Texas Register, Volume 42, Number 43, Pages 5913-6056, October 27, 2017 Page: 6,025
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Former paragraph (1), defining the term "Mexico," is renumbered
as paragraph (6). Former paragraph (2), defining the term "Sale
for resale," is deleted. A revised definition of the term incorpo-
rating recent legislative changes is provided in subsection (b).
Paragraph (7) is added to define the term "purchaser" to conform
with Tax Code, 151.054(b) (Gross Receipts Presumed Subject
to Tax) and 151.104(b) (Sale for Storage, Use, or Consumption
Presumed), both of which require the purchaser to be "in the
business of selling, leasing, or renting taxable items."
Paragraph (8) is added to define the term "seller" as defined in
3.286 of this title.
Paragraph (9) restates the Tax Code's definition of the term "tax-
able item." See Tax Code, 151.010 (Taxable Item).
Paragraph (10) is added to define the term "tax-free inventory."
This definition is based upon Tax Code, 151.011(e) ("Use" and
"Storage"), which establishes that the keeping or retaining of tan-
gible personal property "for sale in the regular course of busi-
ness" does not constitute a taxable use of that tangible personal
property, as well as long-standing comptroller policy established
in decisions such as Comptroller's Decision Nos. 31,088 (1995)
and 32,194 (1998).
Former paragraph (3), defining the term "United States," is
renumbered as paragraph (11).
New subsection (b) is added to define the term "sale for resale."
Subsequent subsections are relettered accordingly. Paragraph
(1)(A) implements Tax Code, 151.006(a)(1). The language is
derived from subsection (a)(2)(A) and (D) of the current section.
Additional language is added to require that the purchaser ac-
quire the taxable item for the purpose of selling it "with or as a tax-
able item." This phrase was added to Tax Code, 151.006(a)(1)
by Senate Bill 1, 82nd Legislature, First Called Session, 2011.
This legislative change affirms the comptroller's long-standing
policy that a sale for resale may only be made to a purchaser
engaged in the business of selling, leasing, or renting taxable
items who intends to resell the tangible personal property or tax-
able service acquired with or as a taxable item--a transaction
that is subject to sales and use tax as provided in Tax Code,
Chapter 151. Additional language incorporates the limitation set
out in Tax Code, 151.058(a) (Property Used to Provide Taxable
Services and Sales Price of Taxable Services) and Tax Code,
151.302(c) (Sales for Resale).
Subsection (b)(1)(B) addresses the purchase of tangible per-
sonal property for the sole purpose of leasing or renting the tan-
gible personal property to another person. This subsection fol-
lows the language of current subsection (a)(2)(B) and Tax Code,
151.006(a)(2). A reference is added to 3.294 of this title (re-
lating to Rental and Lease of Tangible Personal Property).
Subsection (b)(1)(C) implements Tax Code, 151.006(a)(3) and
restates subsection (a)(2)(C) of the current section with non-sub-
stantive changes.
Subsection (b)(1)(D) implements Tax Code, 151 .006(a)(4) and
restatessubsection (a)(2)(E) of the current section with non-sub-
stantive changes.
Subsection (b)(1)(E) restates Tax Code, 151.006(a)(5), which
was added to the Tax Code by Senate Bill 1, 82nd Legislature,
First Called Session, 2011.
Subsection (b)(1)(F) implements House Bill 3319, 80th Legis-
lature, 2007, which added Tax Code, 151.006(b), revising the
definition of a sale for resale to include the sale of a wirelessvoice communication device to be transferred as an integral part
of a taxable service if payment for the service is a condition for
receiving the wireless voice communication device.
Subsection (b)(1)(G) implements Senate Bill 755, 84th Legis-
lature, 2015, effective June 10, 2015, which added Tax Code,
151.006(d) to modify the definition of "sale for resale" to include
the sale of a computer program to a provider of Internet hosting
services who sells a license to use the program to an unrelated
user of Internet hosting services, provided that the reseller does
not retain a right to use the program under that license.
Subsection (b)(2) states the regular course of business require-
ment of Tax Code, 151.054(b), 151.104(b), 151.151, 151.152,
and 151.154.
Subsection (b)(3) adds new language which incorporates the
limitation set out in Tax Code, 151.302(c) that wrapping, pack-
ing, and packaging supplies cannot be purchased for resale.
Subsection (b)(4) provides that an item sold to a purchaser for
use in performing a service that is not taxed under Tax Code,
Chapter 151, is not a sale for resale, except in certain spec-
ified circumstances. This provision implements Senate Bill 1,
82nd Legislature, First Called Session, 2011, which enacted Tax
Code, 151.006(a)(5) and (c). This provision restates the lan-
guage in Tax Code, 151.006(c) without change.
Subsection (b)(5) memorializes long-standing comptroller policy
that the sale of tangible personal property to a purchaser who
acquires the tangible personal property for the purpose of re-
selling or transferring the tangible personal property outside of
the United States or Mexico does not fall within the definition of
a sale for resale. See, for example, Comptroller's Decision No.
29,343 (1993), which states, "Sales of goods destined for an-
other country must qualify for exemption under 151.307 rather
than 151.302." The paragraph refers purchasers buying taxable
items for sale outside of the United States and Mexico to 3.323
of this title (relating to Imports and Exports).
Subsection (b)(6) states the care, custody, and control require-
ment of Tax Code, 151.302(b) and explains that the care, cus-
tody, and control of tangible personal property is transferred to
the purchaser of the service when the purchaser has primary
possession of the tangible personal property. This provision im-
plements Sharp v. Clearview Cable TV, Inc., 960 S.W.2d 424
(Tex. App.--Austin 1998, pet. denied).
Subparagraph (A) explains when a purchaser has primary pos-
session of tangible personal property. Subparagraph (B) ex-
plains that a purchaser may also have primary possession if
the purchaser or the purchaser's designee has physical posses-
sion of the tangible personal property and completely consumes
it. Subparagraph (C) addresses when a purchaser has primary
possession of a computer program. The standard established in
this subparagraph is based upon 151.006(d), which addresses
purchases of software by providers of Internet hosting services.
Mr. John Christian of Ryan, LLC submitted comments request-
ing that we delete subsection (b)(6)(A) of the proposed rule
amendment. Mr. Christian states that the proposed language
goes beyond the holding of the Third Court of Appeals in
Clearview Cable. Further, Mr. Christian states that proposed
subsection (b)(6)(A) conflicts with current 3.298(f)(1) of this
title (relating to Amusement Services).
We considered Mr. Christian's comments, and we have deter-
mined that the proposed language is consistent with Tax Code,
151.058(a) and 151.302(c), and the holdings of Clearview Ca-ADOPTED RULES October 27, 2017 42 TexReg 6025
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Texas. Secretary of State. Texas Register, Volume 42, Number 43, Pages 5913-6056, October 27, 2017, periodical, October 27, 2017; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth897027/m1/113/?q=%22%22~1: accessed July 16, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting UNT Libraries Government Documents Department.