| (12) Taxable item--Tangible personal property and taxable
services. Except as otherwise provided in Tax Code, Chapter 151, the
sale or use of a taxable item in electronic form instead of on physical
media does not alter the item's tax status.
(A) Tangible personal property means property that
can be seen, weighed, measured, felt, or touched or that is perceptible
to the senses in any other manner, including a computer program as
defined in §3.308 of this title (relating to Computers--Hardware,
Software, Services, and Sales) and a telephone prepaid calling card,
as defined in §3.344 of this title.
(B) Taxable services are those identified in Tax Code, §151.0101.
(b) Who must have a sales and use tax permit.
(1) Sellers. Each seller who is engaged in business
in this state, including itinerant vendors, persons who own or operate
a kiosk, and sellers operating temporarily in this state, must apply
to the comptroller and obtain a sales and use tax permit for each
place of business operated in this state.
(2) Out-of-state sellers. Each out-of-state seller
who has nexus with this state and is engaged in business in this state
must apply to the comptroller and obtain a sales and use tax permit.
An out-of-state seller is responsible for the collection and remittance
of sales and use tax on all sales of taxable items made in this state
until the seller ceases to have nexus with this state. An out-of-state
seller ceases to have nexus with this state when the seller no longer
has, and no longer intends to engage in activities that would create,
nexus with this state. For example, an out-of-state seller who enters
the state each year to participate in an annual trade show does not
cease to have nexus with this state between one trade show and the
next. In contrast, an out-of-state seller who discontinues the product
line that it marketed and sold in this state, and who does not anticipate
entering the state to solicit new business, has ceased to have nexus
with this state. An out-of-state seller is required to maintain, for
at least four years after the out-of-state seller ceases to have nexus
with this state, all records required by subsection (j) of this section,
including sufficient documentation to verify the date on which the
out-of-state seller ceased to have nexus with this state. For more
information regarding reporting periods, refer to subsection (g) of
(3) Direct sales organizations. Independent salespersons
of direct sales organizations are not required to hold sales and use
tax permits to sell taxable items for direct sales organizations.
Direct sales organizations engaged in business in this state are sellers
responsible for holding sales and use tax permits and for the collection
and remittance of sales and use tax on all sales of taxable items
by their independent salespersons. See subsection (d)(3) of this section
for more information about the collection and remittance of sales
and use tax by direct sales organizations.
(4) Non-permitted purchasers. Persons who are not required
to have a sales and use tax permit or who do not have a direct payment
permit are still responsible for paying to the comptroller sales or
use tax due on purchases of taxable items from sellers who do not
collect and remit tax. See subsection (g)(9) of this section for return
and payment information and §3.346 of this title (relating to
(5) Non-permitted sellers. Failure to obtain a sales
and use tax permit does not relieve a seller required by this section
or other applicable law to have a sales and use tax permit from the
obligation to properly collect and remit sales and use taxes. Sellers
whose sales and use tax permits are suspended, pursuant to subsection
(l) of this section, or cancelled, pursuant to subsection (n) of this
section, and sellers who have not received sales and use tax permits
due to unsigned or incomplete applications, are still responsible
for properly collecting and remitting sales and use taxes. See subsection
(g) of this section for return and payment information.
(c) Obtaining a sales and use tax permit.
(1) A seller must complete an application that the
comptroller furnishes and must return that application to the comptroller,
together with bond or other security that may be required by §3.327
of this title (relating to Taxpayer's Bond or Other Security). A seller
who files an electronic application furnished by the comptroller is
deemed to have signed the application and is not required to print
and mail a signed application to the comptroller. A separate sales
and use tax permit under the same taxpayer account number is issued
to the applicant for each place of business. Sales and use tax permits
are issued without charge.
(2) Each seller must apply for a sales and use tax
permit. An individual or sole proprietor must be at least 18 years
of age unless the comptroller allows an exception from the age requirement.
The sales and use tax permit cannot be transferred from one seller
to another. The sales and use tax permit is valid only for the seller
to whom it was issued and for the transaction of business only at
the address that is shown on the sales and use tax permit. If a seller
operates two or more types of business at the same location, then
only one sales and use tax permit is required.
(3) The sales and use tax permit must be conspicuously
displayed at the place of business for which it is issued. A permit
holder that has traveling sales persons who operate from a central
office needs only one sales and use tax permit, which must be displayed
at that office.
(4) All sales and use tax permits of the seller will
have the same taxpayer account number; however, each place of business
will have a different outlet number. The outlet numbers assigned may
not necessarily correspond to the number of business locations operated
by the seller.
(d) Collecting sales and use tax due.
(1) Bracket system.
(A) Each seller must collect sales or use tax on each
separate retail sale in accordance with the statutory bracket system
in Tax Code, §151.053. The practice of rounding off the amount
of sales or use tax that is due on the sale of a taxable item is prohibited.
Copies of the bracket system should be displayed in each place of
business so both the seller and the purchaser may easily use them.
(B) The sales and use tax applies to each total sale,
not to each item of each sale. For example, if two items are purchased
at the same time and each item is sold for $.07, then the seller must
collect the tax on the total sum of $.14. Sales and use tax must be
reported and remitted to the comptroller as provided by Tax Code, §151.410.
