TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER B. NATURAL GAS

34 TAC §3.23

The Comptroller of Public Accounts proposes amendments to §3.23, concerning credits for qualifying low producing wells. These amendments improve readability and implement Senate Bill 925, 86th Legislature, 2019.

The comptroller amends subsection (a)(3) to remove unnecessary capitalizations from the defined term.

The comptroller amends subsection (a)(4) to change the term "Qualified Low Producing Well" to "Qualifying low-producing well" so that term is consistent with Tax Code, §201.059(a)(3)(Credits for Qualifying Low-Producing Wells) and amends this definition to better reflect the content of §201.059(a)(3). The comptroller also amends this subsection to incorporate the changes to §201.059(a)(3) made by Senate Bill 925, 86th Legislature, 2019. Senate Bill 925 requires the production per day be calculated based on the greater of the production reported to the Railroad Commission of Texas on the monthly well production reports or the production reported to the comptroller under Tax Code, §201.203 (Producer's Report).

Tom Currah, Chief Revenue Estimator, has determined that during the first five years that the proposed amendment is in effect, the amendment: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rules' applicability; and will not positively or adversely affect this state's economy. This proposal amends a current rule.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, the proposed amendment would benefit the public by conforming the rule to current statute. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses or rural communities. The proposed amendment would have no fiscal impact on the state government, units of local government, or individuals. There would be no anticipated significant economic cost to the public.

Comments on the proposal may be submitted to Teresa G. Bostick, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

The amendments are proposed under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2 (State Taxation).

The amendments implement Tax Code, §201.059(a)(3)(Credits for Qualifying Low-Producing Wells).

§3.23.Credits for Qualifying Low Producing Wells.

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

(1) Commission--The Railroad Commission of Texas.

(2) Operator--The person responsible under law or commission rules for the physical operation of a wellbore or lease.

(3) Average taxable price of gas[Taxable Price of Gas]--The previous three month average price of gas using a price index listed in Tax Code, §201.059(b). The average will be computed by taking the closing price of gas each market day and dividing it by the total market days in the three-month period. This average price will then be adjusted to 2005 dollars.

(4) Qualifying low-producing well[Qualified Low Producing Well]--A gas well that produces no more than 90 mcf of gas per day, excluding gas flared pursuant to the rules of the commission, during the three-month period prior to the beginning date of the exemption. For purposes of qualifying a [the] well, the production per day is determined by computing the average daily production from the well using the greater of the monthly production from the well as reported in the monthly well production reports [report] made to the commission and the monthly production from the well as reported in the producer's reports made to the comptroller under Tax Code, §201.203 (Producer's Report), including any amendments made to those reports [by also using any adjustments made to the report by the commission].

(b) For each well qualifying under this section, the comptroller will require the following information from the operator of the well.

(1) Copies of the monthly production reports made to the commission for the lease for the three-month period.

(2) If the lease is commingled, the operator must provide copies of the monthly production reports made to the commission for the commingled lease and a production allocation for each lease in the commingling permit with supporting documentation for the three-month period prior to the exemption beginning date. Supporting documentation can include, but is not limited to, the Texas Railroad Commission G-10 Gas Well Status Report for the leases, or an engineering study on the formations in the wellbore, or metering tests done on the leases.

(3) A completed comptroller exemption application for the well.

(4) The date that the lease met the three-month production limitations that qualify the well as a low-producing well.

(5) A statement as to whether tax has been paid on the gas for periods after the effective date of the exemption and the name of the party that paid the tax.

(c) The monthly average taxable price of gas will be published in the Texas Register [Texas Register] the month following the actual production month. This publication will notify the taxpayer of the eligibility of the exemption in the month prior to the due date of the report. Tax Code, §201.059(c), (d), and (e) will be used to define the credit applicable for each reporting month.

(1) If the monthly average taxable price of gas is more than $3.50 per mcf, there will be no exemption for that reporting month.

(2) If the monthly average taxable price of gas is more than $3.00 per mcf, but not more than $3.50 per mcf, there will be a 25% credit for gas sold from a qualified well for that reporting month.

(3) If the monthly average taxable price of gas is more than $2.50 per mcf, but not more than $3.00 per mcf, there will be a 50% credit for gas sold from a qualified well for that reporting month.

(4) If the monthly average taxable price of gas is not more than $2.50 per mcf, there will be a 100% credit for gas sold from a qualified well for that reporting month.

(d) If the tax is paid at the full rate provided by Tax Code, Chapter 201, on gas produced on or after the effective date of the tax exemption but before the date the comptroller approves an application for the tax exemption, the operator is entitled to a credit on taxes due under Tax Code, Chapter 201, in an amount equal to the credit approved for that period. To receive a credit, the operator or the party remitting the tax must apply to the comptroller by filing amended reports. If a party other than the operator has remitted the tax, the operator must provide the party that remitted the tax a copy of the approved comptroller application form that qualified the well for the tax exemption.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 9, 2019.

