ADOPTED RULES An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 19. EDUCATION Part I. Texas Higher Education Coordinating Board Chapter 5. Program Development Subchapter A. General Provisions 19 TAC sec.5.6 The Texas Higher Education Coordinating Board adopts an amendment to sec.5. 6, concerning the Common Calendar, with changes to the proposed text as published in the December 20, 1994, issue of the Texas Register (19 TexReg 10062). The amendment is being made to extend the effective date of the calendar through 2005. The common academic calendar will encourage universities, community colleges and public schools to schedule the beginnings and endings of semesters in a time frame that will accommodate students transferring from one to the other or with multiple enrollments. One comment was received from the University of Texas at Austin who suggested that we move the one date one week back to accommodate institutional needs to transition from the summer term to the fall term. The change would also better balance the lengths of time set aside for the two sessions. The agency agreed with the comment and made the changes accordingly. The amendment is adopted under Texas Education Code, Subchapter C, sec.61. 051(a), which provides the Texas Higher Education Coordinating Board with the authority to adopt rules concerning General Provisions (Common Calendar). sec.5.6. Common Calendar. (a) Through fiscal years 1996-1997, the common calendar for public junior and senior colleges and universities shall be as follows: Figure 1: 19 TAC sec.5.6(a) (b)-(g) (No change.) This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 28, 1995. TRD-9502660 James McWhorter Assistant Commissioner for Administration Texas Higher Education Coordinating Board Effective date: March 22, 1995 Proposal publication date: December 20, 1994 For further information, please call: (512) 483-6160 TITLE 22. EXAMINING BOARDS Part XII. Board of Vocational Nurse Examiners Chapter 235. Licensing Application for Licensure 22 TAC sec.235.9 The Board of Vocational Nurse Examiners adopts the repeal of sec.235.9, entitled Applications and Fees, without changes to the proposed text as published in the December 20, 1994, issue of the Texas Register (19 TexReg 10066). The rule is repealed in order to adopt a new rule which more clearly outline procedures for submitting applications for examination and licensure. No comments were received regarding adoption of the repeal. The repeal is adopted under Texas Civil Statutes, Article 4528c, sec.5(g), which provide the Board of Vocational Nurse Examiners with the authority to make such rules and regulations as may be necessary to carry in effect the purposes of the law. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on January 25, 1995. TRD-9501051 Marjorie A. Bronk Executive Director Board of Vocational Nurse Examiners Effective date: February 24, 1995 Proposal publication date: December 20, 1994 For further information, please call: (512) 835-2071 TITLE 34. PUBLIC FINANCE Part I. Comptroller of Public Accounts Chapter 3. Tax Administration Subchapter O. State Sales and Use Tax 34 TAC sec.sec.3.330, 3.333, 3.342, 3.343, 3.354-3.356 The Comptroller of Public Accounts adopts amendments to sec.sec.3.330, 3.333, 3.342, 3.343, 3.354-3.356, concerning data processing services; security services; information services; credit reporting services; debt collection services; insurance services; real property service, with changes to the proposed text as published in the November 18, 1994, issue of the Texas Register (19 TexReg 9165). The amendments allow for the separation of nontaxable charges for unrelated services subsequent to the execution of a contract that includes taxable services. Comments received were for adoption of the sections. Commenters suggested that situations could arise when service providers might not be found or otherwise be unable to supply the documentation and that purchasers should be allowed to present documentation segregating the nontaxable charges to the comptroller. That suggestion has been incorporated. One other comment suggested that all retailers should be allowed the benefit of allocating taxable and nontaxable charges at anytime after the sale instead of limiting it only to those performing the services covered by this amendment. Such a change is not supported by the statute, nor would any of the sections being amended be a proper vehicle for such a change. The change consists of rephrasing a sentence to allow the purchaser as well as the service provider of the service to present documentation to the comptroller establishing the allocation of taxable and nontaxable charges. The change appears in the subsections titled "Unrelated services" in each section, respectively: sec.sec.3.330(d)(2), 3.333(h)(2), 3.342(f)(2), 3.343(d)(2), 3.354(e) (2), 3.355(i)(2), and 3.356(i)(2). The amendments are adopted under the Tax Code, sec.111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2. The amendments implement the Tax Code, sec.151.0101. sec.3.330. Data Processing Services. (a) Services. Data processing services means the processing of information for the purpose of compiling and producing records of transactions, maintaining information, and entering and retrieving information. It specifically includes word processing, payroll and business accounting, and computerized data and information storage or manipulation. The charge for data processing services is taxable regardless of the ownership of the computer. Examples of data processing services would include the entry of all inventory control data for a company, maintenance of records of employee work time, filing payroll tax returns, preparing W-2 forms, and computing and preparing payroll checks. Data processing does not include the use of a computer by a provider of other services when the computer is used to facilitate the performance of the service or the application of the knowledge of the physical sciences, accounting principles, and tax laws, e.g., the use of a computer to provide interpretive or enhancement geophysical services or the use of a computer by a C.P.A. firm, enrolled agent, or bookkeeping firm to produce a financial report, prepare federal income tax, state franchise or sales tax returns, or charges for temporary secretarial personnel who as part of their function use word processing equipment. (b) Hold permits. All providers of data processing services must obtain a Texas sales and use tax permit and collect tax on the total amount charged for data processing services, or accept a properly completed resale, exemption, or direct pay permit certificate in lieu of collecting tax. See sec.3.285 of this title (relating to Resale Certificate; Sales for Resale); sec.3.287 of this title (relating to Exemption Certificates); sec.3.288 of this title (relating to Direct Payment Procedures and Qualifications). (c) Resale certificates. (1) Providers of data processing services may issue a resale certificate in lieu of tax to suppliers of tangible personal property only if care, custody, and control of the property is transferred to the client. For example, a service provider purchases magnetic tape to transfer the results of data processing services to customers. The tape is transferred to the customer, and the customer owns and uses the tape to review the results of the data processing service. The service provider may purchase the tape tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the tape and for the services. (2) A resale certificate may be issued for a service if the buyer intends to transfer the service as an integral part of taxable services. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered. (3) A resale certificate may be issued for a taxable service if the buyer intends to incorporate the service into tangible personal property which will be resold. If the entire service is not incorporated into the tangible personal property, it will be presumed the service is subject to tax and the service will only be exempt to the extent the buyer can establish the portion of the service actually incorporated into the tangible personal property. If the buyer does not intend to incorporate the entire service into the tangible personal property, no resale certificate may be issued, but credit may be claimed at the time of sale of the tangible personal property to the extent the service was actually incorporated into the tangible personal property. (d) Unrelated services. (1) A service will be considered as unrelated if: (A) it is neither a data processing service, nor a service taxed under other provisions of the Tax Code, Chapter 151; (B) it is of a type which is commonly provided on a stand-alone basis; and (C) the performance of the service is distinct and identifiable. Examples of such a service would be consultation, development of and preparation of feasibility studies, design and development, or training. (2) Where nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the data processing service provider at the time the transaction occurs by separately stating to the customer a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. The service provider's books must support the apportionment between exempt and nonexempt activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for exempt services is unreasonable when the overall transaction is reviewed considering the cost of providing the service or a comparable charge made in the industry for each service, the comptroller will adjust the charges and assess additional tax, penalty, and interest on the taxable services. (3) Charges for services or expenses directly related to and incurred while providing the taxable service are taxable and may not be separated for the purpose of excluding these charges from the tax base. Examples would be charges for meals, telephone calls, hotel rooms, or airplane tickets. (e) Service benefit location. If both the data processing service provider and the customer are located in Texas, Texas tax is due. (f) Service benefit location-multi-state customer. (1) To the extent a data processing service is used to support a separate, identifiable segment of a customer's business (other than general administration or operation of the business) the service is presumed to be used at the location where that part of the business is conducted. (2) If that part of the business is conducted at locations both within and outside the state, the service is not taxable to the extent it is used outside Texas. A multi-state customer may use any reasonable method for allocation which is supported by business records. (3) A multi-state customer purchasing data processing services for the benefit of both in-state and out-of-state locations is responsible for issuing to the data processing service provider an exemption certificate asserting a multi- state benefit, and for reporting and paying the tax on that portion of the data processing charge which will benefit the Texas location. A data processing service provider that accepts such a certificate in good faith is relieved of responsibility for collecting and remitting tax on transactions to which the certificate relates. (4) The customer's books must support the assignment of the service to an identifiable segment of the business, the determination of the location or locations of the use of the service, and the allocation of the taxable charge to Texas. (5) To the extent the use of the service cannot be assigned to an identifiable segment of a customer's business, the service is presumed to be used to support the administration or operation of the customer's business generally. The service is presumed to be used at the customer's principal place of business. The principal place of business means the place from which the trade or business is directed or managed. (g) Local taxes. (1) For local sales tax purposes, city, county, transit authority, and/or special purpose district sales taxes are due if the data processing service provider has only one place of business (the location where clients request service) within the boundaries of a local taxing entity. Local sales tax must be collected based upon the tax rate at that location, except that no MTA or CTD sales tax is due on services provided at a location outside the