1. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

   1. (1) Engaged in business--A retailer is engaged in business in Texas if the retailer is:

      1. (A) maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through an agent, by whatever name called, an office, place of distribution, sales or sample room, warehouse or storage place, or other place of business;
      2. (B) having any representative, agent, salesperson, canvasser, or solicitor operating in this state under the authority of the seller for the purpose of selling, delivering, or taking orders for any taxable items;
      3. (C) promoting a flea market, trade day, or other event involving the sales of taxable items;
      4. (D) utilizing independent salespersons in direct sales of taxable items;
      5. (E) deriving receipts from a lease of tangible personal property located in this state;
      6. (F) allowing a franchisee or licensee to operate under its trade name if the franchisee or licensee is required to collect Texas sales or use tax; or
      7. (G) conducting business in this state through employees, agents, or independent contractors.
   2. (2) Place of business of the seller--For tax permit requirement purposes means an established outlet, office, or location operated by the seller, his agent, or employee for the purpose of receiving orders for taxable items. A warehouse, storage yard, or manufacturing plant may not be considered a "place of business of the seller" for tax permit requirement purposes unless three or more orders are received by the seller in a calendar year at the warehouse, storage yard, or manufacturing plant.
   3. (3) Seller--Every retailer, wholesaler, distributor, manufacturer, or any other person who sells, leases, rents, or transfers ownership of taxable items for a consideration. A promoter of a flea market, trade day, or other event involving the sales of taxable items is a seller and is responsible for the collection and remittance of the sales tax collected by dealers, salespersons, or individuals at such events unless the participants hold active sales tax permits issued by the comptroller. A direct sales organization engaged in business as defined in paragraph (1)(D) of this subsection is a seller and is responsible for the collection and remittance of the sales tax collected by the independent salespersons selling the organization's product. Pawnbrokers, storagemen, mechanics, artisans, or others selling property to enforce a lien are also sellers. An auctioneer who does not receive payment for the item sold, does not issue a bill of sale or invoice to the purchaser of the item, and who does not issue a check or other remittance to the owner of the item sold by the auctioneer is not considered a seller responsible for the collection of the tax. In this instance, it is the owner's responsibility to collect and remit the tax. Auctioneers should refer to §3.311 of this title (relating to Auctioneers, Brokers, and Factors).
   4. (4) Special purpose district--A district or other local taxing jurisdiction funded by a sales tax that is governed by the County Sales and Use Tax Act, Chapter 323.

2. (b) Permits required.

   1. (1) Every seller must apply to the comptroller for a tax permit for each place of business.
   2. (2) Every out-of-state seller engaged in business in this state must apply to the comptroller for a tax permit. An out-of-state seller that has been engaged in business in Texas continues to be responsible for collecting Texas use tax on sales made into Texas for 12 months after the seller ceases to be engaged in business in Texas.
   3. (3) Independent salespersons of direct sales organizations will not be required to hold sales tax permits. It is the responsibility of the direct sales organizations to hold Texas permits and to collect Texas tax.

3. (c) Obtaining a permit.

   1. (1) An application will be furnished by the comptroller and must be filled out completely. After the application is filled out and returned to the comptroller, together with whatever bond or other security is required by §3.327 of this title (relating to Taxpayer's Bond or Other Security), a separate permit under the same account will be issued to the applicant for each place of business. The permit is issued without charge.
   2. (2) Each legal entity (corporation, partnership, sole proprietor, etc.) must apply for its own permit. The permit cannot be transferred from one owner to another. It is valid only for the person to whom it was issued and for the transaction of business only at the address shown on the permit. If a person operates two or more types of business under the same roof, only one permit is needed.
   3. (3) The permit must be conspicuously displayed at the place of business for which it is issued. However, a person who has traveling salesmen operating from one central office needs only one permit, which must be displayed at the central office.
   4. (4) All permits of the seller will have the same taxpayer number; however, each business location will have a different outlet number. The outlet numbers assigned may not necessarily correspond to the number of business locations owned by a taxpayer.

4. (d) Collection and remittance of the tax.

