outside of Texas that was then printed and bound before being mailed
to Texas residents in the form of a catalog. The item being used by
the purchaser in this state is the catalog and since the catalog is
not incorporated into another item, use tax is due on the total cost
of the catalogs delivered into Texas.
(B)
Use tax does not apply to printed materials purchased
outside of this state that have been processed, fabricated, or manufactured
into other property or attached to or incorporated into other property
transported into this state. An example would include the purchase
of printed pages by a Texas customer from an out-of-state printer
who ships the items directly to another out-of-state firm that binds
the items into a manual or book. The charge by the out-of-state binder
to the Texas customer is subject to tax. The charge by the vendor
that sold the printed materials to the Texas customer is not taxable
since the printed materials have been processed, fabricated, or manufactured
into other property or attached to or incorporated into other property
transported into this state.
(7)
Occasional sales.
(A)
A person who holds or is required to hold a sales
and use tax permit must accrue use tax on the purchase of a taxable
item from a person entitled to the occasional sale exemption from
sales tax provided by Tax Code, §151.304(b)(1) and remit it to
the comptroller. Tax Code, §151.304(b)(1) relates to one or two
sales during a 12-month period by a person who does not habitually
engage, or hold himself out as engaging, in the business of selling
taxable items at retail.
(B)
A purchaser who holds or is required to hold a
sales and use tax permit is not required to accrue use tax and remit
it to the comptroller on a purchase from a person entitled to claim
the occasional sales exemption from sales tax provided by Tax Code, §151.304(b)(2)
- (5). Tax Code, §151.304(b)(2) relates to the sale of the entire
operating assets of a business or of a separate division, branch,
or identifiable segment of a business; Tax Code, §151.304(b)(3)
relates to the transfer of all or substantially all the property used
by a person in the course of an activity if after the transfer the
real or ultimate ownership of the property is substantially similar
to that which existed before the transfer; Tax Code, §151.304(b)(4)
relates to the sale of not more than 10 admissions for amusement services
during a 12-month period by a person who does not hold himself out
as engaging, or does not habitually engage, in providing amusement
services; Tax Code, §151.304(b)(5) relates to sales of items
purchased for use by an individual who does not hold, and is not required
to obtain a sales and use tax permit. In order to be exempt from sales
tax, total sales by the individual must not exceed $3,000 per calendar
year. See §3.316 of this title (relating to Occasional Sales;
Joint Ownership Transfers; Sales by Senior Citizens' Organizations;
Sales by University and College Student Organizations; and Sales by
Nonprofit Animal Shelters).
(c)
Inapplicability of use tax.
(1)
Use tax is not applicable if the purchaser of a
taxable item paid sales tax to a Texas seller or owes sales tax to
a Texas seller who failed to collect it. The comptroller may proceed
against the seller or the purchaser for the sales tax owed by either.
(2)
Use tax is not applicable to the storage, use,
or other consumption of taxable items in this state if the sale, lease,
or rental of the taxable items would be exempt from the sales tax
had the items been purchased within Texas.
(d)
User liability, payment of the tax and credit for
tax paid to another state.
(1)
The person storing, using, or consuming a taxable
item in this state is liable for the tax imposed under this section,
and except as provided by paragraph (2) of this subsection, the liability
continues until the tax is paid to the state.
(2)
The liability may be extinguished by payment of
the Texas use tax directly to the comptroller or to a seller authorized
to collect it. See the use tax permit requirements for out-of-state
sellers in §3.286 of this title.
(3)
The basis of the use tax is the total purchase
price of the taxable item, including any related charges such as shipping
and handling fees, regardless of whether such fees are separately
stated. See §3.303 of this title (relating to Transportation
and Delivery Charges).
(4)
The tax must be reported and remitted to the comptroller
with the return covering the period in which the taxable items are
first stored, used, or otherwise consumed in Texas as provided by §3.286
of this title. Purchasers without a sales and use tax permit should
refer to §3.286 of this title to view the tax responsibilities
of non-permitted purchasers.
