DAY TEXAS TAX
State and Local Tax Consulting
SALES TAX ISSUES AND
SOLUTIONS FOR TEXAS
BUSINESSES
Nathan Day
June 23, 2015
Agenda
 Texas Sales and Use Tax Overview
 Sales Tax Exemptions and Exemption Certificates
 Taxability Issues
 Sales Tax Compliance
 Voluntary Disclosure and Audit Defense
 Multi-State Sale and Use Tax
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Texas Sales and Use Tax Overview

Imposition of sales tax (Tex. Tax Code Ann. §
151.010, § 151.051, § 151.101 )

Transaction tax

Taxable sale or purchase
•
Tangible personal property
•
Enumerated taxable services
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Texas Sales and Use Tax Overview

Responsibility for sales tax (§3.286)
Collection of tax

•
Permitted seller
Payment/liability of tax

•
Purchaser
•
Seller
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Texas Sales and Use Tax Overview

Sales tax vs. use tax
Sales tax

•
Goods are purchased in Texas
•
Example – purchase something from a store in Texas
Use tax


•
Goods are purchased from outside Texas and used in Texas
•
Example – purchase something online from a California
retailer
Same taxability rules and tax rates
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Sales and Use Tax - Texas
 Sales Tax Exemptions and Exemption
Certificates

Exemptions based on the item (e.g., Certain food
items; Water; Certain medical items; etc.)

Exemption based on use (e.g., Manufacturing;
Resale; Agriculture; etc.)

Exemption based on the type of purchaser (e.g.,
Nonprofit organizations; Government entities;
etc.)
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales Tax Exemptions and Exemption
Certificates

Exemption certificates (§3.285; §3.287)
Types of exemption certificates

•
General exemption certificate
•
•
•
•
•
•
Resale certificate
Direct pay certificate
Agriculture certificate
Maquiladoras
Occasional sale
Other
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales Tax Exemptions and Exemption
Certificates

Exemption certificates (§3.285; §3.287)
Types of exemption certificates

•
General exemption certificate
•
•
•
•
•
•
Resale certificate
Direct pay certificate
Agriculture certificate
Maquiladoras
Occasional sale
Other
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales Tax Exemptions and Exemption
Certificates

Exemption certificates (§3.285; §3.287)
(continued)
Acceptance of exemption certificates

•
Required information
•
Validity period
•
http://www.window.state.tx.us/taxinfo/sales/tp_
db_search.html

Retention
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Taxability Issues

Service providers (Tex. Tax Code Ann. § 151.0101)
Taxable services

•
•
•
•
•
Amusement services
Cable television services
Personal services
Motor vehicle parking and storage services
Repair, remodeling, maintenance, and restoration of
tangible personal property
•
•
Telecommunications services
Credit reporting services
•
Debt collection services
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Taxability Issues
Taxable services (continued)

•
•
•
Insurance services
Data processing services
Information services
•
•
•
•
•
•
Real property services
Real property repair and remodeling
Security services;
Telephone answering services;
Internet access service
Utilities
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Taxability Issues

Service providers (Tex. Tax Code Ann. §
151.0101)

Nontaxable services

Mixed transactions

Purchases
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Taxability Issues

Contractors and construction (§3.291; §3.356;
§3.357)

New construction vs. existing structure

Nonresidential vs. residential

Lump-sum vs. separated contracts

Purchases
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Taxability Issues

Not-for-profit entities (§3.322)
Qualifications for a sales and use tax exemption

•
Charitable
•
Educational
•
Religious
•
Federal
•
Others
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Taxability Issues

Not-for-profit entities (§3.322) (continued)
Registration requirements

•
http://comptroller.texas.gov/taxinfo/prac_corner.
html

Purchases by a not-for-profit entity

Sales by a not-for-profit entity

Joint ventures with for profit entities
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Taxability Issues

Manufacturing (§3.300)

Who qualifies for the manufacturing exemption?

What is exempt?

Key items that are not exempt

How the exemption is obtained

Installations
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Taxability Issues

Mergers, acquisitions, and corporate
reorganizations (§3.316; §3.7)
Occasional sale exemption

•
Qualifications
Successor liability

•
Seller requirements
•
Purchaser requirements
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales Tax Compliance

State and local sales tax collections (§3.286)

Cash basis vs. accrual basis

Local tax rates
•
One place of business
•
Multiple places of businesses
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales Tax Compliance

State and local sales tax filings (§3.286)

Frequency

Reporting taxable purchases

E-file vs. paper

Must file even if no tax is due
•
Late filing penalty even if no tax is due
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales Tax Compliance

Use tax accruals (§3.346)
Nontaxed taxable purchases

•
Common on purchases from out of state

Remit when filing sales tax return if permitted

Remit on Texas use tax return if not permitted

Best practices
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales and use tax compliance

Registration and permit requirements
(§3.286)

Sellers of taxable items

Business restructuring

Change in ownership information
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales Tax Compliance

Sales and use tax research
Texas Comptroller’s Sales Tax Webpage:

•
http://www.window.state.tx.us/taxinfo/sales/
Texas Comptroller’s State Tax Automated
Research System (STAR):

•
http://cpastar2.cpa.state.tx.us/index.html
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Voluntary Disclosure Agreements (“VDA”)

Advantageous way to remit past due taxes

Anonymous process

Limited lookback period

Generally will waive penalty and interest

Qualifications
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DAY TEXAS TAX
Sales and Use Tax - Texas
 Sales and Use Tax Audits

Sales tax audit process

Best practices

Advanced preparations
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DAY TEXAS TAX
Sales and Use Tax – Multi-State
 Nexus – Collection and Filing Requirements

Sales/Use Tax Nexus – connection or
presence in a state sufficient to require
businesses to collect sales/use taxes.

Activities likely creating nexus:

Property or employees physically present in
the state

Services performed in a state (i.e., installation,
repair, training, and many more)
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DAY TEXAS TAX
Sales and Use Tax – Multi-State
 Nexus – Collection and Filing Requirements

Activities likely creating nexus (continued):

Temporary visit by sales people, independent
contractors, and agents

Inventory – including consignment and WIP

Many others!!
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DAY TEXAS TAX
Sales and Use Tax – Multi-State
 Practice and Procedures

Sales and use tax filings

Tax rates to charge

Taxability determinations

Software providers




TaxCloud.net
CCH
Vertex
Others
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DAY TEXAS TAX
Sales and Use Tax – Multi-State
 Practice and Procedures

Drop shipments

Drop shipment scenario

Rules vary by state

Exemption certificate requirements

Sales tax permit requirements in ship-to state
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DAY TEXAS TAX
Sales and Use Tax – Multi-State
 Voluntary disclosure agreements (“VDA”)

Advantageous way to remit past due taxes

Process

Individual states

MTC

Limited lookback period

Generally will waive penalty

Qualifications
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DAY TEXAS TAX
Questions?
Please contact me:
Nathan Day, CPA
[email protected]
Direct: 817-479-4287
Mobile: 469-951-2348
Daytexastax.com
(Day Texas Tax, LLC is not a CPA firm)
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DAY TEXAS TAX