TRD-201904600

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Earliest possible date of adoption: January 19, 2020

For further information, please call: (512) 475-2220


SUBCHAPTER S. MOTOR FUEL TAX

34 TAC §3.432

The Comptroller of Public Accounts proposes amendments to §3.432, concerning refunds on gasoline, diesel fuel, compressed natural gas, and liquefied natural gas taxes. The amendments implement House Bill 791, 86th Legislature, 2019, effective May 24, 2019. The bill amends Tax Code, §162.001 (Definitions) to provide a definition of "volunteer fire department".

The comptroller reorganizes subsection (h)(1)(E), regarding credits and refunds for state fuel tax paid on gasoline and diesel fuel sold to or used by Texas volunteer fire departments and adds clauses (i) and (ii). Clause (i) contains the current language reflecting the comptroller's prior interpretation that a qualifying volunteer fire department meant a department consisting wholly of unpaid members. Clause (ii) provides the exemption for a volunteer fire department, incorporating the new definition of "volunteer fire department" and explains that this definition applies to motor fuel sales on or after the effective date of House Bill 791. The comptroller also updates the website address to the directory of fire departments.

Tom Currah, Chief Revenue Estimator, has determined that during the first five years that the proposed amendment is in effect, the amendment: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rules' applicability; and will not positively or adversely affect this state's economy. This proposal amends a current rule.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, the proposed amendment would benefit the public by conforming the rule to current statute. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses or rural communities. The proposed amendment would have no fiscal impact on the state government, units of local government, or individuals. There would be no anticipated significant economic cost to the public.

Comments on the proposal may be submitted to Teresa G. Bostick, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

This amendment is proposed under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture) which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2 (State Taxation), and taxes, fees, or other charges which the comptroller administers under other law.

The amendments implement Tax Code, §162.001 (Definitions).

§3.432.Refunds on Gasoline, Diesel Fuel, Compressed Natural Gas, and Liquefied Natural Gas Taxes.

(a) Refunds and credits. A person may file a claim for refund or a license holder may take a credit on a return for state fuel tax paid on gasoline, diesel fuel, compressed natural gas, or liquefied natural gas used off the highway, for certain resale, for export from Texas, for loss caused by fire, theft, or accident, or other use if authorized by law. The claim for refund or credit must be filed in accordance with this section.

(b) Time limitation. A claim for refund or credit must be filed before the expiration of the following time limitations, as provided by Tax Code, §§162.128, 162.230, and 162.369:

(1) one year from the first day of the calendar month that follows:

(A) purchase;

(B) tax exempt sale;

(C) use, if withdrawn from one's own storage for one's own use;

(D) export from Texas; or

(E) loss by fire, theft, or accident; or

(2) four years from the due and payable date for a tax return on which an overpayment of state fuel tax was made by a licensed supplier, permissive supplier, distributor, importer, exporter, blender, or compressed natural gas and liquefied natural gas dealer who determines that taxes were erroneously reported or that more taxes were paid than were due because of a mistake of fact or law. The licensed supplier, permissive supplier, distributor, importer, exporter, blender, or compressed natural gas and liquefied natural gas dealer must establish the credit by filing an amended state fuel tax return for the period in which the error occurred and tax payment was made to the comptroller.

(c) Filing forms and documentation. A claim for refund or credit must be on a form prescribed by the comptroller and must be submitted within the applicable limitations period provided by subsection (b) of this section. A person or license holder is required to maintain and have available for inspection the following documentation and information to substantiate a claim for refund or credit:

(1) an original purchase invoice with the name and address of the seller or name of the purchaser, whichever is applicable. For refund or credit purposes, the original invoice may be a copy of the original impression if the copy has been stamped "Customer Original Invoice," "Original for Tax Purposes," or similar wording. If a copy is so stamped, the original and all other copies must then be stamped "Not Good for Tax Purposes" or similar wording. Invoices of original impression submitted in support of refund claims must be without the above wording stamped or imprinted;

(2) evidence as to who paid the tax. A purchaser claiming a refund or credit must have an invoice that either separately states the state fuel tax amount paid or a written statement that the price included state fuel tax. A seller claiming a refund or credit must have issued an invoice, signed by the purchaser, that contains a statement that no state fuel tax was collected or that it was a tax-free sale;

(3) if refund or credit is claimed on fuel purchased at retail the purchase invoice must note the identification of each vehicle or type of equipment (e.g., including railway engines, motor boats, refrigeration units, stationary engines, off-highway equipment, or nonhighway farm equipment that has traveled between multiple farms or ranches as allowed in §3.440 of this title (relating to On-Highway Travel of Farm Machinery)) in which the fuel was delivered and used; and

(4) if refund or credit is claimed on fuel removed from the claimant's own bulk storage, then a distribution log as provided by Tax Code, §162.127 and §162.229. The distribution log must contain the name and address of the user and, for each individual removal from the bulk storage the following information:

(A) the date the fuel was removed;

(B) the number of gallons removed;

(C) the type of fuel removed;

(D) the identity of the person removing the fuel; and

(E) the type or description of the off-highway equipment into which the fuel was delivered, or the identification of both on-highway and off-highway motor vehicles into which the fuel was delivered, including the state highway license number or vehicle identification number and odometer or hubometer reading, or description of other off-highway use.

