| (i) Example 1. An individual purchases access to a
dating application. The most reasonable customer location for consumption
of the service may be the billing address of the individual in the
absence of information regarding the individual's physical address.
(ii) Example 2. A benefactor purchases access to a
computer service for a charitable organization. The customer is the
purchaser's designee for consuming the service - the charitable organization.
The most reasonable customer location for consumption of the service
may be the physical address of the charitable organization.
(iii) Example 3. An intermediary purchases access to
a computer service for resale to a third party. The customer is purchaser's
designee for consuming the service - the third party. The most reasonable
customer location for consumption of the service may be the physical
location of the third party, if known.
(iv) Example 4. A law firm purchases access to a database
search program for attorneys in multiple offices. The customers are
the purchaser's designees for consuming the service - its attorneys.
The most reasonable customer locations for consumption of the service
may be physical addresses of each office, with the access fee sourced
proportionately based on the number of attorneys in each office.
(v) Example 5. A retailer with multiple sales outlets
purchases access to point of sales software that reports to the retailer's
central office. The most reasonable customer locations for consumption
of the service may be the physical addresses of the central office
and each designated point of sale, with the access fee sourced proportionately
between the central office and each designated point of sale.
(vi) Example 6. A retailer with multiple sales outlets
purchases access to federal income tax preparation software. The most
reasonable customer location for consumption of the service may be
the principal place of business of the retailer.
(vii) Example 7. An individual pays a fee to an internet
ride-sharing service connecting the individual with a driver at a
particular location. The most reasonable customer location for consumption
of the service may be the physical address of rendezvous point for
the ride.
(14) Leases and subleases.
(A) Gross receipts from the lease, sublease, rental,
or subrental of real property are sourced to the location of the property.
(B) Gross receipts from the lease, sublease, rental,
or subrental of tangible personal property are sourced to the location
of the property. If the property is used both inside and outside Texas,
then lease payments are sourced based on the number of days that the
tangible personal property was used in Texas divided by the number
of days that the tangible personal property was used everywhere. If
the amount due under the lease is based on mileage, then the lease
payments are sourced based on the number of miles in Texas divided
by the number of miles everywhere.
(C) If a lump sum is charged for the lease, sublease,
rental, or subrental of more than one item of property, and the items
are located both inside and outside Texas, the lump-sum is sourced
to Texas based on a ratio of the fair rental value of the items located
in Texas to the fair value of the items located outside of Texas.
(D) Gross receipts from the lease, sublease, rental,
or subrental of a vessel that engages in commerce are sourced to Texas
based on the number of days that the vessel is engaged in commerce
in Texas waters divided by the number of days that the vessel is engaged
in commerce everywhere.
(E) Gross receipts from a lease, sublease, rental,
or subrental of real property or tangible personal property that is
treated as a sale for federal income tax purposes are sourced in the
same manner as a sale. Any portion of the payments that the contracting
parties designate as interest is sourced as provided in paragraph
(12) of this subsection, concerning interest.
(15) Litigation awards. Litigation awards are gross
receipts that are sourced to the location of the payor; however, if
the litigation awards are intended to replace receipts for which another
rule provided in this section applies, then the gross receipts are
sourced in accordance with that rule. For example, if a taxable entity
sues a Delaware corporation to recover on a sale of goods delivered
to a Texas location, then a judgment for the amount of that sale would
not convert the receipts from Texas gross receipts to Delaware receipts.
See subsection (f) of this section, for the sourcing of receipts from
judgments, compromises, or settlements that relate to natural gas
production.
(16) Loan servicing.
(A) Gross receipts from servicing loans secured by
real property are sourced to the location of the collateral real property
that secures the loan being serviced.
(B) Gross receipts from servicing loans that are not
secured by real property are sourced as provided in paragraph (26)
of this subsection, concerning services.
(17) Loans and securities treated as inventory of the
seller.
(A) Gross proceeds from the sale of a loan or security
treated as inventory of the seller for federal income tax purposes
are included in gross receipts even though the tax basis is not included
in total revenue under §3.587(e)(4) of this title. Securities
and loans held for investment or risk management purposes are not
inventory. Gross receipts from the sale of a loan or security treated
as inventory of the seller are sourced to the location of the payor
as provided in paragraph (25) of this subsection, concerning securities.
See paragraph (2) of this subsection, concerning capital assets and
investments, or paragraph (10) of this subsection, concerning financial
derivatives, for the treatment of gains and losses from sales of loans
and securities not treated as inventory of the seller.
(B) If a lending institution categorizes a loan or
security as "Securities Available for Sale" or "Trading Securities"
under Financial Accounting Standard No. 115, the gross proceeds of
the sale of that loan or security are considered gross receipts. In
this subparagraph, "Financial Accounting Standard No. 115" means the
Financial Accounting Standard No. 115 in effect as of January 1, 2009,
not including any changes made after that date.
(18) Membership or enrollment fees paid for access
to benefits. Membership or enrollment fees paid for access to benefits
are gross receipts from the sale of an intangible asset and are sourced
to the location of the payor.
(19) Mixed transactions. If a transaction involves
elements of both a sale of tangible personal property and a service,
but no documentation exists to show separate charges for the tangible
personal property and service elements, then the comptroller may determine
the amounts that are allocable to each element based on fair values
or on any available evidence.
