Texas Tax Roundup – May 2022 | law of the free man


Howdy Folks, and welcome to another captivating episode of the Roundup Texas Tax, where we are welcoming everything related to Taxes in Texas. Nothing from the court this month, just a bunch at the administrative level. However, it is captivating all the same. Let’s see what went down!

Proposed rules


34 Text. Admin. Code § 3.9 (Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers) (Proposed at 47 Tex. Reg. 3106 (May 27, 2022))—The Texas Comptroller has proposed changes to this rule to address the exigences de déclaration pour distributeurs de certains véhicules hors route qui ont été ajoutés à la suite du SB 586, 87th Leg., RS (2021). Prior to SB 586, Tex. Tax Code § 151.482 (Reports by Manufacturers and Distributors) only required manufacturers of such vehicles to file reports with the Comptroller. See HB 1543, 86th JEG., RS (2019).


Fraudulent transfers

Monitor’s Decisions Nos. 116,910, 116,911, and 116,912 (2022): Administrative Law Judge found that a buyer who, for no consideration, had acquired business assets that had been abandoned by a trustee in bankruptcy to the resulting from bankruptcy proceedings had succeeded the state tax. responsibility of the former owner of these goods. Although the sale of assets by a bankruptcy trustee is not considered to be a sale of assets by the former owner (see 34 Text. Admin. Code § 3.7(h) (Liability of Successor: Liability Incurred by Purchase of Business)), under the federal bankruptcy code, all assets abandoned by the trustee are retained by the former owner (citing 11 USC § 554 (c) (abandonment of property of the estate)). Therefore, the purchaser acquired the business assets from the former owner—an entity with outstanding state tax liabilities—for no consideration.

The administrative law judge further found intent to hinder, delay, or prevent the collection of the former owner’s tax liabilities in that: 1) both the former owner and the purchaser were owned by the same individual; 2) The buyer was formed the day after the previous owner declared bankruptcy; 3) the purchaser immediately began operating at the same location as the former owner, 4) the purchaser offered the same goods and services as the former owner; and 5) the acquirer, although newly trained, declared to have 25 years of experience in his field.

As such, the administrative law judge determined that the purchase of the company’s assets met the definition of a fraudulent conveyance or sham transaction, meaning that the purchaser was liable for any taxes. of State, penalty and interest owed by the former owner. See Text. Tax Code § 111.024 (a), (b) (2) (liability for fraudulent transfers).

Franchise tax

Combined groups

STAR Accession No. 202204015L (April 4, 2022) – In this private letter ruling, the Texas Comptroller determined that a subsidiary’s temporary credit for carrying forward business losses was not transferred to the combined group it was part of. initially part when the subsidiary was sold. to the combined group of a third -party buyer. See 34 Text. Admin. Code 3.594(c)(3) (Margin: Temporary credit for business losses carried forward). In this regard, the Monitor found that nothing in the Texas Franchise Tax requires Texas to recognize federal tax elections under 26 USC § 336(e) (recognized gain or loss on property distributed in full liquidation ).

Monitor’s Decisions Nos. 116,701, 116,702, 116,703, and 116,704 (2022): Administrative Law Judge Determined that Retirement Benefit Costs Paid by Combined Class Member After That Member Ceased to Earn or produce goods could not be included in the combined decision. le coût des marchandises vendues du groupe, même si d’autres membres ont continué à participer à l’acquisition et à la production de marchandises.

Tax on the sale, rental and use of motor vehicles

Standard presumed value

Comptroller’s Decision No. 116,846 (2022): Administrative Law Judge found that a taxpayer who operated a used car dealership that was entitled to pay vendor-funded motor vehicle sales tax owed the Tax on the sale of vehicles having an alleged standard value greater than the price at which the vehicles were sold. While the standard deemed value is defined as the transactional value of a motor vehicle between individuals, as determined by the Texas Department of Motor Vehicles (see 34 Text. Admin. Code § 3.79(a)(9) (Standard Deemed Value)), the administrative law judge held that the standard presumed value could also be used when, as in this hearing, the taxpayer did not retain or provide complete files, in particular sales contracts indicating sales prices and trade-in values. The Administrative Law Judge also upheld the Comptroller’s assertion of the 50% fraud penalty against the taxpayer when the overall error rate was greater than 48% and the taxpayer did not provide an explanation for the under-reporting.

Sales and use tax


Comptroller’s Decision No. 117,239 (2022): The administrative law judge determined that a taxpayer who provided information technology management services to certain clients, including maintenance and upgrades of hardware and software, advising on business needs with respect to its computing environment, and advising on technological changes sold taxable items to these customers. These taxable items included:

In addition, the administrative judge found that the fees for consulting services provided in connection with the sale of these taxable items were included in the sale price of the taxable items and therefore subject to the sales or use tax themselves. same. See Text. Tax Code § 151.007(b) (“Sales Price” or “Receipts”) (“The total amount for which a taxable item is sold, leased, or leased includes any service that is part of the sale and the amount of credit given to the buyer by the seller.”).

[Activities involving software, software-as-a-service (SaaS), and basically anything involving information technology is a potential minefield under the Texas sales or use tax. Watch your step!]

Information services

Decision of controller n ° 116 293 (2022): The administrative judge concluded that a national retailer with seven physical stores in Texas had bought a taxable information service when he had bought the dissemination lists of another company containing The national addresses of potential customers which he used in sending advertisements and coupons. Thus, the controller correctly assessed the tax on the Texan address part of the diffusion lists. See 34 Text. Admin. Code § 3.342(a)(6)(C) (Information Services) (including mailing lists as a taxable information service, but stating that only “the percentage that represents the names of persons located in Texas is taxable”).

Manufacturing exemption

Comptroller’s Decision No. 117,668 (2022) — The Administrative Law Judge determined that the Comptroller properly denied a claim submitted by an oil and gas operator for materials incorporated into separators and heaters, which, according to the operator, were exempt manufacturing equipment. The administrative judge found that the operator had not demonstrated by clear and convincing evidence that the separators and heat treatment devices were exempt manufacturing equipment or that the materials were components of this equipment. See, for example, Southwest Airlines Co. c. Bullock784 SW2d 563, 569 (Tex. App.—Austin, 1990, no writ) (defining a component as “reasonably essential” to the operation of other equipment).

[This illustrates another problem area under the sales and use tax: claiming the manufacturing exemption in connection with oil field equipment.]

Data processing

STAR Accession No. 202204028L (April 29, 2022)—In this private letter decision, the Texas Comptroller determined that a taxpayer who offered customers the ability to manage and personalize debit and prepaid cards by entering into contracts with issuing banks and working with those banks and payment card networks to authorize, process and settle its customers’ card transactions provided a tax-free payment processing service. See Text. Tax Code § 151.0035(b)(3)(D) (“Data Processing Service”) (excluding from the definition of a “data processing service” the settlement of an electronic payment transaction by a person who has entered into a sponsorship agreement with a federally insured financial institution for the purpose of settling that institution’s electronic payment transactions through a payment card network); SB 153, 87th Legislature, RS (2021) (amending section 151.0035 to exclude service payment processing services from the definition of a data processing service).

[The issue here was that data processing has such a broad (i.e., vague) definition that it could basically apply to anything involving the compilation and manipulation of data, such as for instance processing of electronic payments. See, e.g., Comptroller’s Decision No. 35,785 (1997) (“The processing of credit card transactions is taxable data processing . . . .”). As such, the Legislature last session thought it wise to clarify that data processing generally shouldn’t be considered to include payment processing.]

Welp, that’s it folks. Until next month, ¡Hasta Luego!

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