(d) Refund or credit for state fuel tax on gasoline used solely for off-highway purposes. A claim for refund or credit for state fuel tax on gasoline used solely for off-highway purposes must list each off-highway vehicle or piece of equipment or document other nonhighway use and the total number of gallons used by way of a distribution log as described in subsection (c)(4) of this section.

(e) Refund or credit for state fuel tax on gasoline used by a lessor of off-highway equipment. The lessor of off-highway equipment who claims a refund or credit of state fuel tax must maintain documentation that shows that the state fuel tax was assessed and paid, a list of each piece of off-highway equipment, and a distribution log as described in subsection (c)(4) of this section of the number of gallons of gasoline used in both on-highway and off-highway vehicles and equipment. A lessor who claims a refund of state fuel tax may include a separate refueling, fuel reimbursement, or fuel service charge on the invoice, if the invoice contains a statement that the fuel charge does not include state fuel tax.

(f) Refund or credit for state fuel tax on gasoline, compressed natural gas, or liquefied natural gas used in a motor vehicle operated exclusively off-highway, except for incidental highway use. A claim for refund or credit may be filed by a person who used gasoline, compressed natural gas, or liquefied natural gas in motor vehicles incidentally on the highway, when the incidental travel on the highway was infrequent, unscheduled, and insignificant to the total operation of the motor vehicle, and only for the purpose of transferring the base of operation or to travel to and from required maintenance and repair.

(1) A record that shows the date and miles traveled during each highway trip must be maintained.

(2) 1/4 gallon for each mile of incidental highway travel shall be deducted from the number of gallons claimed.

(g) Refund or credit for state fuel tax on gasoline used in gasoline-powered motor vehicles equipped with power take-off or auxiliary power units. A person who files a claim for refund or a license holder who takes a credit on a tax return for state fuel tax on gasoline used in the operation of power take-off or auxiliary power units must use one of the following methods in determining the amount of gasoline used:

(1) direct measurement method. The use of a metering device, as defined by §3.435 of this title (relating to Metering Devices Used to Claim Refund of Tax on Gasoline Used in Power Take-Off and Auxiliary Power Units) is an acceptable method for determination of fuel usage. A person who claims a refund or credit for state fuel tax on gasoline used to propel motor vehicles with approved measuring or metering devices that measure or meter the fuel used in stationary operations must maintain records on each vehicle so equipped, and the records must reflect:

(A) the miles driven as shown by any type of odometer or hubometer;

(B) the gallons delivered to each vehicle; and

(C) the gallons used as recorded by the meter or other measuring device;

(2) fixed 30% method for gasoline-powered ready mix concrete trucks and solid waste refuse trucks. Operators of gasoline-powered ready mix concrete trucks and solid waste refuse trucks that are equipped with power take-off or auxiliary power units that are mounted on the motor vehicle and use the fuel supply tank of the motor vehicle may claim refund on 30% of the total gasoline used in this state by each vehicle. A solid waste refuse truck means a motor vehicle equipped with a power take-off or auxiliary power unit that provides power to compact the refuse, open the back of the container before ejection, and eject the compacted refuse;

(3) mileage factor method. The nontaxable use may be determined by computing the taxable use at 1/4 gallon for each mile traveled, as recorded by the odometer or hubometer and subtracting that amount from the total quantity of gasoline delivered into the motor vehicle fuel supply tanks. The remainder will be considered nontaxable, and a tax refund or tax credit may be claimed on that quantity of fuel;

(4) two tank method. A motor vehicle may be equipped with two fuel tanks and an automatic switching device that a spring-activated air release parking brake operates, and that switches from one tank that is designated for highway use to another tank that is not so designated when the vehicle is stationary. The highway tank and the not-for-highway tank may not be connected by crossover line or equalizer line of any kind. The state fuel tax paid on the gasoline delivered to the tank designated not-for-highway use may be claimed as a tax refund or taken as a tax credit. All gasoline delivered into the fuel supply tanks of a vehicle that is equipped with an automatic switching device must be invoiced as taxable. Separate invoices must be issued for deliveries of fuel into each tank. A notation that indicates that fuel was delivered into the tank designated not-for-highway use must be made on invoices;

(5) fixed 5.0% method. In lieu of the use of one of the previously mentioned methods, the owner or operator of a gasoline-powered motor vehicle that is equipped with a power take-off or auxiliary power unit that is mounted on the vehicle may claim a credit or refund of the state fuel tax paid on 5.0% of the total taxable gasoline used in this state by each vehicle so equipped; or

(6) proposed alternate methods. Proposals for the use of methods that this section does not specifically cover to determine the amount of gasoline used in power take-off operations or auxiliary power units may be submitted to the comptroller for approval; and

(7) accurate mileage records must be kept regardless of the method used.