   1. (1) Each seller must collect the tax on each separate retail sale in accordance with the statutory bracket system in the Tax Code, §151.053. Copies of the bracket system should be displayed in each place of business so both the seller and the customers may easily use them. The tax is a debt of the purchaser to the seller until collected.
   2. (2) The sales tax applies to each total sale, not to each item of each sale. For example, if two items are purchased, each costing $.07, the seller must collect the tax on the total selling price of $.14. Tax must be reported and remitted to the comptroller as provided by the Tax Code, §151.410. When tax is collected properly under the bracket system, any over-collection need not be remitted by the seller. Conversely, when the tax collected under the bracket system is less than the tax due on the total receipts, the seller is responsible for remitting tax on total receipts even though not collected from customers.
   3. (3) The amount of the sales tax must be separately stated on the bill, contract, or invoice to the customer or there must be a written statement to the customer that the stated price includes sales or use taxes. Contracts, bills, or invoices merely stating that "all taxes" are included are not specific enough to relieve either party to the transaction of its sales and use tax responsibilities. The total amount shown on such documents will be presumed to be the taxable item's sales price, without tax included. The seller or customer may overcome the presumption by using the seller's records to show that tax was included in the sales price. Out-of-state sellers must identify the tax as Texas sales or use tax.
   4. (4) It is unlawful for any seller to advertise or hold out to the public that the seller will assume, absorb, or refund any portion of the tax, or that the seller will not add the tax to the selling price of the taxable items being sold.
   5. (5) The practice of rounding off the amount of tax due on the sale of a taxable item is prohibited. Tax must be added to the sales price according to the statutory bracket system.

5. (e) Payment of the tax.

   1. (1) Each seller or purchaser owing tax not collected by a seller must remit tax on all receipts from the sales or purchases of taxable items less any applicable deductions. On or before the 20th day of the month following each reporting period, each person subject to the tax shall file a consolidated return together with the tax payment for all businesses operating under the same taxpayer number. Reports and payments due to be submitted on due dates occurring on Saturdays, Sundays, or legal holidays may be submitted the next business day.
   2. (2) The returns must be signed by the person required to file the report or by the person's duly authorized agent, but need not be verified by oath.
   3. (3) The returns will be filed on forms prescribed by the comptroller. The fact that the seller or purchaser does not receive the form or does not receive the correct forms from the comptroller for the filing of the return does not relieve the seller or purchaser of the responsibility of filing a return and paying the required tax.

6. (f) Reporting period.

   1. (1) Sellers, and purchasers owing tax not collected by sellers, who have less than $1,500 in state tax per quarter to report may file returns quarterly. The quarterly reporting periods end on March 31st, June 30th, September 30th, and December 31st. The returns are to be filed on or before the 20th day of the month following the period ending date.

   2. (2) Sellers, and purchasers owing tax not collected by sellers, having less than $1,000 state tax to report during a calendar year and with authorization from the comptroller's office may file yearly returns.

      1. (A) Authorization to file returns on a yearly basis will be conditioned on the correct filing of prior returns.
      2. (B) Authorization to file returns on a yearly basis will be denied if a taxpayer's liability exceeded $1,000 in the prior calendar year.
      3. (C) A taxpayer filing on a yearly basis without authorization will be liable for applicable penalty and interest on any previously unreported quarter.
      4. (D) Authority to file on a yearly basis is automatically revoked if a taxpayer's state sales and use tax liability is greater than $1,000 during a calendar year. The taxpayer must file a return for that month or quarter, depending on the amount, in which the liability is greater than $1,000. On that report, the taxpayer must report all accrued liability for the year and must file monthly or quarterly, as appropriate, as long as the yearly tax liability is greater than $1,000.
      5. (E) Once each year all accounts will be reviewed to confirm yearly filing status and to authorize permit holders who meet the filing requirements to begin filing yearly returns.
      6. (F) Yearly filers must report on a calendar year basis. The return and payment are due on or before January 20th of the next calendar year.
   3. (3) Sellers, and purchasers owing tax not collected by sellers, who have $1,500 or more in state tax per quarter to report must file monthly returns except for sellers who prepay the tax.
   4. (4) Every taxpayer required to file city, county, and Metropolitan Transit Authority/City Transit Department (MTA/CTD) sales and use tax returns must file them at the same time the state sales and use tax returns are filed.
   5. (5) State agencies. State agencies that deposit taxes directly with the comptroller's office according to Accounting Policy Statement Number 12 are not required to file a separate tax return. A fully completed deposit request voucher is deemed to be the return filed by these agencies. Subsection (f)(1)-(3) of this section do not apply to these state agencies. Taxes must be deposited with the comptroller's office within the time period otherwise specified by law for deposit of state funds.

7. (g) Filing the return; prepaying the tax; discounts; penalties.

