TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER G. CIGARETTE TAX

34 TAC §3.102

The Comptroller of Public Accounts proposes amendments to §3.102 concerning applications, definitions, permits, and reports. The amendments implement House Bill 4614, 86th Legislature, 2019, effective September 1, 2019. The bill adds definitions to Chapter 154 and updates cigarette permit requirements. The comptroller amends this section to comply with these provisions.

The comptroller amends subsection (a) to revise existing definitions as described in Chapter 154 and include a definition of export warehouse and engage in business as added by HB 4614. The comptroller amends existing definitions in paragraphs (2) "bonded agent," (3) "cigarette," (4) "commercial business location," (6) "distributor," (9) "first sale," (11) "manufacturer," (13) "permit," (14) "permit holder," (15) "place of business," (16) "retailer," and (17) "stamp" to give the terms the meanings as amended by HB 4614. The comptroller renumbers subsequent paragraphs accordingly.

The comptroller amends subsections (b)(1) and (2) to include a permit requirement for a person who engages in the business of an export warehouse. The comptroller also adds new paragraph (6) to address non-issuance of a permit for a residence or a unit in a public storage facility. The comptroller adds new paragraph (7) to indicate that a permit is not required for a research facility that possesses and only uses cigarettes for experimental purposes. Lastly, the comptroller adds paragraph (8) to address permitting requirements for a person who provides a roll-your-own machine for consumers to use.

The comptroller adds subsection (c) to outline sale and purchase requirements between permit holders based on revisions to the Texas Tax Code 154.1015 (Sales; Permit Holders and Nonpermit Holders) from HB 4614. The comptroller renumbers subsequent subsections accordingly.

The comptroller amends subsection (e) to remove the permit fee requirement for an importer permit. The comptroller amends paragraph (6) to remove language regarding the effective date of a retailer permit issuance as this is twenty years in the past. The comptroller amends paragraphs (7) and (8) by reversing the order of the paragraphs so that fees for permit requirements are listed before a penalty for failure to obtain a permit. The comptroller amends paragraph (7) to state that an export warehouse is not required to pay a permit fee. The comptroller amends paragraph (10) to address permits for a business that closes prior to the permit expiration.

The comptroller amends subsection (f) to add that the comptroller shall issue a permit upon receipt of an application and applicable fees from a person who intends to engage in business activities related to an export warehouse.

The comptroller amends subsection (g) to include that a manufacturer must file a report on or before the 25th of each month.

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 statutes. 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.

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, §§154.001 (Definitions), 154.002 (Storage), 154.101 154.1015 (Sales; permit holders and nonpermit holders), 154.110 (Issuance of permit), and 154.204 (Manufacturer's records and reports).

§3.102.Applications, Definitions, Permits, 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) Agency--The Comptroller of Public Accounts of the State of Texas or the comptroller's duly authorized agents and employees.

(2) Bonded agent--A person in this state who is a third-party [an] agent of a manufacturer [person] outside this state and who receives cigarettes in interstate commerce and stores the cigarettes for distribution or delivery to distributors under orders from the manufacturer [person outside this state].

(3) Cigarette--A roll for smoking:

(A) that is made of tobacco or tobacco mixed with another ingredient and wrapped or covered with a material other than tobacco; and[.]

(B) that [A cigarette] is not a cigar.

(4) Commercial business location--The entire premises occupied by a permit applicant or a person required to hold a permit under Tax Code, Chapter 154 (Cigarette Tax). A commercial business location cannot include a residence or a unit in a public storage facility [The premises where cigarettes are stored or kept cannot be a residence or a unit in a public storage facility].

(5) Consumer--A person who possesses cigarettes for personal consumption.

(6) Distributor--A person who:

(A) is authorized to purchase, for the purpose of making a first sale in this state, cigarettes in unstamped packages from manufacturers who distribute cigarettes in this state and to stamp cigarette packages; [cigarettes in unstamped packages from manufacturers for the purpose of making a first sale in this state; a person who is authorized to stamp cigarette packages; a person who ships, transports, or imports cigarettes into this state; a person who acquires, possesses, and makes a first sale of cigarettes in this state; or a person who manufactures or produces cigarettes.]

(B) ships, transports, imports into this state, acquires, or possesses cigarettes and makes a first sale of the cigarettes in this state;

(C) manufactures or produces cigarettes; or

(D) is an importer.

(7) Engage in business--A person engaging either directly or through a representative, in any of the following activities:

(A) selling cigarettes in or into this state;

(B) using a warehouse or another location to store cigarettes; or

(C) otherwise conducting through a physical presence cigarette-related business in this state.

(8) Export warehouse--A person in this state who receives cigarettes in unstamped packages from manufacturers and stores the cigarettes for the purpose of making sales to authorized persons for resale, use, or consumption outside the United States.

(9) [(7)] First sale--Except as otherwise provided, first sale means the first transfer of possession in connection with a purchase, sale, or any exchange for value of cigarettes in or into this state, which includes: [intrastate commerce;]

(A) the sale of tobacco products by a distributor in or outside this state to a distributor, wholesaler, or retailer in this state; and a manufacturer in this state who transfers the tobacco products in this state; and does not include:

(i) the sale of tobacco products by a manufacturer outside this state to a distributor in this state; or

(ii) the transfer of tobacco products from a manufacturer outside this state to a bonded agent in this state;

(B) the first use or consumption of cigarettes in this state; or

(C) the loss of cigarettes in this state whether through negligence, theft, or other unaccountable loss. First sale also includes giving away cigarettes as promotional items.

(10) [(8)] Importer--A person who ships, transports, or imports into this state cigarettes manufactured or produced outside the United States for the purpose of making a first sale in this state.

(11) [(9)] Manufacturer--A person who manufactures, fabricates, or assembles cigarettes, or causes or arranges for the manufacture, fabrication, or assembly of cigarettes, for sale or distribution [and sells cigarettes to a distributor].

(12) [(10)] Manufacturer's representative--A person employed by a manufacturer to sell or distribute the manufacturer's stamped cigarette packages.

(13) [(11)] Permit--Any agency license, certificate, approval, registration, or similar form of permission required by law to buy, sell, stamp, store, transport, or distribute cigarettes. A permit includes a vending machine decal.

(14) [(12)] Permit holder--A person who has been issued a bonded agent, distributor, importer, export warehouse, manufacturer, wholesaler, or retailer permit under Tax Code, §154.101 (Permits).

(15) [(13)] Place of business--

(A) a [A] commercial business location where cigarettes are sold;

(B) a commercial business location where cigarettes are kept for sale or consumption or otherwise stored; [or]

(C) a vehicle from which cigarettes are sold; or

(D) a vending machine from which cigarettes are sold.

(16) [(14)] Retailer--A person who engages in the business [practice] of selling cigarettes to consumers. The owner of a [coin-operated] cigarette vending machine is a retailer.

(17) [(15)] Stamp--Includes only a [A] stamp that:

(A) is printed, manufactured, or made by authority of the comptroller;

(B) shows payment of the tax imposed by Tax Code, §154.021 (Imposition and Rate of Tax); [and]

(C) is consecutively numbered and uniquely identifiable as a Texas cigarette tax stamp; and

(D) is not damaged beyond recognition as a valid Texas tax stamp.

(18) [(16)] Wholesaler--A person, including a manufacturer's representative, who sells or distributes cigarettes in this state for resale. A wholesaler is not a distributor.

(b) Permits required.

