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RULE §3.4Tax Refunds for Wages Paid to an Employee Receiving Financial Assistance

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

  (1) Eligible employee--In order to qualify, an employee must meet the following criteria:

    (A) must be a resident of this state; and

    (B) must be a recipient of Aid to Families with Dependent Children (AFDC) during the month of hire.

  (2) Eligible taxes--Taxes eligible to be refunded under this section are limited to the following taxes, either paid or collected and remitted in the calendar year for which the refund of wages is sought.

    (A) State Sales and Use Tax. (Note: City, county, transit, special purpose district taxes or any other local sales and use taxes do not qualify for refund.)

    (B) Franchise Tax.

    (C) Inheritance Tax.

    (D) Public Utility Gross Receipts Tax.

    (E) Boat and Boat Motor Sales and Use Tax.

    (F) Manufactured Housing Sales and Use Tax.

    (G) Hotel Occupancy Tax.

  (3) Refund application--Claim for refund must be filed on a Department of Human Services (DHS) Form 1098-Application for Refund of Taxes Paid to the State of Texas.

  (4) Eligible wages--For purposes of this section, eligible wages has the meaning assigned to "wages" under §51(c)(1), (2), and (3), Internal Revenue Code of 1986 (26 United States Code §51).

(b) Refund available.

  (1) An employer who employs an eligible employee, on or after January 1, 1994, may file for a refund, beginning in January of 1995, of eligible taxes paid to either the state or a seller of taxable items. The amount of refund an employer may receive is limited to a maximum of $2,000 per eligible employee. The refund is calculated by taking 20% of the eligible wages, up to a maximum of $10,000 in eligible wages for each eligible employee, paid or incurred by an employer for services rendered by an eligible employee during the period beginning with the date the employee begins work for the employer and ending on the first anniversary of that date. EXAMPLE: ABC Company hires John Smith, an otherwise eligible employee, on August 1, 1994. For the period August 1, 1994, to December 31, 1994, ABC Company pays Mr. Smith $6,000. For the period January 1, 1995, to August 1, 1995 (the first anniversary of Mr. Smith's employment), ABC Company pays Mr. Smith $9,000. ABC Company paid in more than $25,000 in state sales taxes it collected in each of the calendar years 1994 and 1995. ABC Company may file a claim for $1,200 ($6,000 x .20) in 1995 for eligible wages paid to Mr. Smith in 1994 and a separate claim in 1996 for $800 ($4,000 x .20), for eligible wages paid to Mr. Smith in 1995, for a total refund of $2,000.

  (2) The refund claimed for a calendar year may not exceed the amount of the net tax, after any other applicable tax credits, paid or collected and remitted by the employer to this state in that calendar year.

  (3) An otherwise valid refund claim may not be taken by an employer as a credit against a current tax report.

(c) Employer eligibility. In order to qualify for a refund of eligible taxes paid the employer must:

  (1) have the refund claim certified by DHS;

  (2) provide and pay for the benefit of the eligible employee at least 80% of the cost of major medical health insurance coverage that provides for:

    (A) a maximum $300 deductible to the employee; and

    (B) payment by the insurance provider of at least 70% of insurance claims during the claim year in excess of the deductible; and

  (3) provide the same insurance coverage to the eligible employee that is provided to other employees in its employment.

(d) Filing of refund claims.

  (1) A separate application for refund form must be filed for each eligible employee hired and for each calendar year that the employee is eligible.

  (2) An application for refund filed by a third-party representative for an eligible employer must be accompanied by a valid power of attorney or other written authorization.

  (3) An application for refund must first be submitted to the DHS for certification. Properly completed forms will be accepted by the DHS only if postmarked on or after January 1, but before April 1, of the year following the calendar year in which the wages and taxes were paid. DHS will certify that an employee was a recipient of AFDC benefits on or before the beginning date of employment.

  (4) DHS will then forward certified claims to the comptroller's office for verification that sufficient eligible taxes were paid by the employer to cover the refund request. The comptroller's office will issue refund checks to employers filing timely and valid claims.

  (5) An employer requesting a refund of eligible taxes must maintain records supporting their refund request. These records are subject to audit verification. See §3.281 of this title (relating to Records Required; Information Required) and §3.282 of this title (relating to Auditing Taxpayer Records).

(e) Hearings request. Only employers whose refund claims are denied in full or partially denied by the comptroller's office are entitled to request a refund hearing. Employers whose requests are not certified by DHS will not be entitled to a refund hearing through the comptroller's office.

Source Note: The provisions of this §3.4 adopted to be effective August 9, 1995, 20 TexReg 5615.

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