(h) Refund or credit for state fuel tax on gasoline or diesel fuel sold to or used by an exempt entity.

(1) A license holder, other than an aviation fuel dealer, may take a credit on a return for state fuel tax paid on the purchase of gasoline or diesel fuel that is resold tax-free if the purchaser was one of the following entities:

(A) the United States or federal government and the purchase is for its exclusive use. The federal government means any department, board, bureau, agency, corporation, or commission that the United States government has created or wholly owns. Exclusive use by the federal government means use of fuel only in motor vehicles or other equipment that the federal government operates. A person operating under a contract with the federal government is not an exempt entity. Evidence that sales were made to the federal government must be maintained and consist of:

(i) a United States tax exemption certificate--Standard Form 1094 or similar certificate that includes the same information as the Standard Form 1094;

(ii) copies of the invoice(s) when a United States National credit card--Standard Form 149, was used for the purchase, which invoice must include the license plate number or official vehicle designation, if fuel is delivered into the fuel supply tank of a motor vehicle; or

(iii) a copy of a contract between the seller and the federal government supporting the sales invoices or purchase vouchers;

(B) a Texas public school district and the purchase is for its exclusive use. Exclusive use by a public school district means use of fuel only in motor vehicles or other equipment that the public school district operates;

(C) a commercial transportation company with a contract to provide public school transportation services to a Texas public school district under Education Code, §34.008, and the gasoline or diesel fuel is used exclusively to provide those services;

(D) a Texas non-profit electric cooperative organized under Utilities Code, Chapter 161, and telephone cooperative organized under Utilities Code, Chapter 162, and the purchase is for its exclusive use. Exclusive use by an electric or telephone cooperative means use of fuel only in motor vehicles or other equipment that the electric or telephone cooperative operates;

(E) a Texas volunteer fire department when the purchase is for its exclusive use. A directory of fire departments is available at: https://fireconnect.tfs.tamu.edu/. For purposes of this subparagraph: [section,]

(i) for sales made before May 24, 2019, a qualifying Texas volunteer fire department is a fire department [departments are] identified on the Texas A&M Forest Service's website as a volunteer fire department having no paid members[. A directory of these fire departments is available at: http://tfsfrp.tamu.edu/fdd/directory]; and

(ii) for sales made on or after May 24, 2019, a qualifying Texas volunteer fire department is a fire department that is operated by its members on a not-for-profit basis, including a part-paid fire department composed of at least 50% volunteer firefighters, and including a fire department that is exempt from federal income tax under Section 501(a), Internal Revenue Code of 1986, by being listed as an exempt organization in Section 501(c)(3) or (4) of that code; or

(F) a nonprofit entity that is organized for the sole purpose of and engages exclusively in providing emergency medical services in Texas, including rescue and ambulance services, when the purchase is for its exclusive use.

(2) An exempt entity enumerated in paragraph (1)(A) - (F) of this subsection may claim a refund of state fuel tax paid on gasoline, diesel fuel, compressed natural gas, or liquefied natural gas purchased for its exclusive use.

(3) A refund may be requested for state fuels tax on compressed natural gas or liquefied natural gas used in a motor vehicle operated exclusively by:

(A) a Texas county or a Texas municipality; or

(B) a transit company, including a metropolitan rapid transit authority under Transportation Code, Chapter 451, or a regional transportation authority under Transportation Code, Chapter 452, that provides transportation services and who on January 1, 2015, held a prepaid liquefied gas decal as that section existed on that date.

(i) Refund or credit for state fuel tax on gasoline or diesel fuel exported from Texas or sold for export.

(1) A person may claim a refund or a licensed supplier, permissive supplier, distributor, importer, exporter, or blender may take a credit on a return for state fuel tax paid on gasoline or diesel fuel that the person or the license holder exports from this state in quantities of 100 or more gallons. Proof of export must be one of the following:

(A) proof of export that United States Customs officials have certified, if the fuel was exported to a foreign country;

(B) proof of export that a port of entry official of the state of importation has certified, if the state of importation maintains ports of entry;

(C) proof from the taxing officials of the state into which the fuel was imported that shows that the exporter has accounted for the fuel on that state's tax returns;

(D) other proof that the fuel has been reported to the state into which the gasoline or diesel fuel was imported; or

(E) a common or contract carrier's transporting documents (see §3.439 of this title (relating to Motor Fuel Transportation Documents)) that list the consignor and consignee, the points of origin and destination, the number of gallons shipped or transported, the date of export, and the kind of fuel exported.

