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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER OSTATE SALES AND USE TAX
RULE §3.338Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers

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

  (1) Multistate Tax Compact--An agreement between member states to promote uniform tax treatment and to avoid double taxation of multistate taxpayers.

  (2) Sales tax--A tax imposed on the transfer for a consideration of title or possession of taxable items. See Tax Code, §151.005.

  (3) Use tax--For the definition of use tax, see §3.346 of this title (relating to Use Tax). Use tax is complementary to the sales tax and is imposed on the storage, use, or other consumption of taxable items.

(b) Multistate tax credits.

  (1) As a member of the multistate compact, Texas will allow as a credit against Texas use tax due any combined amounts of legally imposed sales or use taxes paid on the same property to another state or any subdivision of another state. Credit will be allowed even though the other state may not be a member of the multistate compact.

  (2) The credit shall be applied first against the amount of any use tax due the Metropolitan Transit Authority or City Transit Department. Credit shall then be applied against county use tax due, if any, and then against the amount of any city use tax due. Finally, any remaining credit shall be applied against use tax due the state.

  (3) Sales tax legally imposed by the State of Texas will not be refunded because of payment of a use tax imposed by another state.

  (4) Use tax collected by the State of Texas will be refunded or allowed as a credit on subsequent sales and use tax returns to the extent of a subsequent payment of use tax to another state, if the other state's use tax was imposed as a result of the taxable item's use in that state prior to its use in Texas.

  (5) Credit against the Texas use tax will not be allowed for sales tax paid to another state that was not legally due and paid to another state.

  (6) Credit against the Texas use tax will not be allowed for any gross receipts tax imposed on retailers in another state, which tax is not customarily separated from the sales price of taxable items and is not passed on directly to customers as tax.

(c) Credit for tax paid to suppliers by sellers, taxable service providers, and persons other than contractors.

  (1) Except as provided in paragraphs (2) and (3) of this subsection, credit may be claimed on the purchaser's return for tax paid to suppliers if the taxable items were resold prior to making a taxable use of the items. See §3.285 of this title (relating to Resale Certificate; Sales for Resale).

    (A) Before taking credit on a return, the taxpayer must have a receipt from a Texas retailer or other seller authorized to collect the Texas sales and use tax. The receipt must reflect the tax paid and the selling price of the taxable items.

    (B) Credit may be claimed on a return for a later reporting period or by filing an amended return for the reporting period in which the tax was accrued and paid in error.

  (2) Credit may not be claimed on a purchaser's return for tax paid to a supplier on items on which tax is not due or at rates in excess of the rate that the supplier is required to pay. The tax must be recovered from the seller.

  (3) Tax paid to a supplier on taxable items that the purchaser does not resell but uses for nontaxable purposes may not be claimed as a credit on the purchaser's return. Such tax must be recovered from the seller. For example:

    (A) tangible personal property necessarily used or consumed during an actual manufacturing, processing, or fabricating operation is not "resold" when the end product of the manufacturing process is itself sold. Therefore, tax paid on tangible personal property that is subsequently used or consumed in an actual manufacturing, processing, or fabricating operation may not be claimed as a credit on the purchaser's (manufacturer's) return;

    (B) wrapping, packing, or packaging materials used by a manufacturer for the purpose of expediting or furthering in any way the sale of tangible personal property is not "resold" when the tangible personal property is itself sold. Therefore, tax paid on the wrapping, packing, or packaging materials may not be claimed as a credit on the purchaser's return.

  (4) Local sales and use tax credit may also be claimed but only when the tax paid to the supplier was for the same local taxing jurisdiction to which the taxpayer (purchaser) is required to remit tax. Local sales or use tax paid to a supplier in a local taxing jurisdiction other than the one in which the taxable items are subsequently resold must be recovered from the supplier. Local tax due the same local taxing jurisdiction may be reduced by the amount of previously paid tax.

(d) Credit for tax paid to suppliers by certain contractors and repairmen. For the definition of contractor and separated contracts, see §3.291 of this title (relating to Contractors and Improvements to Realty).

  (1) A contractor improving real property under a separated contract may claim credit on the contractor's return for Texas sales and use tax paid to a supplier on taxable items incorporated into the property being improved. No credit may be taken on the contractor's return when no sales or use tax liability is incurred in the subsequent incorporation of the taxable items into real property. For example, no sales or use tax liability is incurred when the contract is with an exempt organization. Therefore, tax paid to a supplier for taxable items may not be claimed as a credit on the contractor's return.

  (2) Local sales and use tax credit may also be claimed but only when the tax paid to the supplier was for the same local taxing jurisdiction to which the contractor is required to remit tax. Local sales or use tax paid to a supplier in a local taxing jurisdiction other than the one in which the taxable items are subsequently resold must be recovered from the supplier. Local tax due the same local taxing jurisdiction may be reduced by the amount of previously paid tax.

  (3) Credit for tax paid to supplier will be limited to the amount of tax otherwise due to be reported by the contractor on the subsequent incorporation of the same tangible personal property on which tax was paid to the supplier into real property upon which an improvement is performed.

  (4) Before taking credit on the contractor's return, the contractor must have receipts from a Texas retailer or other seller licensed to collect the Texas sales or use tax. The receipt must reflect the tax paid and the selling price of the taxable items.

  (5) Credit may be claimed on a return for a later period or by filing an amended return for tax accrued and paid in error by the contractor.

(e) Responsibilities of persons repairing motor vehicles and private aircraft. For details on the tax responsibilities of persons repairing motor vehicles and private aircraft, see §3.292 of this title (relating to Repair, Remodeling, Maintenance, and Restoration of Tangible Personal Property); and §3.290 of this title (relating to Motor Vehicle Repair and Maintenance; Accessories and Equipment added to Motor Vehicles; Movable Specialized Equipment). Persons repairing motor vehicles and private aircraft may claim credit on their returns for tax paid to suppliers only if the repairs are performed under separated contracts.

(f) Effect of ruling on taxpayer's rights to other deductions. Nothing in this rule shall be construed as limiting the taxpayer's right to the deductions for bad debts, repossessions, returned sales, or renegotiated selling price as provided in the statutes or other rules.


Source Note: The provisions of this §3.338 adopted to be effective December 6, 1996, 21 TexReg 11505.

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