boundaries of the transit area. In the case of multiple locations, if an order for service is placed at one location but the service is provided at another location, the place of business from which the service is provided will determine to which local taxing entity the tax is allocated. (2) For the purposes of the local use tax, if a place of business is outside the boundaries of a local taxing entity, the data processing service provider will be required to collect local use tax if the client is within the local taxing entity and the service provider has representation in the local taxing entity as outlined in sec.3.286 of this title (relating to Seller's and Purchaser's Responsibilities). Even if the service provider is not required to collect local use tax, the client is still liable for the tax if the service is performed or a benefit is derived from the service within the boundaries of a local taxing entity. (A) An in-state customer purchasing data processing services for the benefit of locations in more than one local taxing entity is responsible for issuing to the data processing service provider an exemption certificate claiming a multi- city benefit and for determining the extent of benefit for each entity. The local use tax for each entity must be reported, allocated, and paid by the customer. A data processing service provider that accepts in good faith an exemption certificate claiming a multi-city benefit is relieved of responsibility for collecting and remitting local tax on transactions to which the certificate relates. (B) A multi-state customer purchasing data processing services for the benefit of both in-state and out-of-state locations is responsible for issuing an exemption certificate and for reporting and paying local tax as provided by subsection (f)(3) and (4) of this section. (h) Use tax. If a provider of a data processing service is not doing business in Texas or in a specific local taxing jurisdiction and is not required to collect Texas tax, it is the Texas customer's responsibility to report and pay the state and local use tax directly to this office. sec.3.333. Security Services. (a) What a security service is. Security service means any service for which a license is required under the Texas Civil Statutes, Article 4413(29bb), Private Investigators and Private Security Agencies Act, sec.13, and includes any service provided within the scope of the required license as an investigations company, guard company, alarm systems company, armored car company, courier company, guard dog company, security services contractor, private security officer, detective service, or private investigator. (b) Hold permits. A provider of security services must obtain a Texas sales and use tax permit and collect tax on the total amount charged for security services, or accept a properly completed resale or exemption certificate in lieu of collecting tax. See sec.3.285 of this title (relating to Resale Certificate; Sales for Resale), and sec.3.287 of this title (relating to Exemption Certificates). (c) Employees. Security services performed by an employee for his employer in the regular course of business, within the scope of the employee's duties, and for which the employee is paid his regular wages or salary are not taxable. (d) Temporary security service personnel. A security service is taxable even when provided on a temporary basis unless: (1) the security service is performed by a temporary help service for an employer to supplement the employer's existing security service personnel on a temporary basis; (2) the security service is normally performed by the employer's own employees; (3) the employer provides all supplies and equipment necessary; and (4) the temporary employee is under the direct or general supervision of the employer to whom the security service is furnished. (e) Security services provided in Texas. Charges for providing security service to property or persons located in Texas are subject to Texas sales tax. Unless a customer claims multistate benefit as provided in subsection (o) of this section, if any portion of the security service originates in Texas, Texas sales tax is due even though a portion of the service may be performed in another state. Credit will not be allowed against Texas sales tax for use tax imposed by another state when the service benefit location is in Texas. Detective and investigation services of corporate locations or premises located outside Texas are not taxable if the investigation is unrelated to any investigation of corporate locations in Texas. (f) Credit for security services originating in another state. If a security service originates in another state and sales tax is legally paid on that service in the other state, credit against the Texas use tax will be allowed. See sec.3.340 of this title (relating to Multistate Tax Credits). (g) Resale certificates. (1) A seller of a security service may issue a resale certificate in lieu of tax to a supplier of tangible personal property only if care, custody, and control of the property will be transferred to the service provider's client. For example, a security service provider purchases magnetic tape to transfer the results of an investigation to a customer. The tape is transferred to the customer, and the customer owns and uses the tape to review the results of the security service. The security service provider may purchase the tape tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the tape and for the services. (2) A resale certificate may be issued for a taxable service if the buyer intends to transfer the service as an integral part of a taxable service. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered. (3) A resale certificate may be issued for a taxable service if the buyer intends to incorporate the service into tangible personal property that will be resold. If the entire service is not incorporated into the tangible personal property, it will be presumed the service is subject to tax and the service will be exempt only to the extent the buyer can establish the portion of the service actually incorporated into the tangible personal property. If the buyer does not intend to incorporate the entire service into the tangible personal property, no resale certificate may be issued, but credit may be claimed at the time of sale of the tangible personal property to the extent the service was actually incorporated into the tangible personal property. (h) Unrelated services. (1) A service will be considered unrelated if: (A) it is not a security service, nor a service taxable under other provisions of the Tax Code, Chapter 151; (B) it is of a type that is commonly provided on a stand-alone basis; and (C) the performance of the unrelated service is distinct and identifiable. Examples of unrelated services that may be excluded from the tax base include a service for which no license is required, such as coin-wrapping services by a courier or armored car service, or providing court testimony, training, or filing legal documents. (2) Where nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The service provider may overcome the presumption by separately stating to the customer at the time the transaction occurs a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. The service provider's books must support the apportionment between taxable and nontaxable activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for nontaxable services is unreasonable when the overall transaction is reviewed, the comptroller will adjust the charges and assess additional tax, penalty, and interest on the taxable services. (3) Charges for services or expenses directly related to and incurred while providing a taxable service are taxable and may not be separated for the purpose of excluding those charges from the tax base. Examples include charges for meals, telephone calls, hotel rooms, or airplane tickets. (i) Excepted persons. Persons excepted from the licensing requirements of the Private Investigators and Private Security Agencies Act, sec.13, are not providing security services subject to the sales tax because they are not required to hold a license to provide their services. Examples include, but are not limited to: (1) persons employed exclusively and regularly by one employer in connection with the affairs of the employer; (2) officers or employees of the United States, this state, or a political subdivision of either, while engaged in the performance of official duties; (3) persons who have full-time employment as peace officers as defined by Code of Criminal Procedure, Article 2.12, and who receive compensation for private employment on an individual or an independent contractor basis as patrolmen, guards, or watchmen; (4) locksmiths who do not install or service detection devices, do not conduct investigations, and are not security service contractors; (5) persons who sell burglar alarm or other protective devices exclusively over-the-counter or by mail order; and (6) persons who sell or install automobile burglar alarm devices. (j) Taxable under other provisions. Persons whose activities are not defined as security services may nonetheless be performing a service that is taxable under other provisions. Examples include, but are not limited to: (1) persons engaged in the business of obtaining and furnishing credit information. See sec.3.343 of this title (relating to Credit Reporting Services) ; (2) insurance adjusters, insurance investigators, and/or claims processors performing services in connection with a policy of insurance. Although not taxable as security services, some insurance services are subject to sales and use tax. See sec.3.355 of this title (relating to Insurance Services). (k) Undercover agents. The fact that a security service provider may be performing his services by furnishing an undercover agent will not affect the applicability of sales tax to the service transaction between the employer and the consumer. The employer of the undercover agent is considered to be providing security services to a client, and that transaction is subject to the sales tax. (l) Local taxes. Local sales and use taxes (city, county, transit authority, and special purpose district) apply to services in the same way as they apply to tangible personal property. Generally, a service provider must collect local sales taxes if the service provider's place of business is within a local taxing jurisdiction, even if the service is actually provided at a location outside that jurisdiction. However, transit sales taxes do not apply to services provided outside the boundaries of the transit area. If the place of business is outside such a jurisdiction but the service is provided to a customer within a local taxing jurisdiction, local use taxes apply and the service provider is responsible for collecting them. For information on the collection and reporting responsibilities of providers and purchasers of taxable services, see sec.3.374 of this title (relating to Collection and Allocation of the City Sales Tax), sec.3.375 of this title (relating to City Use Tax), sec.3.424 of this title (relating to Collection and Allocation of Transit Sales Tax), and sec.3.425 of this title (relating to Transit Use Tax). (m) Use tax. If a seller of a service is not doing business in Texas or in a specific local taxing jurisdiction and is not required to collect Texas state or local tax, it is the Texas customer's responsibility to report the use tax directly to this office. (n) Service benefit location. If the security service provider is in Texas and the customer is located only in Texas, Texas tax is due. (o) Service benefit location-multistate customer. (1) To the extent a security service is provided for a separate, identifiable segment of a customer's business, the service is presumed to benefit the location where that part of the customer's business is conducted. (2) To the extent the use of the service cannot be assigned to an identifiable segment of a customer's business, the service is presumed to be used to support the administration or operation of the customer's business generally. The security service is presumed to be used at the customer's principal place of business. The principal place of business means the place from which the trade or business is directed or managed. (3) If a multistate customer claims that part of the security service benefits the customer's business at locations both within and outside the state, the customer must provide the security service provider with an exemption certificate in lieu of tax. It will then be the customer's responsibility to report the tax to this office for that portion of the security service that benefits Texas locations. The security service will not be taxable to the extent the customer can establish benefit outside Texas. A multistate customer may use any reasonable method for allocation that is supported by business records. (4) A security service provider who accepts an exemption certificate in good faith is relieved of responsibility for collecting and remitting tax on transactions to which the certificate relates. sec.3.342. Information Services. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Data processing services-Processing, reformatting, or manipulation of data provided by the customer is data processing and is not included in the definition of information services. (2) Information services-Furnishing general or specialized news or other current information, including financial information, by printed, mimeographed, electronic, or electrical transmission, or by utilizing wires, cable, radio waves, microwaves, satellites, fiber optics, or any other method now in existence or which may be devised, and electronic data retrieval or research. (b) Taxable information services. Information which is gathered, maintained, or compiled and made available by the provider of the information service to the public or to a specific segment of industry for a consideration is subject to sales tax. Except as provided in subsection (d)(3) of this section, the total charge for information services whether by subscription or on an as-needed basis is taxable. Examples of such information include, but are not limited to, the following: (1) newsletters; (2) scouting reports and surveys, including those used in sports and the oil and gas and related industries; (3) mailing lists, and bad check lists (only that percentage which represents names of persons located in Texas is taxable); (4) real estate listings; (5) financial, investment, stock market, or bond rating, or financial reports, other than charges to a person by a financial institution for account balance information; (6) news clipping services and wire services; and (7) abstracts of title and other information provided by title plants. (c) Exempt information services. Sales tax is not due on information services sold to a newspaper or to a radio or television station licensed by the Federal Communications Commission, if an exemption certificate is obtained. The exemption certificate must state that the purchaser is a newspaper with a general circulation published at least as frequently as weekly, or is a station licensed by the Federal Communications Commission. (d) Nontaxable information. (1) The sale of information which is gathered or compiled on behalf of a particular client is not subject to tax if the information is of a proprietary nature to that client and may not be sold to others by the person who gathered or compiled the information. Any subsequent sale of such information by the client for whom the information was gathered or compiled is subject to tax. Examples include opinion polls and management consultant reports. (2) Any sale of information primarily derived from laboratory, medical, or exploratory testing or experimentation or any similar method of direct scientific observation of physical phenomena is not subject to tax. Examples of information the sale of which is exempt from tax under this subsection include, but are not limited to, geophysical survey information, polygraph test, and medical test results. (3) Information required to be furnished pursuant to the Open Records Act is not subject to sales tax. See sec.3.341 of this title (relating to Sales of Governmental Publications, Records, or Documents). Fees paid when obtaining these documents may be excluded from the tax base if separately stated when the documents are furnished to clients. Tax will only be due on the amount over and above the cost of the documents. (e) Resale certificates. (1) Providers of information service may issue a resale certificate in lieu of tax to suppliers of tangible personal property only if care, custody, and control of the property will be transferred to the service provider's client. For example, an information provider purchases magnetic tape to transfer information to customers. The tape is transferred to the customer, and the customer owns and uses the tape to review the information. The information provider may purchase the tape tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the tape and for the services. (2) A resale certificate may be issued for a service if the buyer intends to transfer the service as an integral part of taxable services. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered. (3) A resale certificate may be issued for a taxable service if the buyer intends to incorporate the service into tangible personal property which will be resold. If the entire service is not incorporated into the tangible personal property, it will be presumed the service is subject to tax and the service will only be exempt to the extent the buyer can establish the portion of the service actually incorporated into the tangible personal property. If the buyer does not intend to incorporate the entire service into the tangible personal property, no resale certificate may be issued, but credit may be claimed at the time of sale of the tangible personal property to the extent the service was actually incorporated into the tangible personal property. (f) Unrelated services. (1) A service will be considered as unrelated if: (A) it is not an information service nor a service taxed under other provisions of the Tax Code, Chapter 151; (B) it is of a type which is commonly provided on a stand-alone basis; and (C) the performance of the unrelated service is distinct and identifiable. Examples of an unrelated service which may be excluded from the tax base include consultation, training, expedited filing charges, escrow fees, or charges for proprietary information. (2) Where nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the information provider at the time the transaction occurs by separately stating to the customer a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. The information provider's books must support the apportionment between exempt and nonexempt activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for exempt services is unreasonable when the overall transaction is reviewed considering the cost of providing the service or a comparable charge made in the industry for each service, the Comptroller will adjust the charges and assess additional tax, penalty, and interest on the taxable services. (3) Charges for services or expenses directly related to and incurred while providing the taxable service are taxable and may not be separated for the purpose of excluding these charges from the tax base. Examples would be charges for meals, telephone calls, hotel rooms, or airplane tickets. (g) Service benefit location. If both the information service provider and the customer are located in Texas, Texas tax is due. (h) Service benefit location-multi-state customer. (1) To the extent information service is used to support a separate, identifiable segment of a customer's business (other than general administration or operation of the business) the service is presumed to be used at the location where that part of the business is conducted. (2) If that part of the business is conducted at locations both within and outside the state, the service is not taxable to the extent it is used outside Texas. A multi-state customer may use any reasonable method for allocation which is supported by business records. (3) A multi-state customer purchasing information services for the benefit of both in-state and out-of-state locations is responsible for issuing to the information service provider an exemption certificate asserting a multi-state benefit, and for reporting and paying the tax on that portion of the charge for information which will benefit the Texas location. An information provider that accepts such a certificate in good faith is relieved of responsibility for collecting and remitting tax on transactions to which the certificate relates. (4) The customer's books must support the assignment of the service to an identifiable segment of the business, the determination of the location or locations of the use of the service, and the allocation of the taxable charge to Texas. (5) To the extent the use of the service cannot be assigned to an identifiable segment of a customer's business, the service is presumed to be used to support the administration or operation of the customer's business generally. The service is presumed to be used at the customer's principal place of business. The principal place of business means the place from which the trade or business is directed or managed. (i) Local taxes. (1) For local sales tax purposes, city, county, transit authority, and special purpose district sales taxes are due if an information provider has only one place of business (the location where clients request service) within the boundaries of a local taxing entity. Local sales tax must be collected based on the tax rate at that location, except that no MTA or CTD sales tax is due on services provided at a location outside the boundaries of the transit area. In the case of multiple locations, if an order for service is placed at one location but the service is provided at another location, the place of business from which the service is provided will determine to which local taxing entity the tax is allocated. (2) If a place of business is outside the boundaries of a local taxing entity, the information provider will be required to collect local use tax if the client is within the local taxing entity and the information provider has representation in the local taxing entity as outlined in sec.3.286 of this title (relating to Seller's and Purchaser's Responsibilities). Even if the information provider is not required to collect local use tax, the client is still liable for the tax if the service is performed or a benefit is derived from the service within the boundaries of a local taxing entity. (A) An in-state customer purchasing information services for the benefit of locations in more than one local taxing entity is responsible for issuing to the information provider an exemption certificate asserting a multi-city benefit and for determining the extent of benefit for each entity. The local tax for each entity must be reported, allocated, and paid by the customer. An information provider that accepts in good faith an exemption certificate claiming a multi- city benefit is relieved of responsibility for collecting and remitting local tax on transactions to which the certificate relates. (B) A multi-state customer purchasing information services for the benefit of both in-state and out-of-state locations is responsible for issuing an exemption certificate and for reporting and paying local tax as provided by subsection (f)(3) and (4) of this section. (j) Use tax. If an information provider is not doing business in Texas or in specific local taxing jurisdictions and is not required to collect Texas state or local tax, it is the Texas customer's responsibility to report the state and local use tax directly to this office. sec.3.343. Credit Reporting Services. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Credit report-Any written, oral or other compilation of any credit history or other information bearing on a person's credit worthiness, credit standing, credit capacity, or insurability, including information concerning character, general reputation and, if an individual, personal characteristics, medical information, or mode of living. (2) Credit reporting services-The assembly or furnishing, for monetary fees, dues, or other consideration, of a credit report or any part of a credit report. (b) Responsibilities of persons providing credit reporting services. (1) Sales tax is due and must be collected on the total charge for credit reporting activities when: (A) the address of the credit applicant (the subject of the credit report) at the time of the request for a report is in Texas; and (B) the person who requested the credit report is located in Texas or is doing business in Texas as provided in the Tax Code, sec.151.107. Credit card companies are considered to be doing business in Texas if the financial institution issuing the card is doing business in Texas or if the credit card company is otherwise doing business in Texas. (2) If a seller of a service is not doing business in Texas and is not required to collect Texas tax, it is the Texas customer's responsibility to report the tax directly to this office. (3) Persons providing credit reporting services must obtain a tax permit and collect tax on the entire sales price of their service. (c) Resale certificates. (1) Providers of credit reporting service may issue a resale certificate in lieu of tax to suppliers of tangible personal property only if care, custody, and control of the property is transferred to the client. For example, a taxpayer purchases magnetic tape to transfer the results of a credit report to customers. The tape is transferred to the customer, and the customer owns and uses the tape to review the results of the credit reporting service. Taxpayer may purchase the tape tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the tape and for the services. (2) A resale certificate may be issued for a service if the buyer intends to transfer the service as an integral part of taxable services. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered. (3) A resale certificate may be issued for a taxable service if the buyer intends to incorporate the service into tangible personal property which will be resold. If the entire service is not incorporated into the tangible personal property, it will be presumed the service is subject to tax and the service will only be exempt to the extent the buyer can establish the portion of the service actually incorporated into the tangible personal property. If the buyer does not intend to incorporate the entire service into the tangible personal property, no resale certificate may be issued, but credit may be claimed at the time of sale of the tangible personal property to the extent the service was actually incorporated into the tangible personal property. (4) Persons providing credit reporting services may accept a valid exemption certificate in lieu of tax when performing a taxable service for an exempt entity. See sec.3.322 of this title (relating to Exempt Organizations). (d) Unrelated services. (1) A service will be considered as unrelated if: (A) it is not a credit reporting service nor a service taxed under other provisions of the Tax Code, Chapter 151; (B) it is of a type which is commonly provided on a stand-alone basis; and (C) the performance of the unrelated service is distinct and identifiable. Examples of an unrelated service which may be excluded from the tax base include consultation, training, and charges for proprietary information. (2) Where nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the provider of credit reporting services at the time the transaction occurs by separately stating to the customer a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. The service provider's books must support the apportionment between exempt and nonexempt activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for exempt services is unreasonable when the overall transaction is reviewed considering the cost of providing the service or a comparable charge made in the industry for each service, the Comptroller will adjust the charges and assess additional tax, penalty, and interest on the taxable services. (3) Charges for services or expenses directly related to and incurred while providing the taxable service are taxable and may not be separated for the purpose of excluding these charges from the tax base. Examples would be charges for meals, telephone calls, hotel rooms, or airplane tickets. (e) Service benefit location. If both the credit grantor and the credit applicant are located in Texas, Texas sales tax is due. (f) Service benefit location-multi-state customer. (1) To the extent a credit reporting service is used to support a separate, identifiable segment of a customer's business (other than general administration or operation of the business) the service is presumed to be used at the location where that part of the business is conducted. (2) If that part of the business is conducted at locations both within and outside the state, the service is not taxable to the extent it is used outside Texas. A multi-state customer may use any reasonable method for allocation which is supported by business records. (3) A multi-state customer purchasing credit reporting services for the benefit of both in-state and out-of-state locations is responsible for issuing to the credit reporting entity an exemption certificate asserting a multi-state benefit, and for reporting and paying the tax on that portion of the credit reporting charge which will benefit the Texas location. A provider of credit reports that accepts such a certificate in good faith is relieved of responsibility for collecting and remitting tax on transactions to which the certificate relates. (4) The customer's books must support the assignment of the service to an identifiable segment of the business, the determination of the location or locations of the use of the service, and the allocation of the taxable charge to Texas. (5) To the extent the use of the service cannot be assigned to an identifiable segment of a customer's business, the service is presumed to be used to support the administration or operation of the customer's business generally. The service is presumed to be used at the customer's principal place of business. The principal place of business means the place from which the trade or business is directed or managed. (g) Local tax. (1) For local sales tax purposes, city, county, transit authority, and special purpose district sales taxes are due if a provider of credit reports has only one place of business (the location where clients request service) within the boundaries of a local taxing entity. Local tax must be collected based upon the tax rate at that location, except that no MTA or CTD sales tax is due on services provided at a location outside the boundaries of the transit area. In the case of multiple locations, if an order for service is placed at one location but the service is provided at another location, the place of business from which the service is provided will determine to which local taxing entity the tax is allocated. (2) For the purposes of the local use tax, if a place of business is outside the boundaries of a local taxing entity, the service provider will be required to collect local use tax if the client is within the local taxing entity and the service provider has representation in the local taxing entity as outlined in sec.3.286 of this title (relating to Seller's and Purchaser's Responsibilities). Even if the service provider is not required to collect local use tax, the client is still liable for the tax if the service is performed or a benefit is derived from the service within the boundaries of a local taxing entity. (A) An in-state customer purchasing credit reporting services for the benefit of locations in more than one local taxing entity is responsible for issuing to the provider of credit reporting services an exemption certificate asserting a multi-city benefit and for determining the extent of benefit for each entity. The local use tax for each entity must be reported, allocated and paid by the customer. A provider of credit reporting service that accepts in good faith an exemption certificate claiming a multi-city benefit is relieved of responsibility for collecting and remitting local tax on transactions to which the certificate relates. (B) A multi-state customer purchasing credit reporting services for the benefit of both in-state and out-of-state locations is responsible for issuing an exemption certificate and for reporting and paying local tax as provided by subsection (f)(3) and (4) of this section. (h) Use tax. If a seller of a service is not doing business in Texas or in specific local taxing jurisdictions and is not required to collect Texas tax, it is the Texas customer's responsibility to report and pay the state and local use tax directly to this office. sec.3.354. Debt Collection Services. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Claim-Without limitation, any alleged right, entitlement, or demand, whether for money or property, arising out of or concerning any actual or alleged obligation, promise or indebtedness, howsoever arising, whether in law or in equity, in contract or in tort, whether secured or unsecured, actual or contingent, and whether liquidated or unliquidated. (2) Contingent fee-An arrangement whereby a debt collector agrees, by contract or otherwise, to accept as consideration for debt collection services a percentage of the amount actually collected, whether inclusive or exclusive of actual expenses incurred in performing such services. (3) Debt-Any obligation to pay a sum certain in money or other consideration. (4) Debt collection service-Any activity performed for consideration, to collect or adjust a delinquent debt, to collect or adjust a claim, or to repossess property subject to a claim, including any activity performed in furtherance of the satisfaction or compromise of a debt or claim. (5) Debt collector-Any person performing debt collection services. (b) Responsibilities of debt collectors. (1) Tax is due and must be collected on the total charge for debt collection activities when: (A) the last known address of the debtor in the creditor's records at the time the account is placed for collection is in Texas; and (B) the creditor for whom the debt is collected is located in Texas or is engaged in business in Texas (as provided in the Tax Code, sec.151.107) at the time the debt is referred for collection. (2) Collection of current credit and real estate accounts, including mortgage payments and rental payments, is not subject to tax under this rule. A current credit or real estate transaction is one which has not exceeded the later of the due date of the payment or the date on which a penalty or other contractual sanction attaches. Late charges for payment of mortgage payments are considered additional interest and not debt collection charges. Mortgage reinstatement fees following forfeiture of a mortgage are not considered debt collection charges. (3) The recipient of a dishonored check is responsible for paying the cost incurred to process a dishonored check including the sales tax due on the debt collection service. (4) Debt collectors must obtain a tax permit and collect tax on the entire sales price of their service, or accept a properly completed exemption certificate in lieu of collecting tax. See sec.3.287 of this title (relating to Exemption Certificates) and sec.3.322 of this title (relating to Exempt Entities). (5) If a debt collector charges a contingent fee, the sales price is the amount actually withheld by or remitted to the debt collector for the performance of such services, including any amounts withheld or remitted for the purchase of taxable items used or consumed in performing the service. (c) Resale certificates. (1) Debt collectors may issue a resale certificate in lieu of tax to suppliers of tangible personal property only if care, custody, and control of the property is transferred to the client. For example, a debt collector purchases magnetic tape to transfer the results of debt collection services to customers. The tape is transferred to the customer, and the customer owns and uses the tape to review the results of the service. Taxpayer may purchase the tape tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the tape and for the services. (2) A resale certificate may be issued for a service if the buyer intends to transfer the service as an integral part of taxable services. