Recent Tax Changes that you may need to know

Recently, the 81st Legislature has made significant changes to the Texas tax laws. Some of the significant changes include:

1.Revisions to the collection and allocation of local sales and use taxes;

a.Residential Gas and Electricity

Effective January 1, 2010, the bill allows certain districts to impose a local sales and use tax on the residential use of gas and electricity. A fire control, prevention, and emergency medical services district or a crime control and prevention district located in all or part of a municipality that imposes a tax on the residential use of gas and electricity will be allowed to impose the tax throughout the district.

The board of directors of a district may impose, exempt or reimpose sales and use tax on receipts from the sale, production, distribution, lease or rental of, and the use, storage or other consumption within the district of, gas and electricity for residential use.

b.Retailers Operating Multiple Places of Business - Local Tax Collection Changes

Effective June 19, 2009, each sale of a taxable item is now consummated at the retailer's place of business in Texas where the retailer first accepts the order, provided that the order is placed in person by the purchaser or lessee of the taxable item. As a result of the new bill, now when a purchaser places an order in person, retailers should collect local sales tax based on the location of the place of business where the order is received rather than the place of business from which the item is shipped.

Retailers should continue to collect local sales tax based on the “ship from” location on all delivery sales of taxable items that are shipped from a place of business in Texas when the order is not placed in person by the purchaser or lessee. Orders placed over the Internet, by telephone or through the mail are still consummated at the retailer's place of business in this state from which the items are shipped if the items are shipped from a place of business of the seller in Texas.

To be eligible for the exclusion, the county or municipality must, before Sept. 1, 2009, provide the Comptroller's office with a copy of the economic development agreement as well as a list of all retail outlets in existence and identified as being served by the warehouse as of Jan. 1, 2009. This exclusion expires Sept. 1, 2014.

It is important to note that regardless of how an order is placed (e.g., in person, Internet, telephone), or whether the temporary exclusion discussed above applies, sellers engaged in business in multiple local taxing jurisdictions in Texas are still responsible (when applicable) for collecting local use taxes for other local taxing jurisdictions based on the point of delivery, in addition to collecting local sales taxes based on the place of business.

2.A new method for calculating the tax on tobacco products other than cigars;

A tax is imposed on tobacco products when a permit holder receives them for the purpose of distributing or making a sale in Texas. A retailer must also have an active sales tax permit for each commercial business location. Effective September 1, 2009, this new bill changes the base used to calculate the tax imposed on tobacco product other than cigars from the manufacturer’s listed price to the manufacturer’s listed net weight for each of the products. For each following year, there will be a different tax rate. The enacted bill also requires that records be kept by each manufacturer, distributor, wholesaler, bonded agent, export warehouse and retailer. The retailer must also display the manufacturer’s listed net weight for each tobacco product that is sold. The revenue from the new tax bill will be used to credit the Physician Education Loan Repayment Program account. Therefore, for a conventional package of 20 cigarettes, the tax is now $1.41 cents per pack.

3.A revised payment process for losses covered by the Texas Windstorm Insurance Association;

Effective June 19, 2009, this bill revises the payment process for covered losses from windstorm and/or hail damage in certain coastal counties. This bill was a result of the $2.5 billion in losses from Hurricane Dolly and Hurricane Ike in 2008. Without this bill, there would be no money left to pay any possible losses that might occur in 2009 or further. As a result of this bill, coastal residents would pay into the fund through their insurance premiums to cover the costs of the bonds. This would then ensure that the State of Texas would be ready for another storm. The bill also provides that when the State of Texas is not hit by a catastrophe the State would not be wasting any money but would be saving those unused funds for future catastrophes.

The new layers of the Texas Windstorm Insurance Association (TWIA) funding include: 1) The first $1 billion in claims will be covered by post-event bonds, funded by TWIA policyholders; 2) The next $1 billion in claims would be covered by bonds to be paid on a 70-30 proportional basis between TWIA coastal policyholders and a non-recoupable assessment on statewide carriers not to exceed a maximum of $300 million; and 3) The final $500 million would be covered by statewide assessments on carriers. Insurers have the option of financing, reinsuring or self- insuring their assessments.

4.A revision to the motor vehicle orthopedic handicap exemption

This bill is effective September 1, 2009 but only applies to sales made on or after January 1, 2010. This bill does not allow a dealer selling a motor vehicle to collect any motor vehicle sales tax from a person claiming the orthopedic handicap exemption. However, the claim must be on a form prescribed by the Texas Comptroller of Public Accounts, signed by the purchaser at the time of the purchase, and provided to the seller. The Comptroller usually requires documentation to prove the orthopedic handicap exemption. On the other hand, the seller who receives the exemption certificate will not be held accountable if any problems were to occur.

5.A new Prepaid 9-1-1 Emergency Service Fee.

Effective June 1, 2010, this bill creates a prepaid 9-1-1 emergency service fee of 2 percent of the purchase price of each prepaid wireless telecommunications service purchased by any method. The fee will be collected by the seller of the prepaid service at each transaction of prepaid wireless telecommunications service occurring in Texas and the fee will be remitted to the Texas Comptroller of Public Accounts. This bill will allow the seller to deduct and retain 2 percent of prepaid wireless fees collected to offset the seller’s costs for administering the fee.