   1. (1) The comptroller will make forms available to all persons required to file returns. The failure of the taxpayer to obtain the forms will not relieve that taxpayer from the requirement to file and remit the tax timely. Each taxpayer may claim a discount for timely filing and payment as reimbursement for the expense of collecting the tax. The discount is equal to 0.5% of the amount of tax due.
   2. (2) The return for each reporting period must reflect the total sales, taxable sales, and taxable purchases for each outlet. The 0.5% discount for timely filing and payment may be claimed on the return for each reporting period and computed on the amount timely reported and paid with that return.

   3. (3) Prepayments may be made by taxpayers who file monthly or quarterly returns. The amount of the prepayment should be a reasonable estimate of the state and local tax liability for the entire reporting period. "Reasonable estimate" means at least 90% of the total amount due or an amount equal to the actual net tax liability due and paid for the same reporting period of the immediately preceding year.

      1. (A) A taxpayer who makes a prepayment based upon an estimate of tax liability may retain an additional discount of 1.25% of the amount due.
      2. (B) The monthly prepayment is due on or before the 15th day of the month for which the prepayment is made
      3. (C) The quarterly prepayment is due on or before the 15th day of the second month of the quarter for which the tax is due.
      4. (D) On or before the 20th day of the month following the quarter or month for which a prepayment was made, the taxpayer must file a return showing the actual liability and remit any amount due in excess of the prepayment. If there is an additional amount due, the taxpayer may retain the 0.5% reimbursement provided that both the return and the additional amount due are timely filed. If the prepayment exceeded the actual liability, the taxpayer will be mailed an overpayment notice or refund warrant.
   4. (4) Remittances which are less than a reasonable estimate as required by paragraph (3) of this subsection will not be regarded as a prepayment. The 1.25% discount will not be allowed. If the taxpayer owes more than $1,500 in a calendar quarter, the taxpayer will be regarded as a monthly filer. All monthly reports not filed because of the invalid prepayment will be subject to late filing penalty and interest.
   5. (5) If a taxpayer does not file a quarterly or monthly return together with payment on or before the due date, the taxpayer forfeits all discounts and incurs a mandatory 5.0% penalty. After the first 30 days delinquency, an additional mandatory penalty of 5.0% is assessed against the taxpayer, and after the first 60 days delinquency, interest begins to accrue at the rate of 12%.
   6. (6) Permit holders are required to file sales and use tax returns monthly, quarterly, or yearly as set out in subsection (f) of this section. The sales and use tax returns must be filed even if there is no tax to report for the reporting period. A person who has failed to file timely reports on two or more previous occasions must pay an additional penalty of $50 for each subsequent report that is not filed timely. The penalty is due regardless of whether the person subsequently files the report or whether no taxes are due for the reporting period.

8. (h) Records required.

   1. (1) Records must be kept for four years, unless the comptroller authorizes in writing a shorter retention period. Exemption and resale certificates must be kept for four years following the completion of the last sale covered by the certificate. See §3.281 of this title (relating to Records Required; Information Required) and §3.282 of this title (relating to Auditing Taxpayer Records).
   2. (2) The comptroller or an authorized representative has the right to examine any records or equipment of any person liable for the tax in order to verify the accuracy of any return made or to determine the tax liability in the event no return is filed.

9. (i) Resale and exemption certificates.

   1. (1) Any person selling taxable items in this state must collect a tax on the taxable items so sold unless a valid and properly completed resale, exemption, direct payment exemption certificate, or maquiladora exemption certificate is received from the purchaser. Simply having permit numbers on file without properly completed certificates does not relieve the seller from the responsibility for collecting tax.
   2. (2) A seller may accept a resale certificate only from a purchaser who is in the business of reselling the taxable items within the geographical limits of the United States of America, its territories and possessions, or in the United Mexican States. See §3.285 of this title (relating to Resale Certificate; Sales for Resale). To be valid, the resale certificate must show the 11-digit number from the purchaser's Texas tax permit or the out-of-state registration number of the out-of-state purchaser.
   3. (3) A seller may accept an exemption certificate in lieu of the tax on sales of items that will be used in an exempt manner or on sales to exempt entities. See §3.287 of this title (relating to Exemption Certificates). There is no exemption number. An exemption certificate does not require a number to be valid.
   4. (4) A purchaser claiming an exemption from the tax must issue to the seller a properly completed resale or exemption certificate. The seller must act in good faith when accepting the resale or exemption certificate. If a seller has actual knowledge that the exemption claimed is invalid, the seller must collect the tax.