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered. (3) A resale certificate may be issued for a taxable service if the buyer intends to incorporate the service into tangible personal property which will be resold. If the entire service is not incorporated into the tangible personal property, it will be presumed the service is subject to tax and the service will only be exempt to the extent the buyer can establish the portion of the service actually incorporated into the tangible personal property. If the buyer does not intend to incorporate the entire service into the tangible personal property, no resale certificate may be issued, but credit may be claimed at the time of sale of the tangible personal property to the extent the service was actually incorporated into the tangible personal property. (d) Nontaxable services. Activities undertaken by a debt collector to determine whether a creditor has a claim are not taxable if the debt collector determines not to attempt to collect or adjust the claim. (e) Unrelated services. (1) A service will be considered as unrelated if: (A) it is not a debt collection service nor a service taxed under other provisions of the Tax Code, Chapter 151; (B) it is of a type which is commonly provided on a stand-alone basis; and (C) the performance of the unrelated service is distinct and identifiable. Examples of an unrelated service which may be excluded from the tax base include charges for consultation, training, or collection of current mortgage payments. (2) Where nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the debt collector at the time the transaction occurs by separately stating to the creditor a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. The debt collector's books must support the apportionment between exempt and nonexempt activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for exempt services is unreasonable when the overall transaction is reviewed considering the cost of providing the service or a comparable charge made in the industry for each service, the comptroller will adjust the charges and assess additional tax, penalty, and interest on the taxable services. (3) Charges for services or expenses directly related to and incurred while providing the taxable service are taxable and may not be separated for the purpose of excluding these charges from the tax base. Examples would be charges for meals, telephone calls, hotel rooms, or airplane tickets. (f) Service benefit location. If both the creditor and the debtor are located in Texas, Texas tax is due. (g) Service benefit location-multi-state customer. (1) To the extent a debt collection service is used to benefit a separate, identifiable segment of a creditor's business (other than general administration or operation of the business) the service is presumed to be used at the location where that part of the creditor's business is conducted. (2) To the extent the use of the service cannot be assigned to an identifiable segment of a creditor's business, the service is presumed to be used to support the administration or operation of the creditor's business generally. The service is presumed to be used at the creditor's principal place of business. The principal place of business means the place from which the trade or business is directed or managed. (3) If a multi-state customer claims that part of the debt collection service benefits the customer's business at locations both within and outside the state, the customer must provide the debt collection service provider with an exemption certificate in lieu of tax. It will then be the customer's responsibility to report the tax to this office for that portion of service that benefits Texas locations. The service will not be taxable to the extent the customer can establish benefit outside Texas. A multi-state creditor may use any reasonable method for allocation which is supported by business records. (4) A debt collector who accepts a certificate in good faith is relieved of responsibility for collecting and remitting tax on transactions to which the certificate relates. (h) Local taxes. (1) Local sales tax. Local sales taxes (city, county, transit authority, and special purpose district) apply to debt collection services in the same way they apply to tangible personal property. Generally, service providers must collect local sales taxes if their place of business is within a local taxing jurisdiction, even if the service is actually provided at a location outside that jurisdiction. (A) Transit sales taxes do not apply to services provided outside the boundaries of the transit area. (B) In the case of multiple locations, if an order for service is placed at one location but the service is provided at another location, the place of business from which the service is provided will determine to which local taxing entity the tax is allocated. (2) Local use tax. (A) If the service provider's place of business is outside a local taxing jurisdiction but service is provided to a customer within a local taxing jurisdiction, local use taxes apply and the service provider is responsible for collecting the local use tax if the service provider has representation in the local jurisdiction. (B) If a customer of a service provider located outside a local taxing jurisdiction claims that part of the debt collection service benefits the customer's business in more than one local taxing jurisdiction, the customer must provide the service provider with an exemption certificate in lieu of use tax. (This claim may be asserted and the exemption certificate issued only in situations where use tax is due and does not apply when local sales tax is applicable.) The local use tax for each local taxing jurisdiction to which the exemption certificate applies must be reported, allocated, and paid by the customer. A debt collector who accepts in good faith an exemption certificate claiming benefit in more than one local taxing jurisdiction is relieved of responsibility for collecting and remitting local use tax on transactions to which the certificate relates. (3) References. For more information on the collection and allocation of local sales and use taxes, see sec.3.374 of this title (relating to Collection and Allocation of the City Sales Tax), sec.3.375 of this title (relating to City Use Tax), sec.3.424 of this title (relating to Transit Sales Tax), and sec.3.425 of this title (relating to Transit Use Tax). (i) A multi-state creditor purchasing debt collection services for the benefit of both in-state and out-of-state locations is responsible for issuing an exemption certificate and for reporting and paying local tax as provided by subsection (g) of this section. (j) Use tax. If a debt collector is not engaged in business in Texas or in a specific local taxing jurisdiction and is not required to collect Texas tax, it is the Texas creditor's responsibility to report and pay the state and local use tax to this office. sec.3.355. Insurance Services. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Insurance loss or damage appraisal-Any activity performed for purposes of valuing damages, or estimating the quantity, value, or extent of loss of property. Appraisal activities performed prior to damage or loss, such as the appraisal of jewelry for scheduling on a homeowners insurance policy, are not considered loss or damage appraisal. (2) Insurance inspection-Any activity performed to evaluate risks to property, to survey or value property in connection with the furnishing of insurance coverage, or any other similar activity. (3) Insurance investigation-Any activity performed to evaluate an individual's eligibility or qualifications for insurance coverage, or for the payment of benefits, or any other similar activity. For example, the assembly or evaluation of information for the purpose of determining whether to issue a life insurance policy to a specific individual would be considered an insurance investigation. (4) Insurance or annuity actuarial analysis or research -Any activity performed in connection with the calculation of rates for a policy of insurance or annuity rates, reserves, refunds, dividends, insurance benefits, or other similar activities. (5) Insurance claims adjustment or claims processing -Any activities to supervise, handle, investigate, pay, settle, or adjust claims or losses. (6) Insurance loss prevention service-Any activities performed in an effort to identify, analyze, evaluate, control, anticipate and/or eliminate the occurrence of accidents, losses, or damage. Examples include: survey recommendations, training programs, consultations, analysis of accident causes, and industrial hygiene and health services. (7) Insurance carrier-Every type of insurer engaged in the business of insurance that is licensed or operates under or is required to be licensed or to operate under the provisions of the Insurance Code. (8) Self-insured plan-A plan whereby an employer maintains funds for providing employee benefits rather than transferring risk by purchasing insurance from an insurance carrier. This plan is not considered a policy of insurance for sales tax purposes. (9) Third-party administrator-A person hired by an employer to administer the provisions of the employer's self-insured plan. (b) Taxable services. Insurance services defined in subsection (a) of this section performed on behalf of an insurance carrier, its insured, its policyholders, or others pertaining to a policy or policies of insurance for monetary fees, dues, or other consideration are taxable. These services performed pursuant to a self-insured plan or for a third-party administrator handling distribution of funds under a self-insured plan are not taxable. (c) Nontaxable services. The following services are not taxable as insurance services: (1) insurance coverage for which a premium is paid or sales commissions are paid to insurance agents. Insurance services provided by an insurance agent without charge to the customer are not taxable. If a customer pays a separate amount for these services over and above the amount paid as a commission for a policy, this separate charge is taxable; (2) medical services provided by any medical provider, including physicians, medical staff at the physician's direction, hospitals, clinics, chiropractors, and other practitioners of the healing arts; (3) services related to automobile warranties or service contracts for which the State Board of Insurance allows an exclusion to third-party administrators. (d) Doing business. Insurance services will be subject to taxation in Texas if the individual, entity, or property which is the object of the service is in Texas and the company for which the services are performed is either an insurance carrier as that term is defined in paragraph (7) of subsection (a) of this section, or if not an insurance carrier, is doing business in Texas. (e) Fees and premiums. Insurance premiums and any other form of compensation subject to gross administrative or service fees taxes under the Insurance Code are subject to tax hereunder if paid in connection with the performance of an insurance service. Insurance premiums subject to gross premiums taxes under the Insurance Code are not subject to sales tax. (f) Not insurance related. Where an insurance service is performed as a part of a nontaxable service and the primary purpose for purchasing the nontaxable service is not insurance related, no part of the fee or charge is taxable. For example, the charge for an appraisal required by a lender as a condition of extending credit is not taxable as an insurance service because the primary purpose in obtaining the service is financing the loan. The fact that the appraisal may also be used as the basis for establishing minimum property insurance required by the lender as a condition of financing does not render the service taxable as an insurance service. (g) Responsibilities of persons providing insurance services. Persons providing insurance services must obtain a tax permit and collect tax on the entire sales price of their services. The presumption is that all services are taxable unless the service provider obtains an exemption certificate from a customer claiming an exemption. For example, a third-party administrator may issue an exemption certificate for charges for claim adjustment activities done pursuant to a self-insured plan. (h) Resale certificates. (1) Providers of insurance service may issue a resale certificate in lieu of tax to suppliers of tangible personal property only if care, custody, and control of the property will be transferred to the service provider's client. For example, an insurance service provider purchases magnetic tape to transfer the results of actuarial research to service provider's client. The tape is transferred to the client and the client owns and uses the tape to review the results of the actuarial research. The insurance service provider may purchase the tape tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the tape and for the services. (2) A resale certificate may be issued for a service if the buyer intends to transfer the service as an integral part of taxable services. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered. (3) A resale certificate may be issued for a taxable service if the buyer intends to incorporate the service into tangible personal property which will be resold. If the entire service is not incorporated into the tangible personal property, it will be presumed the service is subject to tax and the service will only be exempt to the extent the buyer can establish the portion of the service actually incorporated into the tangible personal property. If the buyer does not intend to incorporate the entire service into the tangible personal property, no resale certificate may be issued, but credit may be claimed at the time of sale of the tangible personal property to the extent the service was actually incorporated into the tangible personal property. (i) Unrelated services. (1) A service will be considered as unrelated if: (A) it is not an insurance service, nor a service taxed under other provisions of the Tax Code, Chapter 151; (B) it is of a type which is commonly provided on a stand-alone basis; and (C) the performance of the unrelated service is distinct and identifiable. Examples of an unrelated service which may be excluded from the tax base include activities as third-party administrators, appraisals for reasons other than loss or damage, or doctor's fees. (2) Where nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the insurance service provider at the time the transaction occurs by separately stating to the customer a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. The insurance service provider's books must support the apportionment between exempt and nonexempt activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for exempt services is unreasonable when the overall transaction is reviewed considering the cost of providing the service or a comparable charge made in the industry for each service, the Comptroller will adjust the charges and assess additional tax, penalty, and interest on the taxable services. (3) Charges for services or expenses directly related to and incurred while providing the taxable service are taxable and may not be separated for the purpose of excluding these charges from the tax base. Examples would be charges for meals, telephone calls, hotel rooms, or airplane tickets. (j) Service benefit location-multi-state customer. (1) To the extent an insurance service is used to support a separate, identifiable segment of a customer's business (other than general administration or operation of the business) the service is presumed to be used at the location where that part of the business is conducted. (2) If that part of the business is conducted at locations both within and outside the state, the service is not taxable to the extent it is used outside Texas. A multi-state customer may use any reasonable method for allocation which is supported by business records. (3) A multi-state customer purchasing insurance services, such as actuarial services, for the benefit of both in-state and out-of-state locations is responsible for issuing to the insurance services provider an exemption certificate asserting a multi-state benefit, and for reporting and paying the tax on that portion of the insurance services charge which will benefit the Texas location. A provider of insurance services that accepts such a certificate in good faith is relieved of responsibility for collecting and remitting tax on transactions to which the certificate relates. (4) The customer's books must support the assignment of the service to an identifiable segment of the business, the determination of the location or locations of the use of the service, and the allocation of the taxable charge to Texas. (5) To the extent the use of the service cannot be assigned to an identifiable segment of a customer's business, the service is presumed to be used to support the administration or operation of the customer's business generally. The service is presumed to be used at the customer's principal place of business. The principal place of business means the place from which the trade or business is directed or managed. (k) Local tax. Local sales and use taxes (city, county, transit authority, and special purpose district) apply to services in the same way as they apply to tangible personal property. Generally, service providers must collect local sales taxes if their place of business is within a local taxing jurisdiction, even if the service is actually provided at a location outside that jurisdiction. However, MTA and CTD sales taxes do not apply to services provided outside the boundaries of the transit area. If the place of business is outside such a jurisdiction but the service is provided to a customer within a local taxing jurisdiction, local use taxes apply and the service provider is responsible for collecting them. For information on the collection and reporting responsibilities of providers and purchasers of taxable services, see sec.3.374 of this title (relating to Imposition of the Sales Tax; Collection by Retailer; Bracket System Formula; Determining City Tax); sec.3. 375 of this title (relating to Administration of Use Tax; Collection by Retailer); sec.3.424 of this title (relating to Imposition of Sales Tax); and sec.3.425 of this title (relating to Administration of Use Tax; Imposition and Collection). (l) Use tax. If a provider of an insurance service is not doing business in Texas or in a specific local taxing jurisdiction and is not required to collect Texas state or local tax, it is the Texas customer's responsibility to report and pay the use tax directly to this office. sec.3.356. Real Property Service. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Employee-A person providing services for another for consideration where the employer has the right to control and direct the employee in the material details of how the work is to be performed, both under the contract of employment and in fact. The term also includes personnel provided by a temporary help service, as defined in paragraph (10) of this subsection. (2) Employer-In determining which of several persons is the employer of an individual, factors which will be considered include: (A) who exercises direct control over the details of how the work is performed by the employee; (B) who pays the employee's salary; (C) who withholds applicable federal taxes from the employee's salary; (D) who provides employment-related benefits such as health insurance, eligibility to participate in a retirement plan, sick leave, vacation, etc., to the employee; and (E) who has the right to terminate the employment of the individual employee. (3) Garbage or other solid waste-Waste; refuse; sludge from a waste treatment plant, a water supply treatment plant, or an air pollution control facility; and other discarded material, including solid, liquid, semisolid, or contained gaseous material, resulting from residential, industrial, municipal, commercial, mining, and agricultural operations, and resulting from community and institutional activities. The term does not include any of the following: (A) solid or dissolved material in domestic sewage; or solid or dissolved material in irrigation return flows; or industrial discharges subject to regulation by permit issued pursuant to the Texas Water Code, Chapter 26; (B) waste materials which result from activities associated with the exploration, development, or production of oil, gas, geothermal resources, or any other substance or material regulated by the Railroad Commission of Texas pursuant to Natural Resources Code, sec.91.101; (C) any waste which requires specific licensing under Health and Safety Code, Chapter 401, and the rules adopted by the Texas Board of Health under that law, which for the purposes of this rule shall be referred to as radioactive waste; (D) hazardous waste, as identified or listed as a hazardous waste by the administrator of the United States Environmental Protection Agency or by other appropriate federal or state agency; or (E) industrial solid waste, as that term is defined in Health and Safety Code, Chapter 361, with the exception of industrial solid waste which meets the definition of garbage or municipal solid waste. (4) Landscaping-The activity of arranging and modifying areas of land, natural scenery and other areas, such as indoor or outdoor patios, for aesthetic effect, considering the use to which the land is to be put. The term includes adding, removing, or arranging natural forms, features, and plantings, including vegetation, and other features to fulfill aesthetic requirements. It includes the application of soil, soil additives, and amendments to prepare or maintain the planting area. Some examples are garden planting or maintenance, arborist services, ornamental bush or shrub planting, tree planting or removal, tree surgery, pruning or spraying, and lawn sodding. The term does not include the addition of sprinkler systems, retaining walls, ponds, pools, or fences, or other construction activities or services provided by landscape designers or landscape architects such as consultation, research, preparation of general or specific design or detail plans, studies, specifications, or supervision, or any other professional services or functions within the definition of the practice of engineering or architecture. Landscaping services performed by landscape designers or landscape architects are taxable. (5) Lawn and yard maintenance-Mowing, trimming, fertilizing, watering and any other treatment or service which may be performed on private or commercial yards or lawns. It also includes maintenance of trees and plants whether inside or outside a building. The term does not include clearing land for buildings, power line rights-of-way, pipeline rights-of-way, or maintenance on land belonging to a governmental entity when the service is required by the governmental entity. (6) Property management company-A person who, for consideration, operates and manages all the activities at a property held by the owner for purposes of rental, such as: an office building, mall or other retail or office complex, an apartment complex, duplex, or home. In the context of this rule, the responsibilities of a property management company must include, but are not limited to, securing tenants, hiring and supervising employees for operation or upkeep of the property, receiving and applying revenues, and incurring and paying expenses derived from the operation of the property as directed by the owner. The term does not include a person performing taxable services at a manufacturing facility or at a property held by the owner for purposes other than rental. (7) Residential or nonresidential building or grounds cleaning, janitorial, or custodial services-The activities of keeping the inside and outside premises of a building clean, orderly, and functional, including performing minor adjustments, maintenance, or repairs. Examples include, but are not limited to: window washing; floor, wall, and ceiling cleaning; collection of waste on the premises, whether from inside a building or on the grounds; chimney or duct cleaning; lighting maintenance, such as bulb and fuse replacement; the cleaning, disinfecting, and restocking of restrooms or lounge areas; cleaning or washing sidewalks, parking garages, or parking lots; and pool cleaning and maintenance. The term does not include activities such as painting; wallpapering; or performing significant repairs; nor domestic services such