(2) A licensed supplier, permissive supplier or distributor may take a credit on a return for state fuel tax paid on gasoline or diesel fuel resold tax-free to a licensed supplier, permissive supplier, distributor, importer, or exporter for immediate export from this state under the following circumstances:

(A) a shipping document or bill of lading issued by the seller that shows the destination state;

(B) the purchaser (exporter) is licensed in Texas as a supplier, permissive supplier, distributor, importer, or exporter; and

(C) the purchaser is licensed in the destination state to pay that state's tax; or

(D) if the destination is a foreign country, a shipping document or bill of lading issued by the seller that shows the foreign destination.

(3) A licensed supplier must collect either the destination state's tax or Texas tax from the purchaser on gasoline or diesel fuel exported to another state.

(j) Refund or credit for state fuel tax on gasoline or diesel fuel loss by fire, theft, or accident. A person may claim a refund or a license holder may take a credit on a return for state fuel tax paid on 100 or more gallons of gasoline or diesel fuel loss by fire, theft, or accident. The claimant must maintain records of the incident that establishes that the exact quantity of fuel that has been claimed as lost was actually lost, and that the loss resulted from that incident. The time limitation prescribed in subsection (b)(1) of this section is determined by the date of the first incident of a multiple incident loss that totals 100 gallons or more. A claim for refund for loss by fire, theft, or accident shall be accompanied by fire department, police department, or regulatory agency reports as appropriate.

(1) If the incident is a drive-away theft at a retail outlet (i.e., theft occurs when a person delivers gasoline or diesel fuel into the fuel supply tank(s) of a motor vehicle at a retail outlet without payment for the fuel), the following documentation shall be maintained:

(A) a police department report or evidence that the incident of drive-away theft has been or will be taken as a deduction on the federal income tax return during the same or the subsequent reporting period; and

(B) a separate report for each incident that the employee(s) who witnessed the event prepared and signed. The report must include the date and time of occurrence, type of fuel, number of gallons, outlet location, and, if the theft is reported to a police department, the police case number.

(2) If the accidental loss was incurred through a leak in a line or storage tank, the minimum proof required is:

(A) a statement by the person who actually dug up or otherwise examined the hole or leak. Such statement should articulate the extent of the leak, the date of the examination, and the person's name and title; and

(B) a statement of the actual loss as determined by computing the measured inventory immediately preceding the discovery of the accidental leak, plus motor fuel salvaged from the leaky tank or line, if any, less intervening withdrawals for sale or use.

(3) A person claiming a refund or credit under this subsection must take inventory on the first of each month and promptly correct the inventory for any loss that has occurred in the preceding month. If inventories have not been accurately or timely measured, or if complete records have not been kept of all withdrawals for sale or use as required by law, a claim for refund or credit cannot be honored for payment.

(k) Refund or credit for state fuel tax on gasoline or diesel moved between terminals. A licensed supplier or permissive supplier may take a credit on a return for state fuel tax paid on gasoline or diesel fuel removed from an IRS registered terminal that is transferred by truck or railcar to another IRS registered terminal.

(l) Refund or credit for state fuel tax on gasoline or diesel fuel sold to or purchased by a licensed aviation fuel dealer.

(1) A licensed supplier, permissive supplier, or distributor may take a credit on a return for state fuel tax paid on gasoline or diesel fuel sold to a licensed aviation fuel dealer for delivery solely into the fuel supply tanks of aircraft, aircraft servicing equipment, or into a bulk storage tank of a licensed aviation fuel dealer.

(2) A licensed aviation fuel dealer may claim refund for state fuel tax paid on gasoline or diesel fuel delivered into the fuel supply tanks of aircraft, aircraft servicing equipment, or into a bulk storage tank of another licensed aviation fuel dealer.

(m) Refund or credit for state fuel tax on gasoline, diesel fuel, compressed natural gas, or liquefied natural gas used outside of Texas by a licensed interstate trucker. A licensed interstate trucker may take a credit on a tax return for state fuel tax paid on gasoline, diesel fuel, compressed natural gas, or liquefied natural gas purchased in Texas and used outside of Texas in commercial vehicles operated under an interstate trucker license. The credit may be taken on the return for the period in which the purchase occurred. If the credit exceeds the amount of tax reported due on that return, the licensed interstate trucker:

(1) may carry forward the excess credit on any of the three successive quarterly returns until exhausted, or until the due date of the third successive quarterly return, whichever occurs first;

(2) may seek refund of the excess credit by filing a claim for refund on or before the due date of the third successive quarterly return; or

(3) if returns are filed on an annual basis an interstate trucker may seek refund or credit no later than the due date of the annual return; and

(4) any remaining credit not taken on a return or claimed as a refund before the prescribed deadline expires.

(n) Refund for state fuel tax on gasoline or diesel fuel sold on Indian reservations. A retailer located on an Indian reservation recognized by the United States government may claim refund of state fuel tax paid on gasoline or diesel fuel resold tax-free to exempt tribal entities and tribal members. The retail dealer must maintain records that include the original purchase invoices that show that the state fuel tax was paid and sales invoices that include:

(1) the name of the purchaser;

(2) the date of the sale;

(3) the number of gallons sold;

(4) the type of fuel sold; and

(5) a written statement that no state fuel tax was collected or that it was a tax-free sale.