(1) To engage in business as a distributor, importer, manufacturer, export warehouse, wholesaler, bonded agent, or retailer, a person must apply for and receive the applicable permit from the comptroller. The permits are not transferable. A new application is required if a change in ownership occurs (sole ownership to partnership, sole ownership to corporation, partnership to limited liability company, etc.). Each legal entity must apply for its own permit(s). All permits issued to a legal entity will have the same taxpayer number. Tax Code, §154.501(a)(2) (Penalties), provides that a person who engages in the business of a bonded agent, distributor, importer, manufacturer, export warehouse, wholesaler, or retailer without a valid permit is subject to a penalty of not more than $2,000 for each violation. Tax Code, §154.501(c), provides that a separate offense is committed each day on which a violation occurs.

(2) Each distributor, importer, manufacturer, export warehouse, wholesaler, bonded agent, or retailer shall obtain a permit for each place of business owned or operated by the distributor, importer, manufacturer, wholesaler, bonded agent, or retailer. A new permit shall be required for each physical change in the location of the place of business. Correction or change of street listing by a city, state, or U.S. Post Office shall not require a new permit so long as the physical location remains unchanged.

(3) Permits are valid for one place of business at the location shown on the permit. If the location houses more than one place of business under common ownership, an additional permit is required for each separate place of business. For example, each retailer who operates a cigarette vending machine shall place a retailer's permit on the machine.

(4) A vehicle from which cigarettes are sold is considered to be a place of business and requires a permit. A motor vehicle permit is issued to a bonded agent, distributor, or wholesaler holding a current permit. Vehicle permits are issued bearing a specific motor vehicle identification number and are valid only when physically carried in the vehicle having the corresponding motor vehicle identification number. Vehicle permits may not be moved from one vehicle to another. No cigarette permit is required for a vehicle used only to deliver invoiced cigarettes.

(5) The comptroller may issue a combination permit for cigarettes, tobacco products, or cigarettes and tobacco products to a person who is a distributor, importer, manufacturer, wholesaler, bonded agent, or retailer as defined by Tax Code, Chapter 154 and Chapter 155 (Cigars and Tobacco Products Tax). A person who receives a combination permit pays only the higher of the two permit fees.

(6) The comptroller will not issue a permit for a residence or a unit in a public storage facility because cigarettes may not be stored at such places.

(7) This section does not apply to a research facility that possesses and only uses cigarettes for experimental purposes.

(8) A person who engages in the business of selling cigarettes for commercial purposes who provides a roll-your-own machine that is available for use by consumers must obtain a manufacturer's, distributor's and a retailer's permit.

(c) Sales and purchase requirements for permit holders. Except for retail sales to consumers, cigarettes may only be sold or distributed by and between permit holders as provided by this section. A permit holder may engage in the following business activities:

(1) A manufacturer outside this state who is not a permitted distributor may sell cigarettes only to a permitted distributor.

(2) A permitted distributor may sell cigarettes only to a permitted distributor, wholesaler, or retailer.

(3) A permitted importer may sell cigarettes only to a permitted distributor, wholesaler, or retailer.

(4) A permitted wholesaler may sell cigarettes only to a permitted distributor, wholesaler, or retailer.

(5) A permitted retailer may sell cigarettes only to the consumer and may purchase cigarettes only from a permitted distributor or wholesaler.

(6) A permitted export warehouse may sell cigarettes only to persons authorized to sell or consume unstamped cigarettes outside the United States.

(7) A manufacturer's representative may sell cigarettes only to a permitted distributor, wholesaler, or retailer.

(d) [(c)] Permit period.

(1) Bonded agent, distributor, importer, manufacturer, wholesaler, and motor vehicle permits expire on the last day of February of each year.

(2) Retailer permits expire on the last day of May of each even-numbered year.

(e) [(d)] Permit fees. An application for a bonded agent, distributor, [importer,] manufacturer, wholesaler, motor vehicle, or retailer permit must be accompanied by the appropriate fee.

(1) The permit fee for a bonded agent is $300.

(2) The permit fee for a distributor is $300.

(3) The permit fee for a manufacturer with representation in Texas is $300.

(4) The permit fee for a wholesaler is $200.

(5) The permit fee for a motor vehicle is $15.

(6) The permit fee for a retailer permit [issued or renewed on or after September 1, 1999,] is $180.

(7) No permit fee is required to obtain an importer or an export warehouse permit or to register a manufacturer if the manufacturer is located out of state with no representation in Texas [A $50 fee is assessed in addition to the regular permit fee for failure to obtain a permit in a timely manner].

(8) A $50 fee is assessed for failure to obtain a permit in a timely manner [No permit fee is required to obtain an importer permit or to register a manufacturer if the manufacturer is located out of state with no representation in Texas].

(9) The comptroller prorates the permit fee for new permits according to the number of months remaining in the permit period. If a permit will expire within three months of the date of issuance, the comptroller may collect the prorated permit fee for the current permit period and the total permit fee for the next permit period.

(10) A person issued a permit for a place of business that permanently closes before the permit expiration date is not entitled to a refund of the permit fee [An unexpired permit may be returned to the comptroller for credit on the unexpired portion only upon the purchase of a permit of a higher classification].

(f) [(e)] Permit issuance, denial, suspension, or revocation.

(1) The comptroller shall issue a permit to a distributor, importer, manufacturer, export warehouse, wholesaler, bonded agent, or retailer if the comptroller receives an application and any applicable fee, believes that the applicant has complied with Tax Code, §154.101, and determines that issuing the permit will not jeopardize the administration and enforcement of Tax Code, Chapter 154.

(2) If the comptroller determines that an existing permit should be suspended or revoked or a permit should be denied because of the applicant's prior conviction of a crime and the relationship of the crime to the license, the comptroller will notify the applicant or permittee in writing by personal service or by mail of the reasons for the denial, suspension, revocation, or disqualification, the review procedure provided by Occupations Code, §53.052 (Judicial Review), and the earliest date that the permit holder or applicant may appeal the denial, suspension, revocation, or disqualification.

(g) [(f)] Reports.

(1) Manufacturer reports must be filed on or before the 25th [last] day of each month for transactions that occurred during the preceding month.

(2) All cigarette distributor and wholesaler reports and payments must be filed on or before the 25th day of each month for transactions that occurred during the preceding month.

(3) All wholesaler and distributor reports of sales to retailers required by the comptroller under Tax Code, §154.212 (Reports by Wholesalers and Distributors of Cigarettes), shall be filed in accordance with §3.9 of this title (relating to Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers).

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 January 10, 2020.

TRD-202000082

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Earliest possible date of adoption: February 23, 2020

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


SUBCHAPTER H. CIGAR AND TOBACCO TAX

34 TAC §3.121

The Comptroller of Public Accounts proposes amendments to §3.121 concerning definitions, imposition of tax, permits, and reports. The amendments implement House Bill 3475, 86th Legislature, 2019, effective September 1, 2019. The comptroller adds definitions as described in Chapter 155, removes attached graphics related to tax rates for tobacco products other than cigars and provides the rate per ounce for each year in the text of the rule.

The comptroller amends subsection (a) to add definitions of commercial business location, engage in business, export warehouse, and raw tobacco as described in Chapter 155 and amended by HB 3475. The comptroller amends existing definitions in paragraphs (1) "bonded agent," (5) "distributor," (9) "first sale," (11) "manufacturer," (14) "permit holder," (17) "retailer," and (18) "tobacco product" to give the terms the meanings as amended by HB 3475. The comptroller renumbers subsequent paragraphs accordingly.