as those of a baby- sitter, maid or cook employed by a private household to provide domestic services for the benefit of the household. (8) Structural pest control services-Activities performed for the purpose of identifying, preventing, controlling, or eliminating, by use of chemical or mechanical means, infestation of any of the following: (A) insects, spiders, mites, ticks, ants, bees, and other related pests, wood infesting organisms, rodents, weeds, nuisance birds, or any other obnoxious or undesirable animals which may infest households, railroad cars, ships, docks, trucks, airplanes or other structures or their contents; (B) pests or diseases of trees, shrubs or other plantings in a park or adjacent to a residence, business establishment, industrial plant, institutional building, or street; and (C) the term "structural pest control services" includes related activities, such as inspection or evaluation concerning the nature or extent of an infestation; reports; or performance of services to control pest or insect infestation. (9) Surveying of real property-Activities performed to determine or confirm the boundaries of real property, or to determine or confirm the location of structures or other improvements in relation to the boundaries of the property by the use of relevant elements of law, research, measurement, analysis, computation, mapping and land description. Examples include, but are not limited to, boundary recovery, residential surveying, lot surveying, title surveying, as-built title surveying, and right-of-way surveying. The term does not include activities performed after taxable surveying has been completed to search the surveyed area for items of archaeological or historic significance. (10) Temporary help service-An individual, company, or corporation covered by Industry Group 7363, Group 736, Major Group 73 of the Standard Industrial Classification Manual, 1989, and includes an individual, company, or corporation that supplies personnel on a temporary basis to supplement a customer's existing work force. In the context of this section, such temporary personnel must perform a service that is normally performed by the customer's own employees; the customer must provide all supplies and equipment necessary; and the temporary personnel must be under the direct or general supervision of the customer to whom the help is furnished. (b) Responsibilities of persons providing real property services on both residential and nonresidential real property. With the exception of terms defined by subsection (a)(6) and (10) of this section, persons providing services defined in subsection (a) of this section are performing real property services. Persons performing real property services must obtain a tax permit and collect and remit sales or use taxes on all charges for real property services. (c) Resale certificates. (1) A properly completed resale certificate may be used to purchase tangible personal property tax free if the care, custody, and control of the property is transferred to the customer as part of the real property service. For example, a taxpayer purchases paper products to be left at the customer's premises when providing janitorial services, or garbage dumpsters to leave on the customer's premises as a part of the garbage collection service. Taxpayer may purchase the paper products and dumpsters tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the paper products, dumpster, and for the services. (2) A properly completed resale certificate may be issued for a service if the buyer intends to transfer the service as an integral part of a taxable service. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered. See sec.3.285 of this title (relating to Resale Certificate; Sales for Resale). (3) A properly completed resale certificate may be issued to purchase a taxable service tax free if the buyer intends to incorporate the service into tangible personal property which will be resold. If the entire service is not incorporated into the tangible personal property, it will be presumed the service is subject to tax and the service will only be exempt to the extent the buyer can establish the value of that portion of the service actually incorporated into the tangible personal property. If the buyer does not intend to incorporate the entire service into the tangible personal property, the buyer may not issue a resale certificate but he may claim credit at the time of sale of the tangible personal property for the portion of the service that was actually incorporated into the tangible personal property. (d) Exemption certificates. Persons providing real property services may accept a properly completed exemption certificate in lieu of tax when the service is purchased by an exempt entity. See sec.3.322 of this title (relating to Exempt Organizations), sec.3.287 of this title (relating to Exemption Certificates) and sec.3.288 of this title (relating to Direct Payment Procedures and Qualifications). (e) Landscaping, lawn, and yard maintenance provided by persons under 18 years old or by persons 65 years old or older. Charges for the performance of landscaping, lawn, and yard maintenance services (subsection (a)(4) and (5) of this section) are exempt if performed by: (1) a self-employed person under 18 years of age whose total receipts from providing landscaping, lawn, or yard maintenance are $1,000 or less during either the preceding calendar quarter or the same calendar quarter of the preceding year; or (2) an individual 65 years of age or older whose total receipts from providing landscaping or yard maintenance are $5,000 or less for the four most recent quarters. (f) Landfill charges connected with garbage collection services. Persons providing garbage collection services may not separate in the bill to their customers the charge for garbage collection from the charge for use of the landfill for the purpose of reducing the amount upon which tax must be collected. The charge paid by the service provider for access to the landfill, while not taxable to the service provider, is a necessary expense in providing the garbage collection service and is not excludable from the fee to the service provider's customer for garbage collection. (g) Garbage removal facilities. When a city, county, or any other entity provides a facility where garbage may be left and which will, at another time, be moved to a landfill, the fee charged to persons depositing garbage into such a facility is considered to be a charge for garbage collection and is taxable. (h) Garbage collection services that may be excluded from tax. Persons providing collection services for customers having waste excluded from the definition of "garbage or other solid waste" may accept an exemption certificate from the customer in lieu of tax. The exemption certificate must state the type of waste being excluded, and that either the waste to be collected is totally excludable or that the customer has both taxable and nontaxable waste and the customer will be responsible for accruing tax on that portion of the charge which represents taxable services. The customer may use any reasonable allocation for reporting tax on taxable services which is supportable by books and records. (i) Unrelated services. (1) A service will be considered as unrelated if: (A) it is not a real property service, nor a service or labor taxable under another provision of the Tax Code, Chapter 151; (B) it is not provided as a part of the taxable service and is of a type which is commonly provided on a stand-alone basis; and (C) the performance of the unrelated service is distinct and identifiable. Examples of an unrelated service which may be excluded from the tax base include maintenance charges meeting the definition in sec.3.357 of this title (relating to Labor Relating to Nonresidential Real Property Repair, Remodeling Restoration, Maintenance, New Construction, and Residential Property), engineering studies, and architectural or landscaping designs. (2) When nontaxable unrelated services and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the service provider at the time the transaction occurs by separately stating to the customer a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. A customer may presume that a separately stated charge from a service provider for taxable services is reasonable, in the context of this section. The service provider's books must support the apportionment between exempt and nonexempt activities based on the cost of providing the service or on a comparison to the normal charge for each service if provided alone. If the charge for exempt services is unreasonable when the overall transaction is reviewed, considering the cost of providing the service or a comparable charge made in the industry for each service, the comptroller will adjust the charges and assess the service provider the additional tax, penalty, and interest on the taxable services. (3) Charges for services or expenses directly related to or incurred while providing the taxable service are taxable and may not be separated for the purpose of excluding these charges from the tax base. Examples include charges for meals, telephone calls, hotel rooms, or airplane tickets. (j) Governmental entities. When garbage collection services are provided by a governmental entity without a specific charge being assessed, such as when this service is provided as a basic part of services funded by a tax or a set fee structure of the governmental entity, sales or use taxes are not due. This section does not apply if the fee changes each billing period based on quantity of consumption of tangible personal property or service provided individual service recipients. (k) Local taxes. With the exception of garbage or other solid waste removal services, local sales and use taxes apply to services in the same way as they apply to tangible personal property. Generally, service providers must collect local sales taxes if their place of business is within a local taxing jurisdiction, even if the service is actually provided at a location outside that jurisdiction. However, transit sales taxes do not apply to services provided outside the boundaries of the transit area. If the service provider's place of business is outside a local taxing jurisdiction but the service is provided to a customer within a local taxing jurisdiction, local use taxes apply and the service provider is required to collect them. Local taxes for garbage or other solid waste removal services are allocated to the local taxing jurisdiction in which the garbage or other solid waste is located when its collection or removal begins. (l) For general information on the collection and reporting responsibilities of providers and purchasers of taxable services, see sec.sec.3. 