(20) Net distributive income. The net distributive
income or loss from a passive entity that is included in total revenue
is sourced to the principal place of business of the passive entity.
(21) Patents, copyrights, and other intangible assets.
(A) Gross receipts from the use of intangible assets.
(i) Revenues from a patent royalty are included in
Texas receipts to the extent that the patent is utilized in production,
fabrication, manufacturing, or other processing in Texas.
(ii) Revenues from a copyright royalty are included
in Texas receipts to the extent that the copyright is utilized in
printing or other publication in Texas.
(iii) Gross receipts that the owner of a patent, copyrighted
material, trademark, franchise, or license receives from licensing
the use of the patent, copyrighted material, trademark, franchise,
or license are sourced to Texas to the extent the patent, copyrighted
material, trademark, franchise or license is used in Texas.
(iv) Royalties from an affiliated taxable entity that
does not transact a substantial portion of its business or regularly
maintain a substantial portion of its assets in the United States
are excluded from Texas gross receipts and gross receipts from an
entity's entire business.
(B) Gross receipts from the sale of intangible assets.
Except as otherwise provided in this section, gross receipts from
the sale of intangible assets are sourced to the location of payor.
(C) Examples.
(i) Example 1. The owner of seismic data grants a license
to an oil company to access the seismic data. Even though a license
is part of this transaction, the receipts are from the use of the
underlying intangible property, the seismic data (which cannot be
copyrighted), not from the use of a license. Accordingly, the receipts
are sourced under subparagraph (B) of this paragraph to the location
of the payor.
(ii) Example 2. An inventor licenses a patent to a
manufacturer. When the manufacturer licensee thereafter produces the
patented item, it uses the patent, and its payments to the inventor,
owner of the patent, are receipts from the use of a patent under subparagraph
(A) of this paragraph. The receipts that the inventor receives are
included in Texas receipts to the extent that the patent is used in
production, fabrication, manufacturing, or other processing in Texas.
(iii) Example 3. The owner of copyrighted material
grants a license to a publisher to publish the copyrighted material.
When the publisher publishes the copyrighted material, it uses the
copyright, and its payments to the owner are receipts from the use
of a copyright under subparagraph (A) of this paragraph. The receipts
that the copyright owner receives from the use of its copyright is
included in Texas receipts to the extent the copyright is used in
Texas.
(22) Qualified stock purchase under IRC, §338(h)(10)
(Certain stock purchases treated as asset acquisitions). Receipts
that are treated as receipts from the sale of assets by the target
taxable entity under IRC, §338(h)(10) are sourced according to
the rules that apply to sales of such assets. For the purposes of
this paragraph, the purchaser of the target's stock is considered
the purchaser of the assets.
(23) Real property. Gross receipts from the sale, lease,
rental, sublease, or subrental of real property, including mineral
interests, are sourced to the location of the property. Royalties
from mineral interests are considered revenue from real property.
(24) Sales taxes. State or local sales taxes that are
imposed on the customer, but are collected by a seller are not included
in the seller's gross receipts. However, discounts that a seller is
allowed to take in remittance of the collected sales tax are gross
receipts to the seller.
(25) Securities. Gross receipts from the sale of securities
are sourced to the location of the payor. If securities are sold through
an exchange, and the payor cannot be identified, then 8.7% of the
revenue is a Texas gross receipt. For reports originally due prior
to January 1, 2021, a taxable entity may use 7.9% instead of 8.7%.
(26) Services. Except as otherwise provided in this
section, gross receipts from a service are sourced to the location
where the service is performed.
(A) Location of performance. Except as provided in
other subparagraphs, a service is performed at the location of the
receipts-producing, end-product act or acts. If there is a receipts-producing,
end-product act, the location of other acts will not be considered
even if they are essential to the performance of the receipts-producing
acts. If there is not a receipts-producing, end-product act, then
the locations of all essential acts may be considered.
(i) Example 1. Admission fees, subscription fees, or
other charges for an audience to observe live or pre-recorded performances
are sourced to the locations where the recipients observe the performance.
The location where the live performance was rehearsed, the location
where the pre-recorded performance was recorded, and the location
where the admission fee or other charge was paid are not determinative.
(ii) Example 2. Gross receipts from the architectural
design of a structure, are sourced to the location or locations where
the architect performed the work. The delivery location of any tangible
work product, such as a blueprint, is not determinative. However,
if the tangible work product of the architect is considered to be
the sale of tangible personal property rather than the sale of a service,
such as the sale of house plan books, the gross receipts are sourced
as provided in paragraph (29) of this subsection, concerning tangible
personal property.
(B) If services are performed both inside and outside
Texas for a single charge, then receipts from the services are Texas
gross receipts on the basis of the fair value of the services that
are performed in Texas. In determining fair value, the relative value
of each service provided on a stand-alone basis may be considered.
Units of service, such as hours worked, may also be considered. The
cost of performing a service does not necessarily represent its value.
If costs are considered, costs should be limited to costs directly
related to the service and not overhead costs.
(i) Example 1. A law firm with offices in Texas and
Louisiana charges a client by the hour. Hours billed for work conducted
in Texas are Texas gross receipts.
Cont'd... |