(o) Refund of state fuel tax on compressed natural gas or liquefied natural gas sold on Indian reservations. Tribal entities and tribal members may claim a refund of state fuel tax paid on compressed natural gas or liquefied natural gas purchased from a compressed natural gas and liquefied natural gas dealer located on an Indian reservation recognized by the United States government. The refund claim must be supported with original purchase invoices that show the state fuel tax was paid and that include:

(1) the name and address of the seller;

(2) the name of the purchaser;

(3) the date of the sale;

(4) the number of diesel gallon equivalents or gasoline gallon equivalents purchased;

(5) the type of fuel purchased; and

(6) the rate and amount of tax, separately stated from the selling price.

(p) Refund or credit for state fuel tax paid on diesel fuel used in moveable specialized equipment operated exclusively in oil field well servicing.

(1) A person may claim a refund or a license holder may take a credit on a return for state fuel tax paid on diesel fuel consumed by moveable specialized equipment used exclusively in oil field well servicing equipment if the person or license holder has received or is eligible to receive a federal diesel fuel tax refund under Internal Revenue Code, Title 26, and the moveable specialized equipment meets the following specific design-base and use-base tests.

(A) Design-base test.

(i) The chassis has permanently mounted to it (by welding, bolting, riveting, or other means) machinery or equipment to perform oil well servicing operations if the operation of the machinery or equipment is unrelated to transportation on or off the highways;

(ii) the chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation; and

(iii) the chassis could not, because of its special design, be used as part of a vehicle designed to carry any other load without substantial structural modification. A chassis that can be used for a variety of uses and body types (such as a dump truck, flat bed, or box truck) is a highway chassis and would not qualify as a specially designed chassis.

(B) Use-base test. The use-based test is satisfied if the vehicle travels less than 7,500 miles on highways during a calendar year.

(2) Documentation requirements. In addition to the documentation requirements in Tax Code, §162.229, the person or license holder must maintain:

(A) a mileage or trip log for each moveable specialized equipment on an individual-vehicle basis consisting of:

(i) total miles traveled, evidenced by odometer or hubometer readings;

(ii) date of each trip on the public highways of this state and out of this state (starting and ending);

(iii) beginning and ending odometer or hubometer readings of each trip on the public highway;

(iv) odometer or hubometer readings entering Texas, and odometer or hubometer readings leaving Texas;

(v) power unit number or vehicle identification number or license plate number; or

(vi) vehicles that are not licensed under the International Fuel Tax Agreement may use the Texas Department of Transportation Quarterly Hubometer Permit report in lieu of the records required in clauses (i) - (v) of this subparagraph to document incidental highway travel.

(B) Internal Revenue Service form 4136, if refund of federal excise tax claimed;

(C) verification that limited sales tax was paid on the movable specialized equipment, if purchased in Texas; and

(D) verification that an oversize/overweight permit is used to travel on the highways of this state.

(3) Computation of refund. One-fourth of one gallon for each mile of incidental highway travel shall be deducted from the number of gallons claimed.

(4) Moveable specialized equipment licensed under the International Fuel Tax Agreement (IFTA). An IFTA licensee may only request a refund for state fuel tax paid on diesel fuel used in moveable specialized equipment licensed under the IFTA directly from the comptroller and separately from the IFTA tax return. A refund claim must be supported with purchase invoice(s) and trip or mileage logs described in paragraph (2) of this subsection.

(5) Recovery of refund. If a refund has been issued for movable specialized equipment for a partial calendar year, and it is determined that the movable specialized equipment traveled 7,500 miles or more on the highways in that calendar year then the taxes previously refunded for that vehicle must be repaid to the comptroller.

(q) Refund of state fuel tax paid on diesel fuel used in a medium to remove drill cuttings from a well bore in the production of oil or gas. A refund must be supported with purchase invoice(s) and distribution log described in Tax Code, §162.229.

(r) Refund of state fuel tax paid on diesel fuel used as a feedstock in manufacturing. A person may claim a refund or a license holder may take a credit on a return for state fuel tax paid on diesel fuel used as a feedstock in the manufacturing of tangible personal property for resale, but not as a motor fuel. A refund claim must be supported with purchase invoice(s), records showing the amount of diesel fuel used as feedstock and a description of the tangible personal property manufactured.

(s) The right to receive a refund or take a credit under this section is not assignable.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 9, 2019.

