Stay up to date with sales tax: Join our mailing list!


Texas has enacted a temporary sales and use tax exemption for certain tangible personal property used in data centers that meet certain capital investment and new employment requirements.  A qualifying data center is one that is a single qualifying applicant who will operate a new data center and who creates at least 20 qualifying jobs in the county in which the data center is location, not including jobs moved from another county within Texas.  A qualifying job means a full time, permanent job (a position that will exist for at least 5 years), that pays at least 120% of the county average weekly wage in the county where the job is based.  The exemption is effective September 1, 2013. The property must be necessary and essential to the operation of a qualified data center and must be purchased for installation at, incorporation into, or use in a qualifying data center by a qualifying owner, qualifying operator, or qualifying occupant. The following items of tangible personal property qualify for the exemption: electricity; an electrical system; a cooling system; an emergency generator; hardware or a distributed mainframe computer or server; a data storage device; network connectivity equipment; a rack, cabinet, and raised floor system; a peripheral component or system; software; a mechanical, electrical, or plumbing system that is necessary to operate any of the tangible personal property described above; any other item of equipment or system necessary to operate any of the tangible personal property described above, including a fixture; and a component part of certain of the tangible personal property described above. The exemption does not apply to: office equipment or supplies; maintenance or janitorial supplies or equipment; equipment or supplies used primarily in sales activities or transportation activities; tangible personal property on which the purchaser has received or has a pending application for a refund; tangible personal property that is incorporated into real estate or an improvement; tangible personal property that is rented or leased for a term of one year or less; or a taxable service that is performed on tangible personal property exempted under this section. The exemption will begin on the date the data center is certified by the Comptroller as a qualifying data center and will expire on the 10th anniversary of that date if the qualifying occupant, qualifying owner, or qualifying operator independently or jointly makes a capital investment of at least $200 million but less than $250 million; or on the 15th anniversary of that date if a capital investment of $250 million or more is made. Persons eligible to claim an exemption must hold a registration number issued by the Comptroller. The registration number must be stated on the exemption certificate provided by the purchaser to the seller of the property eligible for the exemption. The Texas Comptroller has created a webpage providing information, links, forms, and other resources regarding the data center exemption. To view the webpage, click here.

 

UPDATE: The Comptroller of Public Accounts has adopted an emergency rule to implement the data center exemption. The rule contains definitions of key terms pertaining to the exemption. The rule also covers the following: items eligible for exemption; exclusions from the exemption; eligibility for certification of a data center; the application process for certifying a data center; the duration of the exemption; exemption certificate;  revocation of registration number; documentation and record retention; and local taxes.  To view the text of the rule, click here. (H.B. 1223, Laws 2013, effective September 1, 2013; Release, Texas Comptroller of Public Accounts, September 3, 2013; Emergency Rule 34 TAC 3.335, Texas Comptroller of Public Accounts, filed August 28, 2013, effective September 1, 2013, expires December 29, 2013)

(09/25/2013)

A taxpayer that manufactured signs was held to be a contractor for Texas sales tax purposes and as a result, was not eligible to claim a manufacturing exemption on its purchase of utilities, equipment, and materials used in manufacturing the signs. A taxpayer that incorporates the items it produces into real property is acting as a contractor. The taxpayer failed to prove that the signs remained tangible personal property and did not become improvements to realty once they were installed.  The taxpayer did not submit photographs, design documents or drawings. Additionally, the provisions in the parties' standard purchase and lease agreements were not particularly persuasive. Even if some of the signs were not incorporated into the realty, the taxpayer failed to show what portion of the equipment, supplies, and utilities was used to manufacture signs that might have retained their character as tangible personal property after installation. If the taxpayer was determined to be a manufacturer, its claim for an electricity exemption still would have been denied because its predominant use study did not comply with statutory requirements. No statute or rule supported the taxpayer's other contention that items used to manufacture signs shipped out of state were exempt.(Decision, Hearing No. 104,873, Texas Comptroller of Public Accounts, May 9, 2012, released July 2012)

(06/03/2013)

The federal Marketplace Fairness Act of 2013 was introduced in the House of Representatives and the Senate on February 14, 2013.  If passed, the bill would authorize states that meet certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes.  Under the legislation, a state would be authorized to require a remote seller to collect sales and use taxes only if the remote seller has gross annual receipts in total remote sales in the United States of more than $1 million in the preceding calendar year.

 

Member states of the Streamlined Sales and Use Tax (SST) Agreement would be authorized to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to that member state pursuant to the provisions of the SST Agreement. The SST Agreement would have to include certain minimum simplification requirements. An SST member state could begin to exercise authority under the Act beginning 90 days after the state publishes notice of its intent to exercise such authority, but no earlier than the first day of the calendar quarter that is at least 90 days after the date of the enactment of the Act.

 

States that are not members of the SST Agreement would be authorized, notwithstanding any other provision of law, to require all sellers that do not qualify for the small seller exception to collect and remit sales and use taxes with respect to remote sales sourced to the state if the state implements certain minimum simplification requirements. The authority would begin no earlier than the first day of the calendar quarter that is at least six months after the state enacts legislation to exercise the authority granted by the Act.

 

To enforce collection requirements on remote sellers that do not meet the small seller exception, states that are not members of the SST Agreement would have to implement the minimum simplification requirements listed below. For SST member states to have collection authority, the requirements would have to be included in the SST Agreement.