The comptroller amends subsection (b) to remove the attached graphics and incorporate into the section language associated with the attached graphics concerning the tax rate per ounce on tobacco products other than cigars and include the tax rate per ounce for prior fiscal years. The comptroller amends paragraph (1)(B) to address the minimum rate of tax imposed on a can or package of a tobacco product that weighs 1.2 ounces.

The comptroller adds subsection (c) to outline sale and purchase requirements between permit holders based on revisions to Tax Code, §155.0415 (Sales: Permit Holders and Nonpermit Holders) from HB 3475. The comptroller reletters subsequent subsections accordingly.

The comptroller adds subsection (d) to address tax liability on transactions between permitted distributors. The language provides that a permitted distributor who makes a first sale to a permitted distributor in this state is liable for and shall pay the tax. This implements the provisions of HB 3475.

The comptroller amends subsection (e) to include a permit requirement for a person who engages in the business of an export warehouse. Consistent with provisions of HB 3475, as of September 1, 2019, a person who engages in the business of an export warehouse must apply for and receive a permit from the comptroller's office.

The comptroller adds export warehouse to subsection (f)(1) since the permit period of an export warehouse follows the same period as permits other than retailer permits.

The comptroller amends subsection (g) to address that there are no permit fees for obtaining a permit for an export warehouse and an importer, and to address permits for a business that closes prior to the permit expiration. The comptroller amends paragraphs (7) and (8) by reversing the order of the paragraphs so that fees for permit requirements are listed before a penalty for failure to obtain a permit. The comptroller amends paragraph (10) to address permits for a business that closes prior to the permit expiration.

The comptroller amends subsection (h) to add that the comptroller shall issue a permit upon receipt of an application and applicable fees from a person who intends to engage in business activities related to an export warehouse.

The comptroller amends subsection (j) to change the date a manufacturer must file a report from the end of the month to a date on or before the 25th of each month.

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 statutes. 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.

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, §§155.001 (Definitions); 155.0212 (Liability of permitted distributors); 155.041 (Permits); 155.0415 (Sales: permit holder and nonpermit holders); and 155.049 (Permit year; fees).

§3.121.Definitions, Imposition of Tax, Permits, 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) Bonded agent--A person in Texas who is a third-party [an] agent of [for] a manufacturer [principal] located outside of Texas and who receives [cigars and] tobacco products in interstate commerce and stores the [cigars and] tobacco products for distribution or delivery to distributors under orders from the manufacturer [principal].

(2) Cigar--A roll of fermented tobacco that is wrapped in tobacco and that the main stream of smoke from which produces an alkaline reaction to litmus paper.

(3) Commercial business location--The entire premises occupied by a permit applicant or a person required to hold a permit under Tax Code, Chapter 155 (Cigar and Tobacco Product Tax). A commercial business location does not include a residence or a unit in a public storage facility.

(4) [(3)] Common carrier--A motor carrier registered under Transportation Code, Chapter 643 (Motor Carrier Registration), or a motor carrier operating under a certificate issued by the Interstate Commerce Commission or its successor agency.

(5) [(4)] Distributor--A person who:

(A) receives untaxed tobacco products from a manufacturer for the purpose of making a first sale in Texas;

(B) brings or causes to be brought into Texas untaxed tobacco products for sale, use, or consumption;[.]

(C) manufacturers or produces tobacco products; or

(D) is an importer.

(6) Engage in business--A person engaging either directly or through a representative, in any of the following activities:

(A) selling tobacco products in or into this state;

(B) using a warehouse or another location to store tobacco products; or

(C) otherwise conducting through a physical presence tobacco product-related business in this state.

(7) Export warehouse--A person in this state who receives untaxed tobacco products from manufacturers and stores the tobacco products for the purpose of making sales to authorized persons for resale, use, or consumption outside the United States.

(8) [(5)] Factory list price--The published manufacturer gross cost to the distributor. The term is synonymous with manufacturer's list price.

(9) [(6)] First sale--Except as otherwise provided by this section, the term means[:]

[(A)] the first transfer of possession in connection with a purchase, sale, or any exchange for value of tobacco products in or into this state, which includes: [intrastate commerce;]

(A) the sale of tobacco products by a distributor in or outside this state to a distributor, wholesaler, or retailer in this state; and a manufacturer in this state who transfers the tobacco products in this state; and does not include:

(i) the sale of tobacco products by a manufacturer outside this state to a distributor in this state; or

(ii) the transfer of tobacco products from a manufacturer outside this state to a bonded agent in this state;

(B) the first use or consumption of tobacco products in this state; or

(C) the loss of tobacco products in this state whether through negligence, theft, or other loss.

(10) [(7)] Importer--A person who ships, transports, or imports into Texas tobacco products manufactured or produced outside the United States for the purpose of making a first sale in this state.

(11) [(8)] Manufacturer--A person who manufactures, fabricates, or assembles tobacco products, or causes or arranges for the manufacture, fabrication, or assembly of tobacco products, for sale or distribution [or produces tobacco products and sells tobacco products to a distributor].

(12) [(9)] Manufacturer's representative--A person who is employed by a manufacturer to sell or distribute the manufacturer's tobacco products.

(13) [(10)] Manufacturer's listed net weight--For the purposes of calculating and reporting the state excise tax due on tobacco products other than cigars, the taxable net weight for a tobacco product is the weight of the finished product as shown or listed by the product manufacturer on the product can, package, shipping container, or the report required by Tax Code, §155.103(b) (Manufacturer's Records and Reports).

(14) [(11)] Permit holder--A bonded agent, distributor, importer, export warehouse, manufacturer, wholesaler, or retailer who obtains [required to obtain] a permit under Tax Code, §155.041 (Permits).

(15) [(12)] Place of business--[the term means:]

(A) a commercial business location where tobacco products are sold;

(B) a commercial business location where tobacco products are kept for sale or consumption or otherwise stored and may not be a residence or a unit in a public storage facility; [or]

(C) a vehicle from which tobacco products are sold; or[.]

(D) a vending machine from which tobacco products are sold.

(16) Raw tobacco--Any part of the tobacco plant, including the tobacco leaf or stem, that is harvested from the ground and is not a tobacco product as the term is defined in this section.

(17) [(13)] Retailer--A person who engages in the business [practice ]of selling tobacco products to consumers and includes the owner of a [coin-operated ] vending machine.

(18) [(14)] Tobacco product--A tobacco product is [includes]:

(A) a cigar; [ pipe tobacco, including any tobacco which, because of its appearance, type, packaging, or labeling, is suitable for use and likely to be offered to, or purchased by, consumers as tobacco to be smoked in a pipe;]

(B) smoking tobacco, including granulated, plug-cut, crimp-cut, ready-rubbed, and any form of tobacco substitute for smoking in a pipe or as a cigarette;

(C) chewing tobacco, including, Cavendish, Twist, plug, scrap, and any kind of tobacco suitable for chewing;[ and that is not intended to be smoked; snuff or other preparations of finely cut, ground, powdered, pulverized or dissolvable tobacco that is not intended to be smoked; roll-your-own smoking tobacco, including granulated, plug-cut, crimp-cut, ready rubbed, any form of tobacco, which, because of its appearance, type, packaging, or labeling, is suitable for use and likely to be offered to, or purchased by, consumers as tobacco for making cigarettes or cigars, or use as wrappers thereof; or other tobacco products, including an article or product that is made of tobacco or a tobacco substitute and that is not a cigarette.]

(D) snuff or other preparations of pulverized tobacco; or

(E) an article or product that is made of tobacco or a tobacco substitute and that is not a cigarette or an e-cigarette as defined by Health and Safety Code, §161.081 (Definitions).