TRD-201904663

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Earliest possible date of adoption: January 19, 2020

For further information, please call: (512) 475-2220


SUBCHAPTER FF. SPECIAL FEE ON CERTAIN CIGARETTES AND CIGARETTE TOBACCO PRODUCTS

34 TAC §3.751

The Comptroller of Public Accounts proposes amendments to §3.751, concerning special fee on certain cigarettes and cigarette tobacco products; definitions, imposition of fee, and reports. The amendments to this section implement provisions in Senate Bill 1390, 85th Legislature, 2017, that changed the due date of the distributor's report from the last day of the month to the 25th day of the month.

Throughout the section, the comptroller adds or amends the titles to statutory references and does not intend to make substantive changes through these additions of and amendments to the statutory references.

The comptroller amends subsection (a)(5) to replace the statutory references with a definition combining the cigarette and tobacco definitions of distributor.

The comptroller amends subsection (f)(2) by adding "and tobacco" to explain that all distributor reports and payments are due on the 25th day of the month, in accordance with the provisions of Senate Bill 1390 and Texas Tax Code §154.212 (Reports by Wholesalers and Distributors of Cigarettes).

Tom Currah, Chief Revenue Estimator, has determined that during the first five years that the proposed amendment is in effect, the amendment: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rules' applicability; and will not positively or adversely affect this state's economy. This proposal amends a current rule.

Mr. Currah also has determined that for each year of the first five years the rule is in effect, proposed amendment would benefit the public by conforming the rule to current statutory language. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses. The proposed amendment would have no significant fiscal impact on the state government, units of local government, or individuals. There would be no anticipated significant economic costs to the public.

Comments on the proposal may be submitted to Teresa G. Bostick, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

The amendments are proposed under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture) and §111.0022 (Application to Other Laws Administered by Comptroller), which provide the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2, and taxes, fees, or other charges which the comptroller administers under other law.

The amendments implement legislative changes to Tax Code, §154.210.

§3.751.Special Fee on Certain Cigarettes and Cigarette Tobacco Products; Definitions, Imposition of Fee, and Reports.

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

(1) Brand family--Each style of cigarettes or cigarette tobacco products sold under the same trademark. The term includes any style of cigarettes or cigarette tobacco products that have a brand name, trademark, logo, symbol, motto, selling message, recognizable pattern of colors, or other indication of product identification that is identical to, similar to, or identifiable with a previously known brand of cigarettes or cigarette tobacco products.

(2) Cigarette--A roll for smoking that is made of tobacco or tobacco mixed with another ingredient, wrapped or covered with a material other than tobacco, and is not a cigar.

(3) Cigarette tobacco product--Roll-your-own (RYO) tobacco or tobacco that, because of the tobacco's appearance, type, packaging, or labeling, is suitable for use in making cigarettes and is likely to be offered to or purchased by a consumer for that purpose.

(4) Credit amendment--An amendment to the master settlement agreement that offers a credit to subsequent participating manufacturers for fees paid under this section with respect to their products in a form agreed on by settling states, as defined in the master settlement agreement, with aggregate allocable shares, as defined in the master settlement agreement, equal to at least 99.937049%; by the original participating manufacturers, as defined in the master settlement agreement; and by subsequent participating manufacturers whose aggregate market share, expressed as a percentage of the total number of individual cigarettes sold in the United States, the District of Columbia, and Puerto Rico during the calendar year at issue, as measured by excise taxes collected by the federal government, and in the case of cigarettes sold in Puerto Rico, by arbitrios de cigarillos collected by the Puerto Rico taxing authority, is greater than 2.5%. For purposes of the calculation of subsequent participating manufacturer market share under this subchapter, 0.09 ounces of roll-your-own tobacco constitutes one cigarette.

(5) Distributor--A person who is authorized to purchase cigarettes in unstamped packages or receives untaxed tobacco products for the purpose of making a first sale in this state from manufacturers; a person who is authorized to stamp cigarette packages; a person who ships, transports, or imports cigarettes or tobacco products into this state; a person who acquires, possesses, and makes a first sale of cigarettes or tobacco products in this state; or a person who manufactures or produces cigarettes or tobacco products. [This term has the meaning assigned by Tax Code, §154.001 or §155.001.]

(6) Fee or monthly fee--The fee imposed under Health and Safety Code, §161.603 (Fee Imposed).

(7) Manufacturer--A person who manufactures, fabricates, or assembles cigarettes or cigarette tobacco products, or causes or arranges for the manufacture, fabrication, or assembly of cigarettes or cigarette tobacco products, for sale or distribution. The term also includes a person who is the first importer into the United States of cigarettes or cigarette tobacco products manufactured, fabricated, or assembled outside the United States.

(8) Master settlement agreement--The settlement agreement entered into on November 23, 1998, by 46 states and leading United States tobacco manufacturers, as amended as of September 1, 2013. Texas is not a party to the master settlement agreement.

(9) Non-settling manufacturer--A manufacturer of cigarettes or cigarette tobacco products that did not sign a Texas tobacco settlement agreement.

(10) Non-settling manufacturer cigarettes--Cigarettes manufactured, fabricated, assembled, or imported into the United States by a non-settling manufacturer.

