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RULE §3.286Seller's and Purchaser's Responsibilities, including Nexus, Permits, Returns and Reporting Periods, Collection and Exemption Rules, and Criminal Penalties

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

  (1) Direct sales organization--A person that typically sells taxable items through independent salespeople and not in or through a place of business. The term "independent salespeople" includes, but is not limited to, distributors, representatives or consultants. Items are typically sold person-to-person through in-home product demonstrations, parties, catalogs, and one-on-one selling. The term includes but is not limited to, direct marketing and multilevel marketing organizations.

  (2) Engaged in business--A person is engaged in business in Texas if the person has nexus with the state as evidenced by, but not limited to, any of the following:

    (A) maintains, occupies, or uses, permanently or temporarily, directly or indirectly, or through an agent, by whatever name called, a kiosk, office, place of distribution, sales or sample room, warehouse or storage place, or other place where business is conducted;

    (B) has any representative, agent, salesperson, canvasser, or solicitor who operates in this state under the authority of the seller to conduct business, including selling, delivering, or taking orders for taxable items;

    (C) promotes a flea market, arts and crafts show, trade day, festival, or other event that involves sales of taxable items;

    (D) uses independent salespersons in direct sales of taxable items;

    (E) derives receipts from a rental or lease of tangible personal property that is located in this state or owns or uses tangible personal property that is located in this state, including a computer server or software;

    (F) allows a franchisee or licensee to operate under its trade name if the franchisee or licensee is required to collect Texas sales or use tax; or

    (G) conducts business in this state through employees, agents, or independent contractors.

  (3) Itinerant vendor--A seller who does not operate a place of business in Texas and who travels to various locations in this state to solicit sales.

  (4) Kiosk--Kiosk means a small, stand-alone area or structure that:

    (A) is used solely to display merchandise or to submit orders for taxable items from a data entry device, or both;

    (B) is located entirely within a location that is a place of business of another retailer, such as a department store or shopping mall; and

    (C) at which taxable items are not available for immediate delivery to a customer.

  (5) Nexus--Nexus means sufficient contact with or activity within this state, as determined by state and federal law, to require a person to collect and remit sales and use tax.

  (6) Permit holder--A person who has been issued a sales or use tax permit. The term includes permitted sellers as well as permitted purchasers who owe tax that was not collected by a seller.

  (7) Person--The term person includes a natural person, corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association and any other legal entity.

  (8) Place of business of the seller--The term means an established outlet, office, or location that the seller, his agent, or employee operates for the purpose of receipt of orders for taxable items. A warehouse, storage yard, or manufacturing plant is not a "place of business of the seller" unless the seller receives three or more orders in a calendar year at the warehouse, storage yard, or manufacturing plant. As of September 1, 2009, a kiosk as defined in paragraph (4) of this subsection, is not a place of business for purposes of collecting local sales and use taxes.

  (9) Seller--Every retailer, wholesaler, distributor, manufacturer, or any other person who sells, leases, rents, or transfers ownership of taxable items for a consideration. Seller is further defined as follows:

    (A) A promoter of a flea market, trade day, or other event that involves the sales of taxable items is a seller and is responsible for the collection and remittance of the sales tax that dealers, salespersons, or individuals collect at such events, unless those persons hold active sales tax permits that the comptroller has issued.

    (B) A direct sales organization that is engaged in business as defined in paragraph (1) of this subsection is a seller.

    (C) Pawnbrokers, storagemen, mechanics, artisans, or others who sell property to enforce a lien are sellers.

    (D) An auctioneer who does not receive payment for the item sold, does not issue a bill of sale or invoice to the purchaser of the item, and who does not issue a check or other remittance to the owner of the item sold by the auctioneer is not considered a seller responsible for the collection of the tax. In this instance, the owner of the auctioned item is responsible for collecting and remitting the tax. Auctioneers should refer to §3.311 of this title (relating to Auctioneers, Brokers, and Factors).

  (10) Taxable item--Taxable item means tangible personal property and taxable services.

(b) Who must have a permit.

  (1) Seller. Each seller who is engaged in business in this state, including itinerant vendors, persons who own or operate a kiosk, and sellers operating temporarily in this state, must apply to the comptroller and obtain a tax permit for each place of business operated in this state.

  (2) Out-of-state sellers. Each out-of-state seller who is engaged in business in this state must apply to the comptroller and obtain a tax permit. An out-of-state seller who has been engaged in business in Texas continues to be responsible for collection of Texas use tax on sales made into Texas for 12 months after the seller ceases to be engaged in business in Texas.

  (3) Direct sales organizations. Independent salespersons of direct sales organizations are not required to hold sales tax permits to sell taxable items for direct sales organizations. Direct sales organizations engaged in business in this state are responsible for holding Texas permits and the collection and remittance of Texas tax on all sales of taxable items by their independent salespersons. See subsection (d)(4) of this section for more information about the collection and remittance of tax by direct sales organizations.

  (4) Criminal penalties. A person who engages in business in this state as a seller of tangible personal property or taxable services without a tax permit required by Tax Code, Chapter 151, commits a criminal offense. Each day that a person engages in business without a permit is a separate offense. See §3.305 of this title (relating to Criminal Offenses and Penalties).