(19) [(15)] Trade discount, special discount, or deals--Includes promotional incentive discounts, quantity purchase incentive discounts, and timely payment or prepayment discounts.

(20) [(16)] Weight of a cigar--The combined weight of tobacco and nontobacco ingredients that make up the total product in the form available for sale to the consumer, excluding any carton, box, label, or other packaging materials.

(21) [(17)] Wholesaler--A person, including a manufacturer's representative, who sells or distributes tobacco products in this state for resale but who is not a distributor.

(b) Imposition of tax. A tax is imposed and becomes due and payable when a permit holder receives cigars or tobacco products for the purpose of making a first sale in this state.

(1) Tax Rates.

(A) the tax on cigars is calculated at:

(i) $.01 per 10 or fraction of 10 on cigars that weigh three pounds or less per thousand;

(ii) $7.50 per thousand on cigars that weigh more than three pounds per thousand and that are sold at factory list price, exclusive of any trade discount, special discount, or deal, for 3.3 cents or less each;

(iii) $11 per thousand on cigars that weigh more than three pounds per thousand and that are sold at factory list price, exclusive of any trade discount, special discount, or deal, for more than 3.3 cents each, and that contain no substantial amount of nontobacco ingredients; and

(iv) $15 per thousand on cigars that weigh more than three pounds per thousand and that are sold at factory list price, exclusive of any trade discount, special discount, or deal, for more than 3.3 cents each, and that contain a substantial amount of nontobacco ingredients.

(B) The tax for tobacco products, other than cigars, is based on the manufacturer's listed net weight for an individual product's can or package and a rate for each ounce and proportionate rate on all fractional parts of an ounce of weight for that product. The tax imposed on a can or package of a tobacco product that weighs less than 1.2 ounces is equal to the amount of the tax imposed on a can or package that weighs 1.2 ounces. The rates imposed for state fiscal years 2010, 2011, 2012, 2013, 2014, and thereafter are set forth in this subparagraph. An expanded chart showing rates for cans or packages greater than 1.2 [two] ounces is available at comptroller.texas.gov.

(i) The rate for the state Fiscal Year 2010 (September 1, 2009 through August 31, 2010), is $1.10 per ounce plus the [and a] proportionate rate on all fractional parts of an ounce [for up to two ounces according to the following].

[Figure: 34 TAC §3.101(b)(1)(B)(i)]

(ii) The rate for [For] the state Fiscal Year 2011 (September 1, 2010 through August 31, 2011), is $1.13 per ounce plus the [ tax rate and] proportionate [tax] rate on all [for] fractional parts of an ounce [for up to two ounces are as follows].

[Figure: 34 TAC §3.101(b)(1)(B)(ii)

(iii) The rate for [For] the state Fiscal Year 2012 (September 1, 2011 through August 31, 2012), is $1.16 per ounce plus the [tax rate and] proportionate [tax] rate on all [for] fractional parts of an ounce [for up to two ounces are as follows].

[Figure: 34 TAC §3.101(b)(1)(B)(iii)]

(iv) The rate for [For] the state Fiscal Year 2013 (September 1, 2012 through August 31, 2013), is $1.19 per ounce plus the [tax rate and] proportionate [tax] rate on all [for] fractional parts of an ounce [for up to two ounces are as follows].

[Figure: 34 TAC §3.101(b)(1)(B)(iv)]

(v) The rate for [For] state Fiscal Year 2014 (which begins September 1, 2013) and for each fiscal year thereafter, is $1.22 per ounce plus the [tax rate and] proportionate [tax] rate on all [for] fractional parts of an ounce [for up to two ounces are as follows].

[Figure: 34 TAC §3.101(b)(1)(B)(v)]

(C) The tax imposed on a unit that contains multiple individual cans or packages is the sum of the taxes imposed under paragraph (1)(B) of this subsection, on each individual can or package intended for sale or distribution at retail. For example, on November 1, 2009 (Fiscal Year 2010) a distributor receives from a manufacturer for the purpose of making a first sale in Texas a unit of snuff that consists of 10 individual cans. Each can weighs 1.3 ounces. The effective tax rate for each can is $1.43. The total tax due for the unit is calculated by multiplying the effective tax rate on each individual can ($1.43) by the total number of individual cans in the unit (10 cans), for a total tax due of $14.30.

(2) Free goods shall be taxed at the prevailing factory list price, except that each tobacco product other than cigars shall be taxed according to the manufacturer's listed net weight for the product and the applicable fiscal year rate for each ounce and proportionate rate for all fractional parts of an ounce according to paragraph (1)(B) of this subsection.

(3) A person who receives or possesses tobacco products on which a tax of more than $50 would be due is presumed to receive or possess the tobacco products for the purpose of making a first sale in this state. This presumption does not apply to common carriers or to manufacturers.

(4) A tax is imposed on manufacturers, who manufacture tobacco products in this state, at the time the tobacco products are first transferred in connection with a purchase, sale, or any exchange for value in intrastate commerce.

(5) The delivery of tobacco products by a principal to its bonded agent in this state is not a first sale.

(6) If a manufacturer sells tobacco products to a purchaser in Texas and ships the products at the purchaser's request to a third party distributor in Texas, then the purchaser has received the tobacco products for first sale in Texas.

(7) The person in possession of cigars or tobacco products has the burden to prove payment of the tax.

(c) Sales and purchase requirements for permit holders. Except for retail sales to consumers, cigarettes may only be sold or distributed by and between permit holders as provided by this section. A permit holder may engage in the following business activities:

(1) A manufacturer outside this state who is not a permitted distributor may sell tobacco products only to a permitted distributor.

(2) A permitted distributor may sell tobacco products only to a permitted distributor, wholesaler, or retailer.

(3) A permitted importer may sell tobacco products only to a permitted distributor, wholesaler, or retailer.

(4) A permitted wholesaler may sell tobacco products only to a permitted distributor, wholesaler, or retailer.

(5) A permitted retailer may sell tobacco products only to the consumer and may purchase tobacco products only from a permitted distributor or wholesaler.

(6) A permitted export warehouse may sell tobacco products only to persons authorized to sell or consume untaxed tobacco products outside the United States.

(7) A manufacturer's representative may sell tobacco products only to a permitted distributor, wholesaler, or retailer.

(d) Liability of a permitted distributor. A permitted distributor who makes a first sale to a permitted distributor in this state is liable for and shall pay the tax.

(e) [(c)] Permits required. To engage in business as a distributor, importer, manufacturer, export warehouse, wholesaler, bonded agent, or retailer a person must apply for and receive the applicable permit from the comptroller. The permits are not transferable.

(1) A person who engages in the business of a bonded agent, distributor, importer, manufacturer, export warehouse, wholesaler, or retailer without a valid permit is subject to a penalty of not more than $2,000 for each violation. Each day on which a violation occurs is a separate offense. A new application is required if a change in ownership occurs (sole ownership to partnership, sole ownership to corporation, partnership to limited liability company, etc.). Each legal entity must apply for its own permit(s). All permits issued to a legal entity will have the same taxpayer number.

(2) Each distributor, importer, manufacturer, wholesaler, bonded agent, export warehouse, or retailer shall obtain a permit for each place of business owned or operated by the distributor, importer, manufacturer, wholesaler, bonded agent, or retailer. A new permit shall be required for each physical change in the location of the place of business. Correction or change of street listing by a city, state, or U.S. Post Office shall not require a new permit so long as the physical location remains unchanged.

(3) Permits are valid for one place of business at the location shown on the permit. If the location houses more than one place of business under common ownership, an additional permit is required for each separate place of business. For example, a retailer must have a separate permit for each vending machine including several machines at one location.