 

-       A single entity within the state responsible for all state and local sales and use tax administration, return processing, and audits for remote sales sourced to the state

-       A single audit of a remote seller for all state and local taxing jurisdictions within that state

-       A single sales and use tax return to be used by remote sellers to be filed with the single entity responsible for tax administration.

-       Each state would have to provide a uniform sales and use tax base among the state and the local taxing jurisdictions within the state.

-       Each state would have to source all interstate sales in compliance with the sourcing definition outlined below.

-       Each state would have to provide information indicating the taxability of products and services along with any product and service exemptions from sales and use tax in the state and a rates and boundary database. States would have to provide free software for remote sellers that calculates sales and use taxes due on each transaction at the time the transaction is completed, that files sales and use tax returns, and that is updated to reflect state and local rate changes. States would also have to provide certification procedures for persons to be approved as certified software providers (CSPs). Such CSPs would have to be capable of calculating and filing sales and use taxes in all the states qualified under the Act.

-       Each state would have to relieve remote sellers from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of an error or omission made by a CSP.

-       Each state would have to relieve CSPs from liability to the state or locality for the incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of misleading or inaccurate information provided by a remote seller.

-       Each state would have to relieve remote sellers and CSPs from liability to the state or locality for incorrect collection, remittance, or noncollection of sales and use taxes, including any penalties or interest, if the liability is the result of incorrect information or software provided by the state.

-       Each state would have to provide remote sellers and CSPs with 90 days’ notice of a rate change by the state or any locality in the state and update the taxability and exemption information and rate and boundary databases, and would have to relieve any remote seller or CSP from liability for collecting sales and use taxes at the immediately preceding effective rate during the 90-day notice period if the required notice is not provided.

 

For non-SST member states, the location to which a remote sale is sourced would be the location where the item sold is received by the purchaser, based on the location indicated by instructions for delivery. When no delivery location is specified, the remote sale is sourced to the customer's address that is either known to the seller or, if not known, obtained by the seller during the transaction, including the address of the customer's payment instrument if no other address is available. If an address is unknown and a billing address cannot be obtained, the remote sale is sourced to the address of the seller from which the remote sale was made. SST member states would be required to comply with the sourcing provisions of the SST Agreement.

 

On March 22, 2013, the U.S. Senate voted 75-to-24 in favor of the concept of the Marketplace Fairness Act. The actual Marketplace Fairness Act was introduced in both chambers in February, but last week Senator Enzi, the sponsor of the Senate bill, offered an amendment to the 2014 Budget Resolution that would include insertion of the language of Marketplace Fairness in the budget. It was a largely symbolic tactic since the Budget Resolution itself will not become law, but by approving the amendment, the Senate has shown that there is broad, bipartisan support for the notion of requiring remote sellers to collect sales tax.

 

On May 6, 2013, the U.S. Senate passed the Marketplace Fairness Act with a 69-27 vote.

 

UPDATE: On September 18, 2013, Rep. Bob Goodlatte, the chairman of the House Judiciary Committee released a set of seven principles that he believes any internet sales tax bill should meet.  The seven principles outlined by Goodlatte are tax relief, tech neutrality, no regulation without representation, simplicity, tax competition, states’ rights, and privacy rights.  For more details on the principles, click here to see the House Judiciary Committee’s press release.

 

We are continuing to track the activities of these bills.  We are also involved in planning efforts involving states and businesses regarding the potential implementation consequences of passage.  Watch for updates in the Sales Tax Compass as well as through our Twitter account and LinkedIn updates. 

 

The text of the bill passed by the Senate can be viewed here.

 

For an update on this news item, visit Senate Introduces Marketplace Fairness Act of 2015.

 

(H.R. 684 and S. 336, as introduced in Congress on February 14, 2013; S.743, as passed by the U.S. Senate on May 6, 2013)

(09/20/2013)

A Texas power plant operator’s purchases of turbines, generators, and accessories used to generate electricity did not qualify for the manufacturing exemption from sales and use tax because the operator was unable to prove that the machinery retained its identity as tangible personal property. Instead, the court ruled that the machinery was incorporated into real property. The machinery was connected by bolts to metal plates which were anchored and grounded into the facility’s foundations. The operator claimed that the machinery could be removed by detaching the bolts. Additionally, the machinery was connected to other machinery and equipment by extensive piping and cables. The main consideration in determining whether the machinery was annexed to real property is the purchasing party’s intent. The operator failed to submit sufficient proof of its intent for the machinery. For example, the operator did not submit evidence that the machinery could be removed without damage to the real property. Additionally, it did not submit evidence that the buildings housing the machinery were constructed so that they could be disassembled to allow for removal of the machinery. As a result, the court ruled that the machinery was incorporated into real property and is subject to Texas sales and use tax.
(Decision, Hearing No. 100,507, Texas Comptroller of Public Accounts, November 5, 2010, released March 2011)

(05/21/2012)

Amazon has entered into an agreement with the state of Texas to begin collecting and remitting Texas sales tax on July 1, 2012. Under the agreement, Amazon plans over the next four years to create at least 2,500 jobs and make at least $200 million in capital investments in Texas. The agreement resolves all sales tax issues between Amazon and the state. Both Amazon and the state showed support for the enactment of federal legislation to resolve the tax collection issue on a national level. Click here to see our previous news item on Texas's affiliate nexus bill. (News Release, Texas Comptroller of Public Accounts, April 27, 2012)

(05/21/2012)

Pages

Scroll to Top