When sales and use tax is collected properly under the bracket system,
the seller is not required to remit any amount that is collected in
excess of the sales and use tax due. Conversely, when the sales and
use tax collected under the bracket system is less than the sales
and use tax due on the seller's total receipts, the seller is required
to remit sales and use tax on the total receipts even though the seller
did not collect sales and use tax from the purchasers.
(2) Sales and use tax due is debt of the purchaser;
(A) The sales and use tax due is a debt of the purchaser
to the seller until collected. Unpaid sales or use tax is recoverable
by the seller in the same manner as the original sales price of the
taxable item itself, if unpaid, would be recoverable. The comptroller
may proceed against either the seller or purchaser, or against both,
until all applicable tax, penalty, and interest due has been paid.
(B) The amount of sales and use tax due must be separately
stated on the bill, contract, or invoice to the purchaser or there
must be a written statement to the purchaser that the stated price
includes sales or use tax. Contracts, bills, or invoices that merely
state that "all taxes" are included are not specific enough
to relieve either party to the transaction of its sales and use tax
responsibilities. The total amount that is shown on such documents
is presumed to be the taxable item's sales price, without sales and
use tax included. The seller or purchaser may overcome the presumption
by using the seller's records to show that sales or use tax was included
in the sales price. Sellers located outside of Texas must identify
the tax as Texas sales or use tax on their bill, contract, or invoice
to the purchaser. If the out-of-state seller does not identify the
tax as Texas sales or use tax at the time of the transaction, the
seller is presumed not to have collected Texas sales or use tax. Either
the seller or the purchaser may overcome the presumption by submitting
evidence that clearly demonstrates that the Texas sales or use tax
was remitted to the comptroller.
(3) Direct sales organizations. A direct sales organization
is responsible for the collection and remittance of the sales and
use tax on all sales of taxable items in this state by the independent
salespersons who sell the organization's product or service as explained
in this paragraph. See subsection (b)(3) of this section for information
about sales and use tax permits required to be held by direct sales
(A) If an independent salesperson purchases a taxable
item from a direct sales organization after taking the purchaser's
order, then the direct sales organization must collect from the independent
salesperson, and remit to the comptroller, the sales and use tax on
the actual sales price for which the independent salesperson sold
the taxable item to the purchaser.
(B) If an independent salesperson purchases a taxable
item from a direct sales organization before the purchaser's order
is taken, then the direct sales organization must collect from the
independent salesperson, and remit to the comptroller, the sales and
use tax based on the organization's suggested retail sales price of
the taxable item.
(C) Taxable items that are sold to an independent salesperson
for the salesperson's use are taxed based on the actual sales price
for which the item was sold to the salesperson at the tax rate in
effect for the salesperson's location.
(D) Incentives, including rewards, gifts, and prizes.
(i) Direct sales organizations owe sales and use tax
on the cost of all taxable items used as incentives that are transferred
to a recipient in this state, including purchasers, independent salespersons,
and persons who host a direct sales event.
(ii) Direct sales organizations must collect sales
or use tax on the total amount of consideration received in exchange
for taxable items, including items purchased with hostess points or
similar forms of compensation paid to a person for hosting a direct
sales event and items that are earned by the host based on the volume
of purchases. The redemption of reward points in exchange for taxable
items is subject to sales tax under Tax Code, §151.005(2). See
also §3.283 of this title (relating to Bartering Clubs and Exchanges).
(4) Printers. A printer is a seller of printed materials
and is required to collect sales and use tax on sales of those materials
in this state. A printer who is engaged in business in this state,
however, is not required to collect the sales and use tax if:
(A) the printed materials are produced by a web offset
or rotogravure printing process;
(B) the printer delivers those materials to a fulfillment
house or to the United States Postal Service for distribution to third
parties who are located both inside and outside of this state; and
(C) the purchaser issues a properly completed exemption
certificate that contains the statement that the printed materials
are for multistate use and the purchaser agrees to pay to this state
all the sales and use taxes that are or may become due to the state
on the taxable items that are purchased under the exemption certificate.
See subsection (g)(4) of this section for additional reporting requirements.
(5) Fundraisers by exempt entities. Regardless of the
contractual terms between a for-profit entity and a non-profit exempt
entity relating to the sale of taxable items, other than amusement
services, as part of any fundraiser, the for-profit entity will be
considered the seller of the items under Tax Code, §151.024,
must be a permit holder, and is responsible for the proper collection
and remittance of any sales or use tax due. The exempt entity and
its representatives will be considered as representatives of the for-profit
entity. The for-profit entity may advertise in a sales catalog or
state on each invoice that sales and use tax is included, as provided
under paragraph (2) of this subsection, or may require that the sales
and use tax be calculated and collected by its representatives based
on the sales price of each taxable item. Fundraisers conducted by
exempt entities in this manner do not qualify as a tax-free sale day.
For more information on exempt entities and tax-free sales days, see §3.322
of this title (relating to Exempt Organizations). For more information
on amusement services, see §3.298 of this title (relating to
(6) Local sales and use tax. A seller who has nexus
with this state and is engaged in business in this state is required
to properly collect and remit local sales and use tax even if no sales
and use tax permit is required at the location where taxable items
are sold. For more information on the proper collection of local taxes,
see §3.334 of this title.
(e) Sales and use tax returns and remitting tax due.