(4) A vehicle from which cigars and tobacco products are sold is a place of business and requires a permit. A motor vehicle permit is issued to a bonded agent, retailer, distributor, or wholesaler holding a current permit. Vehicle permits are issued bearing a specific motor vehicle identification number and are valid only when physically carried in the vehicle having the corresponding motor vehicle identification number. Vehicle permits may not be moved from one vehicle to another. Each cigar or tobacco product manufacturer's sales representative is required to purchase a wholesale dealer's permit for each manufacturer's vehicle operated. No cigar and tobacco product permit is required for a vehicle used only to deliver invoiced tobacco products.

(5) The comptroller may issue a combination permit for cigarettes, tobacco products, or cigarettes and tobacco products to a person who is a distributor, importer, manufacturer, wholesaler, bonded agent, or retailer as defined by Tax Code, Chapter 154 (Cigarette Tax) and Chapter 155 (Cigars and Tobacco Products Tax). A person who receives a combination permit pays only the higher of the two permit fees.

(6) The comptroller will not issue permits for a residence or a unit in a public storage facility because tobacco products cannot be stored at such places.

(f) [(d)] Permit Period.

(1) Bonded agent, distributor, export warehouse, importer, manufacturer, wholesaler, and motor vehicle permits expire on the last day of February of each year.

(2) Retailer permits expire on the last day of May of each even-numbered year.

(g) [(e)] Permit Fees. An application for a bonded agent, distributor, [importer] manufacturer, wholesaler, motor vehicle, or retailer permit must be accompanied by the required fee.

(1) The permit fee for a bonded agent is $300.

(2) The permit fee for a distributor is $300.

(3) The permit fee for a manufacturer with representation in Texas is $300.

(4) The permit fee for a wholesaler is $200.

(5) The permit fee for a motor vehicle is $15.

(6) The permit fee for a retailer permit issued or renewed is $180. Retailers who fail to obtain or renew a retailer permit in a timely manner are liable for the fee in effect for the applicable permit period, in addition to the fee described in paragraph (8) [(7)] of this subsection.

(7) No permit fee is required to obtain an importer permit, export warehouse, or to register a manufacturer when the manufacturer is located out of state with no representation in Texas [A $50 fee is assessed, in addition to the regular permit fee, for failure to obtain or renew a permit in a timely manner].

(8) A $50 fee is assessed for failure to obtain or renew a permit in a timely manner [No permit fee is required to obtain an importer permit or to register a manufacturer when the manufacturer is located out of state with no representation in Texas].

(9) The comptroller prorates the permit fee for new permits according to the number of months remaining in the permit period. If a permit will expire within three months of the date of issuance, the comptroller may collect the prorated permit fee for the current permit period and the total permit fee for the next permit period.

(10) A person issued a permit for a place of business that permanently closes before the permit expiration date is not entitled to a refund of the permit fee [An unexpired permit may be returned to the comptroller for credit on the unexpired portion only upon the purchase of a permit of a higher classification].

(h) [(f)] Permit issuance, denial, suspension, or revocation.

(1) The comptroller shall issue a permit to a distributor, importer, manufacturer, export warehouse, wholesaler, bonded agent, or retailer if the comptroller has received an application and any applicable fee, the applicant has complied with Tax Code, §155.041, and the comptroller determines that the issuance of such permit will not jeopardize the administration and enforcement of Tax Code, Chapter 155.

(2) If the comptroller determines that an existing permit should be suspended or revoked or a permit should be denied, after notice and opportunity for hearing, because the applicant has failed to disclose any information required by Tax Code, §155.041(d), (e), and (f), including the applicant's prior conviction of a crime and the relationship of the crime to the license, the comptroller will notify the applicant or permittee in writing by personal service or by mail of the reasons for the denial, suspension, revocation, or disqualification, the review procedure provided by Occupations Code, §53.052 (Judicial Review), and the earliest date that the permit holder or applicant may appeal the denial, suspension, revocation, or disqualification.

(i) [(g)] Sale and delivery of tax-free cigars and tobacco products to the United States government.

(1) Distributors may use their own vehicles to deliver previously invoiced quantities of tax-free cigars and tobacco products to instrumentalities of the United States government. These tax-free products must be packaged in a manner in which they will not commingle with any other cigars or tobacco products.

(2) Each sale of tax-free cigars and tobacco products by a distributor to an instrumentality of the United States government shall be supported by a separate sales invoice and a properly completed Texas Certificate of Tax Exempt Sale, Form 69-302. Sales invoices must be numbered and dated and must show the name of the seller, name of the purchaser, and the destination.

(j) [(h)] Reports.

(1) Manufacturer reports must be filed on or before the 25th [last] day of each month for transactions that occurred during the preceding month.

(2) All tobacco distributor and wholesaler reports and payments must be filed on or before the 25th day of each month for transactions that occurred during the preceding month.

(3) All wholesaler and distributor reports of sales to retailers required by the comptroller under Tax Code, §155.105 (Reports by Wholesalers and Distributors of Cigars and Tobacco Products), shall be filed in accordance with §3.9 of this title (relating to Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers).

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 January 13, 2020.

TRD-202000110

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Earliest possible date of adoption: February 23, 2020

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


SUBCHAPTER S. MOTOR FUEL TAX

34 TAC §3.441

The Comptroller of Public Accounts proposes amendments to §3.441, concerning documentation of imports and exports, import verification numbers, export sales, and diversion numbers. The amendments implement Senate Bill 1557, 85th Legislature, 2017, House Bill 3954, 86th Legislature, 2019, and update the section by modernizing and removing obsolete references. The comptroller proposes the amendments to address motor fuel storage facilities that are part of the bulk transfer system; exports and movements of gasoline and diesel fuel by marine vessels; and address subsequent sales within Texas of tax-free gasoline and diesel fuel purchased for export.

The comptroller amends subsection (a) to delete the current text addressing application to transactions that occurred prior to January 1, 2004, because a reference to a date so far into the past is unnecessary. Subsection (a), as amended, now includes definitions found in Tax Code, §162.001 (Definitions), for terms used but not previously defined in this section. We give the terms the meanings assigned by Tax Code, §162.001 (Definitions).

The comptroller amends subsections (b) and (c) to replace the term "motor fuel" with "gasoline or diesel fuel." Motor fuel consists of several different fuel types and the amendment specifies that gasoline and diesel fuel are the two fuel types subject to the requirements for reporting subsequent sales in this state of tax-free fuel purchased for export. The comptroller amends subsection (b) and (c) to remove titles of the paragraphs, and subsection (c) to update the title. The comptroller also corrects formatting in subsection (c)(3).

New subsection (e) addresses reporting requirements for subsequent sales in this state of tax-free gasoline or diesel fuel purchased for export. See Tax Code, §162.1155 (Duty to Report Subsequent Sales of Tax-Free Gasoline Purchased for Export), and Tax Code, §162.2165 (Duty to Report Subsequent Sales of Tax-Free Diesel Fuel Purchased for Export).

New subsection (f) addresses penalties related to the reporting requirements for subsequent sales in this state of tax-free gasoline and diesel fuel purchased for export. See Tax Code, §162.401(e) and (f) (Failure to Pay Tax or File 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.

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 amendment implements Tax Code, §§162.001 (Definitions), 162.016 (Importation and Exportation of Motor Fuel), 162.1155 (Duty to Report Subsequent Sales of Tax-Free Gasoline Purchased for Export), and 162.2165 (Duty to Report Subsequent Sales of Tax-Free Diesel Fuel Purchased for Export).