(5)
Credit is allowed against the use tax liability
to the extent that a similar sales or use tax was legally due and
paid to another state under the conditions provided in Tax Code, Chapter
141 and Chapter 151, §151.303. See §3.338 of this title
(relating to Multistate Tax Credits and Allowance of Credit for Tax
Paid to Suppliers).
(e)
Presumption.
(1)
Tangible personal property that is shipped or brought
into this state by, or at the direction of, a purchaser is presumed,
in the absence of evidence to the contrary, to have been purchased
from a seller for storage, use, or consumption in this state. A taxable
service used in this state is presumed, in the absence of evidence
to the contrary, to have been purchased from a seller for use in this
state.
(2)
Tangible personal property purchased out of state
and used for its intended purpose outside of Texas for more than one
year before the date of entry into Texas will not be presumed to have
been purchased for use in Texas. This presumption applies only if
the use outside Texas is substantial and constitutes a primary use
for which the property was purchased. Either the comptroller or the
purchaser may introduce evidence to establish the intent or absence
of intent to use the taxable items in Texas at the time of purchase.
(3)
If tangible personal property is shipped outside
of Texas by the seller such that the transaction is exempt from sales
tax under Tax Code, §151.330(a), and the property is outside
of Texas for less than one year before reentering Texas, the presumption
is that the property is purchased for use in Texas.
(f)
Local use tax is due to the jurisdictions
where taxable items are first stored, used, or consumed.
(g)
Direct payment permit holders
- election to pay use tax at time of first storage or upon first removal
from storage for use in Texas. If, at the time an item is purchased
and stored in the state, it is not known if the item will be used
in Texas or removed from the state for use elsewhere, a direct payment
permit holder can elect to either pay state and local use tax at the
time an item is first removed from storage for use in Texas or elect
to pay state and local use tax on the item when first stored in Texas.
This election must consistently apply to all stored items once the
election is made and consistently apply to all state and local taxes
that are due. Local tax is due to the jurisdictions where the item
is first stored regardless of which election is chosen. A direct pay
permit holder who elects to pay Texas use tax when items are first
stored may claim a refund as provided by other sections of this title
of taxes paid on items that are removed from storage in Texas for
use elsewhere.
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This agency hereby certifies that the proposal
has been reviewed by legal counsel and found to be within the agency's
legal authority to adopt.
Filed with the Office
of the Secretary of State on May 3, 2012.
TRD-201202277
Ashley Harden
General Counsel
Comptroller of Public Accounts
Earliest possible date of adoption: June 17, 2012
For further information, please call: (512) 475-0387
Subchapter H. TAX RECORD REQUIREMENTS
(f)
Storage of property
purchased out of state or under a direct payment permit.]
(1)
If storage facilities contain property
purchased out of state or under a direct payment permit, and the purchaser
does not know at the time the property is stored whether the property
will be used in Texas or will be removed from the state, then the
purchaser may elect to report the use tax either when the property
is first stored in Texas or when the property is first removed from
inventory for use in Texas, as long as use tax is reported in a consistent
manner.]
(2)
If use tax is paid on stored property
that is subsequently removed from Texas, the tax may be recouped in
accordance with the refund and credit provisions in §3.338 of
this title and §3.325 of this title (relating to Refunds, Interest,
and Payments under Protest).]
(g)
Local Tax.]
(1)
Local use tax is due on the purchase
or lease price of taxable items purchased out of state or under a
direct payment permit to the local taxing jurisdictions in which the
taxable items are first stored in a taxing jurisdiction, or if not
stored, where the taxable items are first used, or otherwise consumed.]
(2)
A direct pay permit holder who does
not know at the time of storage whether the taxable items being stored
will be used in Texas may elect to accrue and report both state use
tax and local use taxes based on either first storage or first use,
as long as the use tax is reported in a consistent manner. A direct
pay permit holder must use the same method for the accrual of local
use taxes that is used for accrual of state use tax. In other words,
if a taxpayer elects to accrue state use tax based on the location
of first use, then the local use taxes due must also be accrued and
allocated based on the location in this state where first use occurs.
For the purpose of direct pay use tax accruals only, first storage
is not considered a use if the purchaser does not know at the time
of storage whether the taxable items being stored will be used in
Texas.]
Chapter 9.
PROPERTY TAX ADMINISTRATION