   5. (5) A person who intentionally or knowingly makes, presents, uses, or alters a resale or exemption certificate for the purpose of evading sales or use tax is guilty of a criminal offense:

      1. (A) if the tax evaded by the invalid certificate is less than $20, the offense is a Class C misdemeanor;
      2. (B) if the tax evaded by the invalid certificate is $20 or more but less than $200, the offense is a Class B misdemeanor;
      3. (C) if the tax evaded by the invalid certificate is $200 or more but less than $750, the offense is a Class A misdemeanor;
      4. (D) if the tax evaded by the invalid certificate is $750 or more but less than $20,000, the offense is a felony of the third degree;
      5. (E) if the tax evaded by the invalid certificate is $20,000 or more, the offense is a felony of the second degree.
   6. (6) Direct payment permit holders are entitled to issue an exemption certificate when purchasing all taxable items, other than those purchased for resale. The direct payment exemption certificate must show the purchaser's direct payment permit number. See §3.288 of this title (relating to Direct Payment Procedures and Qualifications).
   7. (7) Maquiladora export permit holders are entitled to issue a maquiladora exemption certificate when purchasing tangible personal property, other than that purchased for resale. Maquiladora export permit holders should refer to §3.358 of this title (relating to Maquiladoras).
   8. (8) The seller should obtain a properly executed resale or exemption certificate at the time a transaction occurs. All certificates obtained on or after the date the auditor actually begins work on the audit at the seller's place of business or on the seller's records are subject to verification. All incomplete certificates will be disallowed regardless of when they were obtained. The seller has 60 days from the date written notice is received by the seller from the comptroller in which to deliver certificates to the comptroller. For the purposes of this section, written notice given by mail is presumed to have been received by the seller within three business days from the date of deposit in the custody of the United States Postal Service. The seller may overcome the presumption by submitting proof from the United States Postal Service or by other competent evidence showing a later delivery date. Any certificates delivered to the comptroller during the 60-day period will be subject to verification by the comptroller before any deductions will be allowed. Certificates delivered to the comptroller after the 60-day period will not be accepted and the deduction will not be granted. See §3.285 of this title (relating to Resale Certificate; Sales for Resale), §3.287 of this title (relating to Exemption Certificates), §3.288 of this title (relating to Direct Payment Procedures and Qualifications) and §3.282 of this title (relating to Auditing Taxpayer Records).

10. (j) Suspension of permit.

    1. (1) If a person fails to comply with any provision of the Tax Code, Title 2, or with the rules issued by the comptroller under those statutes, the comptroller may suspend the person's permit or permits.
    2. (2) Before a seller's permit is suspended, the seller is entitled to a hearing before the comptroller to show cause why the permit or permits should not be suspended. The comptroller shall give the seller at least 20 days notice, which shall be in accordance with the requirements of §1.14 of this title (relating to Notice of Setting).
    3. (3) After a permit has been suspended, a new permit will not be issued to the same seller until the seller has posted sufficient security and satisfied the comptroller that the seller will comply with both the provisions of the law and the comptroller's rules and regulations.

11. (k) Refusal to issue permit. The comptroller is required by the Tax Code, §111.0046, to refuse to issue any permit to a person who:

    1. (1) is not permitted or licensed as required by law for a different tax or activity administered by the comptroller; or
    2. (2) is currently delinquent in the payment of any tax or fee collected by the comptroller.

12. (l) Cancellation of sales tax permits with no reported business activity.

    1. (1) Permit cancellation due to abandonment. Any holder of a sales tax permit who reported no business activity in the previous calendar year is hereby deemed to have abandoned the permit, and the permit is hereby canceled by the comptroller. "No Business Activity" means zero total sales, zero taxable sales, and zero taxable purchases.
    2. (2) Re-application. Nothing herein shall prohibit any applicant from receiving a new sales tax permit upon request provided the issuance is not prohibited by subsection (k)(1) or (2) of this section, or by the Tax Code, §111.0046.
13. (m) Direct payment. Yearly and quarterly filing requirements, prepayment procedures and discounts for timely filing do not apply to holders of direct payment permits. See §3.288 of this title (relating to Direct Payment Procedures and Qualifications). Direct payment returns and remittances are due monthly on or before the 20th day of the month following the end of the calendar month for which payment is made.

Source Note:The provisions of this §3.286 adopted to be effective December 12, 1996, 21 TexReg 11800.