§3.441.Documentation of Imports and Exports, Import Verification Numbers, Export Sales, and Diversion Numbers.

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

(1) Bulk plant--A motor fuel storage and distribution facility that:

(A) is not an Internal Revenue Service-approved (IRS-approved) terminal; and

(B) from which motor fuel may be removed at a rack.

(2) Bulk transfer/terminal system--The motor fuel distribution system consisting of refineries, pipelines, marine vessels, motor fuel storage facilities, and IRS-approved terminals.

(A) Motor fuel is in the bulk transfer/terminal system if the motor fuel is in a refinery, a pipeline, a motor fuel storage facility, a terminal, or a marine vessel transporting motor fuel owned by a licensed supplier or permissive supplier.

(B) Motor fuel is not in the bulk transfer/terminal system if the motor fuel is in:

(i) a bulk plant that is not part of a refinery or terminal;

(ii) the motor fuel supply tank of an engine or a motor vehicle; or

(iii) a tank car, railcar, trailer, truck, or other equipment suitable for ground transportation.

(3) Diesel fuel--Kerosene or another liquid, or a combination of liquids blended together, offered for sale, sold, used, or capable of use as fuel for the propulsion of a diesel-powered engine.

(A) The term includes products commonly referred to as kerosene, light cycle oil, #1 diesel fuel, #2 diesel fuel, dyed or undyed diesel fuel, aviation jet fuel, renewable diesel, biodiesel, distillate fuel, cutter stock, or heating oil.

(B) The term does not include compressed natural gas, liquefied natural gas, gasoline, aviation gasoline, or liquefied gas.

(4) Distributor--A person who makes sales of motor fuel at wholesale. A distributor's activities may also include sales of motor fuel at retail.

(5) Diversion number--The number assigned by the comptroller, or by a person to whom the comptroller delegates or appoints the authority to assign the number, that relates to a single cargo tank delivery of motor fuel that is diverted from the original destination state printed on the shipping document.

(6) Export--To obtain motor fuel in this state for sale or use in another state, territory, or foreign country.

(7) Exporter--A person who exports motor fuel from this state. The seller is the exporter of motor fuel delivered out of this state by or for the seller, and the purchaser is the exporter of motor fuel delivered out of this state by or for the purchaser.

(8) Gasoline--Any liquid or combination of liquids blended together, offered for sale, sold, used, or capable of use as fuel for a gasoline-powered engine.

(A) The term includes gasohol, aviation gasoline, and blending agents.

(B) The term does not include compressed natural gas, liquefied natural gas, racing gasoline, diesel fuel, aviation jet fuel, or liquefied gas.

(9) Import--To bring motor fuel into this state by motor vehicle, marine vessel, pipeline, or any other means. The term does not include bringing motor fuel into this state in the motor fuel supply tank of a motor vehicle if the motor is used to power that motor vehicle.

(10) Import verification number--The number assigned by the comptroller, or by a person to whom the comptroller delegates or appoints the authority to assign the number, that relates to a single cargo tank delivery into this state from another state after a request for an assigned number by an importer or by the motor fuel transporter carrying taxable motor fuel into this state for the account of an importer.

(11) Importer--A person that imports motor fuel into this state. The seller is the importer for motor fuel delivered into this state from outside of this state by or for the seller, and the purchaser is the importer for motor fuel delivered into this state from outside of this state by or for the purchaser.

(12) Marine vessel--Includes a marine barge.

(13) Motor fuel--Gasoline, diesel fuel, gasoline blended fuel, compressed natural gas, liquefied natural gas, and other products that are offered for sale, sold, used, or capable of use as fuel for a gasoline-powered engine or a diesel-powered engine.

(14) Motor fuel storage facility-- A storage facility supplied by pipeline or marine vessel that does not have a rack for removal of motor fuel by truck, railcar, or any other means of conveyance that is outside the bulk transfer/terminal system.

(15) Permissive supplier--A person who elects, but is not required, to have a supplier's license and who is registered under Internal Revenue Code, §4101, for transactions in motor fuel in the bulk transfer/terminal system and is a position holder in motor fuel located only in another state or a person who receives motor fuel only in another state under a two-party exchange.

(16) Position holder--The person who holds the inventory position in motor fuel in a terminal, as reflected on the records of the terminal operator. A person holds the inventory position in motor fuel when that person has a contract with the terminal operator for the use of storage facilities and terminaling services for motor fuel at the terminal. The term includes a terminal operator who owns motor fuel in the terminal.

(17) Rack--A mechanism for delivering motor fuel from a refinery, terminal, marine vessel, or bulk plant into a transport vehicle, railroad tank car, or other means of transfer that is outside the bulk transfer/terminal system.

(18) Sale--A transfer of title, exchange, or barter of motor fuel, other than the transfer of possession of motor fuel on consignment.

(19) Shipping document--A delivery document issued in conjunction with the sale, transfer, or transport of motor fuel. A shipping document issued by a terminal operator shall be machine printed. All other shipping documents shall be typed or handwritten on a preprinted form or machine printed.

(20) Supplier--A person subject to the general taxing jurisdiction of this state who:

(A) is registered under Internal Revenue Code, §4101, for transactions in motor fuel in the bulk transfer/terminal system; and

(i) is a position holder in motor fuel in a terminal or refinery in this state and may concurrently be a position holder in motor fuel in another state;

(ii) owns motor fuel in a marine vessel in this state; or

(iii) receives motor fuel in this state under a two-party exchange; and

(B) may also be a terminal operator, provided that a terminal operator is not considered to also be a "supplier" based solely on the fact that the terminal operator handles motor fuel consigned to it within a terminal.

(21) Terminal--An IRS-approved motor fuel storage and distribution facility to which a terminal control number has been assigned, to which motor fuel is supplied by pipeline or marine vessel, and from which motor fuel may be removed at a rack.

[(a) This rule applies only to motor fuel transactions that take place on or after January 1, 2004. Motor fuel transactions that occur prior to January 1, 2004, will be governed by sections in Texas Administrative Code, Title 34, Part 1, Chapter 3, Subchapter L.]

(b) Imports.

(1) Gasoline or diesel [Imports. Motor] fuel imported into Texas by or for a seller constitutes an import by that seller. Gasoline or diesel [Motor] fuel imported into Texas by or for a purchaser constitutes an import by that purchaser.

(2) [Import Verification Number.] An importer must obtain from the comptroller an import verification number for each load of gasoline or diesel fuel imported into Texas by truck or railroad tank car. An import verification number must be obtained within 72 hours before or after the gasoline or diesel fuel enters Texas. The importer must write the import verification number on the shipping document issued for that fuel.

(3) [Documentation.] An importer must possess a shipping document created by the terminal or bulk plant where the gasoline or diesel fuel was loaded. See [(see] §3.439 of this title (relating to Motor Fuel Transportation Documents) for gasoline or diesel [motor] fuel imported by any means into Texas[)].

(c) Exports [Export Sales].

(1) A licensed supplier, permissive supplier, or distributor makes an export sale when it sells gasoline or diesel [motor] fuel in Texas to a licensed exporter, importer, distributor, supplier, or permissive supplier who then[, prior to any other sale or use in Texas,] sends or transports the gasoline or diesel [motor] fuel outside the state. The bill of lading or shipping document must list the out of state destination.

(2) A licensed supplier, permissive supplier, or distributor who makes an export sale will not be liable for tax on gasoline or diesel [motor] fuel that the purchaser diverts provided that the seller issued a bill of lading or shipping document that shows that the gasoline or diesel fuel is to be delivered to a destination outside Texas.