  (5) Non-permitted purchasers. Persons who are not required to be permitted still owe sales or use tax on purchases of taxable items from sellers who do not collect and remit tax that is due. See subsection (g)(9) of this section for return and payment information and §3.346 of this title (relating to Use Tax).

  (6) Failure to obtain a permit does not relieve a person required to have a permit from the requirements of this section or other applicable law to properly collect and remit sales and use taxes.

(c) Obtaining a permit.

  (1) A person must complete an application that the comptroller furnishes and must return that application to the comptroller, together with bond or other security that may be required by §3.327 of this title (relating to Taxpayer's Bond or Other Security). A separate permit under the same account is issued to the applicant for each place of business. Permits are issued without charge.

  (2) Each person must apply for a permit. An individual or sole proprietor must be at least 18 years of age unless the comptroller allows an exception from the age requirement. The permit cannot be transferred from one person to another. The permit is valid only for the person to whom it was issued and for the transaction of business only at the address that is shown on the permit. If a person operates two or more types of business at the same location, then only one permit is required.

  (3) The permit must be conspicuously displayed at the place of business for which it is issued. A permit holder that has traveling salesmen who operate from a central office needs only one permit, which must be displayed at that office.

  (4) All permits of the seller will have the same taxpayer number; however, each place of business will have a different outlet number. The outlet numbers assigned may not necessarily correspond to the number of business locations operated by a person.

(d) Collecting tax due.

  (1) Bracket system.

    (A) Each seller must collect the tax on each separate retail sale in accordance with the statutory bracket system in Tax Code, §151.053. The practice of rounding off the amount of tax that is due on the sale of a taxable item is prohibited. Copies of the bracket system should be displayed in each place of business so both the seller and the customers may easily use them.

    (B) The sales tax applies to each total sale, not to each item of each sale. For example, if two items are purchased at the same time and each item is sold for $.07, then the seller must collect the tax on the total sum of $.14. Tax must be reported and remitted to the comptroller as provided by Tax Code, §151.410. When tax is collected properly under the bracket system, the seller is not required to remit any amount that is collected in excess of the tax due. Conversely, when the tax collected under the bracket system is less than the tax due on the seller's total receipts, the seller is required to remit tax on the total receipts even though the seller did not collect tax from customers.

  (2) Tax due is debt of the purchaser; document requirements. The tax due is a debt of the purchaser to the seller until collected. The amount of tax due must be separately stated on the bill, contract, or invoice to the purchaser or there must be a written statement to the purchaser that the stated price includes sales or use taxes. Contracts, bills, or invoices that merely state that "all taxes" are included are not specific enough to relieve either party to the transaction of its sales and use tax responsibilities. The total amount that is shown on such documents is presumed to be the taxable item's sales price, without tax included. The seller or purchaser may overcome the presumption by using the seller's records to show that tax was included in the sales price. Out-of-state sellers must identify the tax as Texas sales or use tax.

  (3) Criminal offense for not collecting tax due. A seller who advertises or holds out to the public that the seller will assume, absorb, or refund any portion of the tax, or that the seller will not add the tax to the sales price of taxable items commits a criminal offense. See §3.305 of this title.

  (4) Direct sales organizations. A direct sales organization is responsible for the collection and remittance of the sales tax on all sales of taxable items by the independent salespersons who sell the organization's product or service as explained in this subsection. See subsection (b)(3) of this section for information about permits required by direct sales organizations.

    (A) If an independent salesperson purchases a taxable item from a direct sales organization after the customer's order has been taken, then the direct sales organization must collect and remit sales tax on the actual sales price of the taxable item.

    (B) If an independent salesperson purchases a taxable item before the customer's order is taken, then the direct sales organization must collect and remit the tax from the salesperson based on the suggested retail sales price of the taxable item.

    (C) Taxable items that are sold to an independent salesperson for the salesperson's use are taxed based on the actual price for which the item was sold to the salesperson at the tax rate in effect for the salesperson's location.

    (D) Incentives, including rewards, gifts, and prizes.

      (i) Direct sales organizations owe sales and use tax on the cost of all taxable items used as incentives that are transferred to a recipient in this state, including customers, independent salespersons, and persons who host a direct sales event.

      (ii) Direct sales organizations must collect sales tax on the total amount of consideration received in exchange for taxable items, including items purchased with hostess points or similar forms of compensation paid to a person for hosting a direct sales event or that are earned by the host based on the volume of customer purchases. The redemption of reward points in exchange for taxable items is subject to sales tax under Tax Code, §151.005(2). See also §3.283 of this title (relating to Bartering Clubs and Exchanges).

  (5) Printers. A printer is a seller of printed materials and is required to collect tax on sales. A printer who is engaged in business in Texas, however, is not required to collect tax if:

    (A) the printed materials are produced by a web offset or rotogravure printing process;

    (B) the printer delivers those materials to a fulfillment house or to the United States Postal Service for distribution to third parties who are located both in Texas and outside of Texas; and


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