(11) Non-settling manufacturer cigarette tobacco products--Cigarette tobacco products manufactured, fabricated, assembled, or imported into the United States by a non-settling manufacturer.

(12) Settling manufacturer--A manufacturer of cigarettes or cigarette tobacco products that signed a Texas tobacco settlement agreement.

(13) Subsequent participating manufacturer--Tobacco manufacturers that signed on to the master settlement agreement on or after November 23, 1998, and that have not signed a Texas tobacco settlement agreement. For purposes of this section, a subsequent participating manufacturer is also a non-settling manufacturer. A manufacturer may not be treated as a subsequent participating manufacturer for purposes of this section unless it has provided to the comptroller notice and proof, in the form and manner the comptroller may prescribe, that it is a subsequent participating manufacturer.

(14) Texas tobacco settlement agreement--This term means either:

(A) the Comprehensive Settlement Agreement and Release filed on January 16, 1998, in the United States District Court, Eastern District of Texas, in the case styled The State of Texas v. The American Tobacco Co., et al., No. 5-96CV-91, and all subsequent amendments; or

(B) the settlement agreement entered into on March 20, 1997, regarding the matter described in subparagraph (A) of this paragraph, but only as to companies that signed that agreement on that date.

(b) Fee imposed. A fee is imposed on the sale, use, consumption, or distribution in this state of non-settling manufacturer cigarettes and non-settling manufacturer cigarette tobacco products. The fee is in addition to any other privilege, license, fee, or tax required or imposed by state law. The fee shall be collected only once on each cigarette or cigarette tobacco product on which it is due. Except as otherwise provided by this section, Tax Code, Chapter 154 (Cigarette Tax) or 155 (Cigars and Tobacco Products Tax) governs the imposition, collection, payment, administration, and enforcement of the fee in the same manner as the taxes imposed by those chapters, as appropriate.

(c) Fee exempt. The fee does not apply to cigarettes or cigarette tobacco products:

(1) that a settling manufacturer claims as its own and that are included in computing payments to be made by that settling manufacturer under a Texas tobacco settlement agreement; or

(2) that are sold into another state for resale to consumers outside of this state, provided that the sale is reported to the state into which the cigarettes are sold under 15 U.S.C. Section 376 (Reports to State Tobacco Tax Administrator).

(d) Fee rate increases. Beginning in January 2014, and in January of each following year, the comptroller shall compute the rate of the fee applicable during that calendar year by increasing the rate for the preceding calendar year by the greater of three percent or the actual total annual percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) for December, as published by the Bureau of Labor Statistics of the United States Department of Labor. The new computed rate will take effect February 1st of each year and be valid for 12 consecutive months.

(e) Allowance of credit for fee. A distributor claiming, under Tax Code Chapters 154 and 155, an authorized cigarette or tobacco tax credit for products subject to the fee may take a fee credit in the same reporting period.

(f) Distributor's report, payment of monthly fee, and cigarette stamping allowance.

(1) On or before the last day of each month on the comptroller's website, the comptroller shall publish and maintain a list of the names and brand families of settling manufacturers, non-settling manufacturers, subsequent participating manufacturers, and the effective date of any credit amendment, if any has been adopted.

(2) A distributor filing a required report under Tax Code, §154.210 (Distributor's Report) or §155.111 (Distributor's Report), shall, in addition to the information required by those sections, include summary data in the required reports and remit the fee. Distributors shall electronically, in the prescribed comptroller format, provide the detailed information required by Health and Safety Code, §161.605 (Distributor's Report and Payment of Monthly Fee). All [With the exception of reports of sales to retailers required by the comptroller under Tax Code, §154.212, all] cigarette and tobacco distributor [and manufacturer] reports and payments must be filed on or before the 25th [last] day of each month following the month in which the transactions take place.

(3) A distributor is entitled to an additional stamping allowance of 0.5% of the face value of all stamps purchased under Tax Code, §154.041 (Stamp Required), for providing the service of affixing stamps to cigarette packages; remitting the fee; and filing required reports. The maximum cigarette stamping allowance is 3.0% of the face value of all stamps purchased.

(g) Report to attorney general. Non-settling manufacturers offering or planning to offer cigarettes or cigarette tobacco products for sale or distribution in Texas must report, on form prescribed by the attorney general, to the attorney general. Reported information will be made available to the comptroller.

(h) Penalties for noncompliance. Tax Code, Chapter 154 or 155, as appropriate, will be the basis for penalties in administering violations of Health and Safety Code, Chapter 161, Subchapter V (Fee on Cigarettes and Cigarette Tobacco Products Manufactured By Certain Companies).

(i) Audit or inspection. The comptroller or attorney general is entitled to conduct reasonable periodic audits or inspections of the financial records of a non-settling manufacturer and its distributors to ensure compliance.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 9, 2019.

TRD-201904659

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Earliest possible date of adoption: January 19, 2020

For further information, please call: (512) 475-0387