(3) [Documentation.]

[(A)] The comptroller may request proof of export from the exporter to verify that the gasoline or diesel[ motor] fuel was exported from Texas. This proof may consist of:

(A) [(B)] proof of export that a U.S. customs office has certified, if the gasoline or diesel fuel was exported from this state to a foreign country;

(B) [(C)] proof of export that a port of entry of the state of importation has certified, if ports of entry are maintained by that state;

(C) [(D)] proof from the tax officials of the state into which the gasoline or diesel [motor] fuel was imported, which shows that the exporter has accounted for the gasoline or diesel [motor] fuel on the state's tax report; or

(D) [(E)] other proof that the gasoline or diesel fuel has been reported to the state into which the gasoline or diesel [motor] fuel was imported.

(d) Diversion Number. An importer or exporter who diverts the delivery of a load of gasoline or diesel fuel being transported by truck or railroad tank car from the destination state or country that is preprinted on the shipping document that has been issued for that fuel to another state or country must obtain a diversion number from the comptroller. A diversion number must be obtained within 72 hours before or after the diversion. The importer, exporter, or common or contract carrier must write the diversion number on the shipping document issued for that fuel.

(e) Reporting subsequent sales in this state of tax-free gasoline or diesel fuel purchased for export.

(1) A person who purchases or removes gasoline or diesel fuel tax-free for export to any other state or foreign country and, before export, sells the gasoline or diesel fuel in this state tax-free to a licensed supplier, permissive supplier, distributor, importer, or exporter shall report that transaction as required by this subsection.

(2) If the gasoline or diesel fuel is subsequently sold one or more times in this state before export and tax-free to a licensed supplier, permissive supplier, distributor, importer, or exporter, each seller shall report the transaction to the comptroller as required by this section.

(3) Each person who makes a sale described by paragraph (1) or (2) of this subsection must provide to the comptroller:

(A) the bill of lading number issued at the terminal;

(B) the terminal control number;

(C) the date the gasoline or diesel fuel was removed from the terminal;

(D) the number of gallons invoiced;

(E) date of sale; and

(F) any other information required by the comptroller.

(4) The sales invoice for each transaction described by paragraph (1) or (2) of this subsection must include:

(A) the name of the seller and purchaser; and

(B) the original bill of lading number.

(5) A person who is required to report a subsequent sale in this state of tax-free gasoline or diesel fuel purchased for export shall report the transaction with the required monthly motor fuels return as required under Tax Code, §162.114 (Returns and Payments) or §162.215 (Returns and Payments).

(f) Penalties.

(1) A person who fails to report a subsequent sale in this state of tax-free gasoline or diesel fuel purchased for export shall pay a penalty of $200 for each sale that was not reported on the original return, unless the person files an amended report that includes the sale not later than the 180th day after the due date of the original return.

(2) Failure to pay tax due on a subsequent sale of tax-free gasoline and diesel fuel purchased for export. A licensed supplier, permissive supplier, distributor, importer, or exporter who redirects a delivery of gasoline or diesel fuel to a location in this state prior to export and fails to pay the tax when due, shall pay a penalty equal to the greater of $2,000 or five times the amount of tax due.

(3) The penalties addressed in this subsection are in addition to any other penalty authorized under Tax Code, Chapter 162 (Motor Fuel Taxes).

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 January 13, 2020.

TRD-202000112

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Earliest possible date of adoption: February 23, 2020

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


SUBCHAPTER HH. MIXED BEVERAGE TAXES

34 TAC §3.1002

The Comptroller of Public Accounts proposes amendments to §3.1002, concerning reporting periods for mixed beverage sales tax. The comptroller proposes to amend the section to reflect the changes in Tax Code, §183.0421 (Tax Return Due Date) and §183.0422 (Payment) made by House Bill 3006, 86th Legislature, 2019, effective October 1, 2019.

The comptroller adds subsection (c)(1)(C) to indicate that the confidentiality provisions of Tax Code, Chapter 151 do not apply to reports filed by certain permittees.

The comptroller amends subsection (c)(5) to correct the name of §3.302 of this title.

The comptroller amends subsection (i) to implement House Bill 3006, which eliminated quarterly filing of mixed beverage sales tax reports. The comptroller amends the title of subsection (i) to monthly mixed beverages sales tax reports and to provide that mixed beverage sales tax reports are due monthly. The comptroller also amends the subsection to include provisions in existing paragraphs (1), (2), and (3) relating to reports due on weekends and holidays and relating to filing reports even if no sales of alcoholic beverages were made in a month. Those paragraphs are subsequently deleted.

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 statutes. 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), 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.

The amendment implements Tax Code, §183.0421 (Tax Return Due Date) and §183.0422 (Payment).

§3.1002.Mixed Beverage Sales Tax.

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

(1) Alcoholic beverage--This term has the same meaning as assigned by §3.1001 of this title (relating to Mixed Beverage Gross Receipts Tax).

(2) Complimentary alcoholic beverage--This term has the same meaning as assigned by §3.1001 of this title.

(3) Governmental entity--An organization that is exempted from sales and use tax otherwise imposed on their purchases under Tax Code, Chapter 151 (Limited Sales, Excise, and Use Taxes), by operation of Tax Code, §151.309 (Governmental Entities).

(4) Nonprofit organization--An organization that is exempted from the sales and use tax imposed under Tax Code, Chapter 151, by operation of Tax Code, §151.310(a) (Religious, Educational, and Public Service Organizations).

(5) Permittee--This term has the same meaning as assigned by §3.1001 of this title.

(b) Mixed beverage sales tax. A tax at a rate of 8.25% is imposed on each alcoholic beverage sold, prepared, or served by a permittee, and on ice and each nonalcoholic beverage sold, prepared, or served by a permittee to be mixed with alcohol and consumed on the permittee's premises. The sales price of each item on which mixed beverage sales tax is imposed includes, but is not limited to, those items identified in §3.1001(c) of this title. Those items identified in §3.1001(f)(1) - (7) of this title are excluded from the sales price of items on which mixed beverage sales tax is imposed. Mixed beverage sales tax is imposed in addition to the mixed beverage gross receipts tax imposed under Tax Code, Chapter 183, Subchapter B.

(c) Administration, collection, and enforcement of mixed beverage sales tax.

(1) Except as otherwise provided in this paragraph, mixed beverage sales tax is administered, collected, and enforced in the same manner as sales and use tax is administered, collected, and enforced in Tax Code, Chapter 151, except:

(A) a permittee may not deduct or withhold any amount of taxes collected as reimbursement for the cost of collecting the tax, pursuant to Tax Code, §151.423 (Reimbursement to Taxpayer for Tax Collection); and

(B) a permittee may not receive a discount for prepaying the tax, pursuant to Tax Code, §151.424 (Discount for Prepayments).

(C) any record, report or other instrument required to be filed by a permittee is not confidential under Tax Code §151.027(a) (Confidentiality of Tax Information).

(2) Tax due is debt of the purchaser. Mixed beverage sales tax is a debt of the purchaser to the permittee until collected.

(3) Tax-included sales price. The total amount shown on a customer's sales invoice, billing, service check, ticket, or other receipt for sales that are subject to mixed beverage sales tax is presumed to be the sales price, without tax included. Contracts, bills, invoices, or other receipts that merely state that "all taxes" are included are not sufficient to relieve either the customer or the permittee of their tax responsibilities on the transaction. The permittee may overcome the presumption by using the permittee's records to show that tax was included in the sales price.

(4) Record-keeping requirements. Permittees are responsible for creating and maintaining records of purchases and sales as required by §3.1001(j) - (m) and (o) of this title.

