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RULE §3.338Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers

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

  (1) Multistate Tax Compact--The agreement between member states to promote uniform tax treatment and to avoid double taxation of multistate taxpayers, of which the State of Texas is a member, as provided for in Tax Code, Chapter 141.

  (2) Sales tax--A tax imposed on the transfer of title or possession of taxable items for consideration. See Tax Code, §151.005.

  (3) Use tax--This term has the meaning given in §3.346 of this title (relating to Use Tax). Use tax is complementary to the sales tax and is imposed on the storage, use, or other consumption of taxable items in this state.

(b) Multistate tax credits.

  (1) As a member of the multistate tax compact, and as provided under Tax Code, §151.303(c), Texas will allow as a credit against Texas use tax due any combined amounts of legally imposed sales or use taxes paid on the same item to another state or any subdivision of another state. The credit will be allowed even though the other state may not be a member of the multistate tax compact.

  (2) The credit shall be applied first against the amount of any use tax due the state. Any remaining credit is then applied against the amount of local use tax due in the following order:

    (A) transit use tax, including use taxes imposed by a metropolitan transit authority, city transit department, county transit authority, advanced transportation district, or similar entity authorized to impose sales and use tax under the Transportation Code;

    (B) special purpose district use tax, including use taxes imposed by a fire control, prevention, and emergency services district, a crime control and prevention district, or any similar special purpose district created under Tax Code, Chapter 321 or 323;

    (C) county use taxes imposed under Tax Code, Chapter 323; and

    (D) municipal use tax imposed under Tax Code, Chapter 321, including additional municipal taxes adopted under Tax Code, §321.101(b).

  (3) The following example illustrates the manner in which the credit should be calculated and applied. A person buys a laptop computer in Oklahoma for $1300 and pays 5.0% sales tax. The purchaser then takes the computer to Dallas. Texas state and local use taxes are due on this purchase at the rate of 8.25%. The 8.25% use tax is based on 6.25% state tax, 1.0% Dallas city tax, and 1.0% Dallas MTA tax. The purchaser may receive a credit for the 5.0% tax that was paid to Oklahoma. A total of 3.25% Texas state and local tax is due (8.25% Texas state and local tax - 5.0% Oklahoma state and local sales tax = 3.25%). The credit is first applied to state use tax. Therefore, state use tax of 1.25% is due (6.25% Texas state use tax - 5.0% Oklahoma state and local tax = 1.25%). The amount due for Texas state use tax is $1300 x 1.25% = $16.25. The amount due for Dallas Metropolitan Transit Authority use tax is $1300 x 1.0% = $13.00. The amount due for Dallas city use tax is $1300 x 1.0% = $13.00.

  (4) Sales tax legally imposed by the State of Texas will not be refunded because of payment of a use tax imposed by another state.

  (5) Use tax collected by the State of Texas will be refunded or allowed as a credit on subsequent sales and use tax returns to the extent of a subsequent payment of use tax to another state, if the other state's use tax was imposed as a result of the taxable item's use in that state prior to its use in Texas.

  (6) Credit against use tax collected by the State of Texas will not be allowed for sales tax paid to another state that was not legally due and paid to another state.

  (7) Credit against the Texas use tax will not be allowed for any gross receipts tax imposed on retailers in another state, if that tax is not customarily separated from the sales price of taxable items, and is not customarily passed on directly to customers as tax, but, rather, is characterized as a reimbursement or recovery of the tax owed by the retailer.

(c) Credit for tax paid to suppliers by permitted purchaser. General information about refund claims and credits that may be claimed in the context of a refund claim is located in §3.325 of this title (relating to Refunds and Payments Under Protest).

  (1) Credit may be claimed on a permitted purchaser's return for tax paid to suppliers in error.

    (A) Before taking a credit on a return, the permitted purchaser must have a receipt from a Texas retailer or other seller authorized to collect the Texas sales and use tax. The receipt must reflect the amount of tax paid and the selling price of the taxable item. Receipts from out-of-state sellers must identify the tax as Texas sales or use tax.

    (B) A credit must be claimed within the applicable statute of limitations. See §3.339 of this title (relating to Statute of Limitations).

    (C) Within the statute of limitations, a credit may be claimed on a return for a later reporting period or by filing an amended return for the reporting period in which the tax was paid in error.

  (2) A permitted purchaser may claim a credit for tax paid on the purchase of taxable items that were resold prior to the purchaser making a taxable use of the items.

  (3) Tax paid to a supplier on taxable items that the permitted purchaser does not resell but uses for an exempt purpose may be claimed as a credit on the purchaser's return. For example, a manufacturer who mistakenly pays tax to a supplier when purchasing manufacturing equipment that qualifies for exemption under Tax Code, §151.318 may claim a credit for the tax paid on that equipment.

  (4) Local sales and use tax credit may also be claimed. A permitted purchaser who claims a credit for local sales and use tax paid to a supplier is responsible for taking the credit against local tax to the same local taxing jurisdictions to which the supplier reported the tax.

(d) Effect of a person's rights to other deductions. Nothing in this section shall be construed as limiting a person's right to the deductions for bad debts, repossessions, returned sales, or renegotiated selling price as provided in the Tax Code or other sections of this title.

(e) Texas Emissions Reduction Plan Surcharge. Credit for tax paid to another state, governmental entity, or county is not allowed against the Texas Emissions Reduction Plan Surcharge imposed under Tax Code, §151.0515.

Source Note: The provisions of this §3.338 adopted to be effective December 6, 1996, 21 TexReg 11505; amended to be effective July 15, 2014, 39 TexReg 5427

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