(5) Bad debts. The exclusion of bad debts from the mixed beverage gross receipts tax base, as established in §3.1001(n) of this title, does not apply to mixed beverage sales tax. Bad debt deductions from mixed beverage sales tax are treated in the same manner as bad debt deductions from sales tax. For more information on bad debt deductions from sales tax, refer to §3.302 of this title (relating to Accounting Methods, Credit Sales, Bad Debt Deductions [Refunds], Repossession [Refunds], Interest on Sales Tax, and Trade-Ins).

(d) Separate tax disclosure statement.

(1) A permittee may include on a customer's sales invoice, billing, service check, ticket, or other receipt that includes an item subject to mixed beverage sales tax:

(A) a statement that mixed beverage sales tax is included in the sales price;

(B) a separate statement of the amount of mixed beverage gross receipts tax to be paid by the permittee on that sale;

(C) a separate statement of the amount of mixed beverage sales tax imposed on that item;

(D) a statement of the combined amount of mixed beverage gross receipts tax and mixed beverage sales tax to be paid on that item; or

(E) a statement of the combined amount of mixed beverage sales tax and sales and use tax imposed under Tax Code, Chapter 151, to be paid on all items listed on that sales invoice, billing, service check, ticket, or other receipt.

(2) Mixed beverage gross receipts tax cannot be charged to or paid by the customer. A receipt with a statement of the combined amount of mixed beverage gross receipts tax and mixed beverage sales tax provided in paragraph (1)(D) of this subsection must clearly show that the customer is not being charged mixed beverage gross receipts tax.

(3) For each receipt with a statement of the combined amount of mixed beverage sales tax and sales and use tax, as provided in paragraph (1)(E) of this subsection, the permittee's books and records must clearly show the amount of mixed beverage sales tax and sales and use tax on each sale of alcohol.

(4) Examples of disclosure of tax statements.

Figure: 34 TAC §3.1002(d)(4) (No change.)

(e) Complimentary beverages. A permittee owes sales and use tax, as imposed by Tax Code, Chapter 151, on the purchase of alcoholic beverages, ice, and nonalcoholic beverages that are ingredients of a complimentary alcoholic beverage or that are served or provided by the permittee, without any consideration from the customer, to be mixed with a complimentary alcoholic beverage and consumed on the permittee's premises. The permittee also owes sales and use tax on taxable items that are furnished with a complimentary alcoholic beverage, such as napkins and straws.

(f) Exemptions; governmental entities; nonprofit organizations; university and student organizations; volunteer fire departments; temporary permit.

(1) Governmental entity exempt on purchase of alcohol. A governmental entity can claim an exemption from mixed beverage sales tax on the purchase of alcohol in the same manner as a governmental entity can claim exemption from the payment of sales and use tax on the purchase of alcohol under Tax Code, §151.309.

(2) Purchase of alcohol by nonprofit organization not exempt. A nonprofit organization cannot claim an exemption from the mixed beverage sales tax on the purchase of alcohol. In addition, except as provided in this subsection, a nonprofit organization is responsible for collecting mixed beverage sales tax on the sale, preparation, or service of alcoholic beverages to the same extent that the organization is responsible for paying mixed beverage gross receipts tax on such beverages. For more information, refer to §3.1001(e) of this title.

(3) Nonprofit organizations; fundraising events.

(A) The sale, preparation, or service of alcohol is exempt from mixed beverage sales tax when sold by a nonprofit organization that qualifies for exemption from sales and use tax under Tax Code, §151.310(a)(1) or (2) during a qualifying fundraising sale or auction authorized by Tax Code, §151.310(c).

(B) Except as provided in subparagraph (A) of this paragraph, the sale, preparation, or service of alcohol by a nonprofit organization that qualifies for exemption from sales and use tax under Tax Code, §151.310(a)(1) or (2) is computed in the same manner as mixed beverage gross receipts tax is computed in §3.1001(e) of this title.

(4) University and college student organizations. The sale, preparation, or service of alcohol is exempt from mixed beverage sales tax when sold by a university or college student organization that is certified as an affiliated organization by a university or college as defined in Education Code, §61.003 (Definitions) during a sale authorized by Tax Code, §151.321 (University and College Student Organizations).

(5) Volunteer fire departments; fundraising events. The sale, preparation, or service of alcohol is exempt from mixed beverage sales tax when sold by a volunteer fire department that qualifies for exemption from sales and use tax under Tax Code, §151.310(a)(4) during a qualifying fundraising sale or auction authorized by Tax Code, §151.310(c-1). This exemption is effective May 28, 2015. A previous exemption from mixed beverage sales tax on the sale, preparation, or service of alcohol when sold by volunteer fire departments at fundraising events expired on September 1, 2014.

(6) Temporary mixed beverage permit required. Nonprofit organizations, university or college student organizations, and volunteer fire departments must hold a daily temporary mixed beverage permit or daily temporary private club permit, issued by the Texas Alcoholic Beverage Commission, in order to sell alcoholic beverages and claim an exemption from mixed beverage sales tax on those sales pursuant to paragraphs (3) - (5) of this subsection.

(7) Governmental entities and nonprofit organizations owe mixed beverage gross receipts tax. A governmental entity or nonprofit organization is not exempt from the payment of mixed beverage gross receipts tax on receipts from the sale, service, or preparation of alcoholic beverages. This includes sales of alcohol during any fundraising sale or auction. For more information, refer to §3.1001(e) of this title.

(g) Lump-sum charges that include alcoholic beverages and additional items together for a single price.

(1) Permittees shall compute mixed beverage sales tax on alcoholic beverages that are served together with meals for a single charge in the same manner as mixed beverage gross receipts tax is computed in §3.1001(c)(1)(D) of this title.

(2) Permittees shall compute mixed beverage sales tax on alcoholic beverages that are served at private clubs, special events, or functions in the same manner as mixed beverage gross receipts tax is computed in §3.1001(d) of this title.

(h) Inventory used in cooking. Alcoholic beverages used in cooking are exempt from both mixed beverage sales tax under Tax Code, Chapter 183, and sales and use tax under Tax Code, Chapter 151, provided that the permittee follows the record-keeping requirements set out in §3.1001(h) and (l) of this title.

(i) Monthly mixed [Mixed] beverage sales tax reports.

[(1) Due dates. Reports and remittances are due on or before the 20th day of the month following the reporting period end date. Reports and remittances due on a Saturday, Sunday, or legal holiday may be submitted on the next business day.]

[(2) Reporting periods.]

[(A) Monthly filers. Permittees who have $1,500 or more in mixed beverage sales tax per quarter to report must file monthly reports.]

[(B) Quarterly filers. Permittees who have less than $1,500 in mixed beverage sales tax per quarter to report may file returns quarterly. The quarterly reporting periods end on March 31, June 30, September 30, and December 31.]

[(3)] Each permittee must file a monthly mixed beverage sales tax report on or before the 20th day of the following month even if no sales or services of alcoholic beverages were made during the month [report period]. Reports and payments due on a Saturday, Sunday, or legal holiday may be submitted on the next business day. The Texas Mixed Beverage Sales Tax report is due in addition to the Texas Mixed Beverage Gross Receipts Tax report to be filed under Tax Code, Chapter 183, Subchapter B, and the Texas Sales and Use Tax report required to be filed under Tax Code, Chapter 151.

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 January 10, 2020.

TRD-202000083

William Hamner

Special Counsel for Tax Administration

Comptroller of Public Accounts

Earliest possible date of adoption: February 23, 2020

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