286, 3.374, 3.375, 3.424, and 3.425 of this title (relating to Seller's and Purchaser's Responsibilities; Imposition of the Sales Tax; Collection by Retailer; Bracket System Formula; Determining City Tax, Administration of Use Tax; Collection by Retailer, Imposition of Sales Tax, and Administration of Use Tax; Imposition and Collection). (m) Use tax. If a seller of a taxable service is not doing business in Texas or a specific local taxing jurisdiction and is not required to, or does not voluntarily, collect and report the applicable Texas tax, it is the Texas customer's responsibility to report and pay the use tax directly to this office. (n) Property management companies. (1) Employees permanently assigned to one rental property are considered employees of that property when the property manager is reimbursed by the property owner on a dollar-for-dollar basis. On managed rental properties, the employees remain assigned to the property while employed by successive owners or management companies. The reimbursement charge for taxable services performed on a managed rental property by management company employees assigned to it will not be taxable. However, if these same employees provide real property services for other properties, the property manager must collect tax on the total charge for those services. The management company owes tax on the purchase price of all taxable items purchased and provided to the employees providing services on managed rental property. (2) Property management companies whose employees provide taxable services as part of their overall management and operation of a rental property need not collect tax on those services if their value is insignificant. (A) Such taxable services will be considered insignificant in any billing period in which their value is 5.0% or less of the amount charged by the management company for services. The amount charged by the management company for taxable services is to be determined by deducting from the management company's total charge any mortgage payments made by the management company for the property owner and any amounts paid to persons other than employees of the management company for goods and services. (B) If the value of the taxable services exceeds the 5.0% limit, the entire amount charged by the management company will be considered taxable unless charges for taxable services are separately itemized and taxed as provided under subsection (i)(2) of this section. (3) Purchases by the property management company for use by the property owner of taxable goods, labor, or services from third-party suppliers may be handled in either of the following ways: (A) the management company may issue a resale certificate to the supplier and collect tax from the property owner on the itemized charge for the goods, labor, or service; or (B) the management company may pay tax to the supplier and collect from the property owner an amount equal to the total of the amount paid by the management company for the goods, labor, or services and the tax paid. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 2, 1995. TRD-9502691 Martin Cherry Chief, General Law Comptroller of Public Accounts Effective date: March 23, 1995 Proposal publication date: November 18, 1994 For further information, please call: (512) 463-4028 34 TAC sec.3.357 The Comptroller of Public Accounts adopts an amendment to sec.3.357, concerning labor relating to nonresidential real property repair, remodeling restoration, maintenance, new construction, and residential property, with changes to the proposed text as published in the November 15, 1994, issue of the Texas Register (19 TexReg 8943). The amendment allows for the labor separation of nontaxable charges for unrelated services subsequent to the execution of a contract that includes taxable real property repair and remodeling services. The amendment is retroactive. Other amendments are made to comply with a change made by the 73rd Legislature, 1993. The exemption for repairs to property damaged by fire, floods, and other accidents is restricted to repairs only when the damage is caused by an event that causes the governor or president to declare a disaster area. These amendments are effective the same date as the statute effective date. One change consists of allowing purchasers as well as service providers to present documentation segregating the charges when taxable and nontaxable services were performed for a single charge. The other change consists of clarifying that the new 5.0% policy applies to charges for new construction, maintenance, and residential remodeling nontaxable services mixed with the taxable services covered by the section. These changes can be found in subsection (b)(9). Comments were received supporting adoption of the rule. Comments included suggestions to allow purchasers to present documentation segregating the charges between taxable and nontaxable services performed for a single charge and suggestions to clarify that the 5.0% policy applies to services other than unrelated services. The rule is adopted with these changes. Another comment was made that subsection (b)(5) also be changed to reflect a change made by the 73rd Legislature, 1993. That change repeals an exemption for equipment used in performing services for exempt hospitals and school districts. This change would have required substantial changes to the proposed version of the rule. Subsection (b) would require deleting or rewriting a paragraph, and rewriting and renumbering other paragraphs in the subsection; as well as extensive changes to subsection (a), deleting a paragraph and renumbering the paragraphs in that subsection. While the change will be made in a future amendment to the section, the legislative change has been previously addressed and widely publicized by the comptroller. One other comment suggested that all retailers should be allowed the benefit of allocating taxable and nontaxable charges at anytime after the sale instead of limiting it only to those performing the services covered by this amendment. Such a change is not supported by the statute, nor would any of the sections being amended be a proper vehicle for such a change. The amendment is adopted under the Tax Code, sec.111.002, which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of the Tax Code, Title 2. The amendment implements the Tax Code, sec.151.0101. sec.3.357. Labor Relating to Nonresidential Real Property Repair, Remodeling, Restoration, Maintenance, New Construction, and Residential Property. (a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Contractor-A person who builds new structures, completes any part of an uncompleted new structure which is an improvement to real property, or makes an improvement to residential property. Contractors should refer to sec.3.291 of this title (relating to Contractors). (2) Disaster area-An area declared a disaster by the Governor of Texas under the Government Code, Chapter 418, or the President of the United States under 42 United States Code, sec.5141. (3) Labor-For the purposes of this section, labor means all components of a transaction or contract directly related to the remodeling, repair, or restoration other than those components attributable to materials incorporated into the realty. Unrelated components, such as charges by engineers and architects, are also part of the labor component unless separately stated to the customer. (4) Maintenance on real property-For operational and functioning improvements to realty, maintenance means scheduled, periodic work necessary to sustain or support safe, efficient, continuous operations, or to prevent the decline, failure, lapse, or deterioration of the improvement. Taxable real property services covered by sec.3.356 of this title (relating to Real Property Service) do not qualify as maintenance. (A) As it relates to maintenance, the term "scheduled" means anticipated and designated to occur within a given time period or production level. (B) As it relates to maintenance, the term "periodic" means ongoing or continual or at least occurring at intervals of time or production which are generally predictable. (5) New construction-All new improvements to real property including initial finish out work to the interior or exterior of the improvement. An example would be a multiple story building which has only had its first floor finished and occupied. The initial finishing out of each additional floor prior to initial occupancy will be considered new construction. New construction also includes the addition of new footage to an existing structure. (6) Nonprofit hospital-A public or private hospital licensed under the Health and Safety Code, Chapter 241 or Chapter 577, that is operated as a charitable or nonprofit establishment. (7) Real property-Land including structures and other improvements embedded in or permanently affixed to the land. (8) Remodeling or modification-To make over, rebuild, replace, or upgrade existing real property. However, the replacement of an item within an operating and functioning unit in accordance with paragraph (4) of this subsection is not taxable remodeling or modification. Finish out work performed after initial finish out has been done is remodeling even though the improvement has not been occupied. An example would be a shopping complex completely finished by the developer prior to renting to tenants. A prospective tenant wants a different color scheme before taking possession. The repainting by the developer is remodeling. (9) Repair-To mend or bring back as near as can be to its original working order real property which was broken, damaged, or defective. However, minor repair work performed on operational and functioning improvements to realty within the meaning of paragraph (4) of this subsection is not taxable repair. (10) Residential property-Property intended for use as a family dwelling or a multifamily apartment or housing complex, nursing homes, condominiums, or retirement homes. The term includes homeowners association-owned and apartment- owned swimming pools, apartment-owned laundry rooms for tenants, and other common areas for tenants' use. Managers' offices will only be residential if the space occupied by the office is 5.0% or less of the total space of the residence. The term does not include hotels or any other facilities which are subject to the hotel occupancy tax or any other area open to nonresidents. (11) Restoration-An activity performed to bring back as near as can be to its original condition real property which is still operating and functional but that has faded, declined, or deteriorated, that is not work performed within the meaning of paragraph (4) of this subsection. (12) Unrelated service. A service will be considered as unrelated if: (A) it is not a service involving the repair, remodeling, or restoration of real property, nor a service taxed under other provisions of the Tax Code, Chapter 151; (B) it is of a type which is commonly provided on a stand-alone basis; and (C) the performance of the unrelated service is distinct and identifiable. Examples of an unrelated service which may be excluded from the tax base include engineering plans or architectural designs. (b) Tax responsibilities of persons who repair, remodel, or restore nonresidential real property. (1) All persons who repair, restore, or remodel nonresidential real property must obtain a Texas sales and use tax permit. Persons who maintain real property are not covered by this rule. Persons who are constructing new facilities or are repairing or remodeling residential property should refer to sec.3.291 of this title (relating to Contractors). (2) All persons who repair, restore, or remodel nonresidential real property must collect tax on the total sales price to their customers less separately stated charges for unrelated services or accept valid resale, exemption or direct payment exemption certificates in lieu of tax. Previously, lump-sum and separated contracts were treated differently for tax purposes. This distinction is no longer valid when the contract is for the repair, remodeling, or restoration of real property. (3) A contract which involves both nonresidential remodeling and new construction will be taxed in total unless the charge for new construction labor is separately stated as outlined in paragraph (7) of this subsection. An example would be remodeling a restaurant's kitchen at the same time a new dining area outside the existing structure was added. Work on the kitchen would be taxable as remodeling, while the new dining area would be new construction. Minor repair, restoration, or remodeling done in connection with new construction will not be taxable if the charge attributed to repair, restoration, or remodeling is 5.0% or less of the overall charge. (4) Sales tax must be paid at the time of purchase by the repairman or remodeler on all materials and supplies used but not incorporated in the realty. The repairman or remodeler is not entitled to a credit for the tax paid on materials and supplies used but not incorporated into the realty. (5) Items used in performing repairs, remodeling, or restoration for exempt entities. (A) Persons who repair, remodel, or restore real property or make improvements to real property for school districts or nonprofit hospitals may claim an exemption for taxable items used in those activities. Taxable items used in performing repairs, remodeling, or restoration activities for school districts or nonprofit hospitals are exempt from tax to the extent of the value of the items so used or consumed. (B) Taxable items incorporated into realty being repaired, remodeled, or restored by persons performing work for entities covered by the Tax Code, sec.151.309 or sec.151.310, other than school districts or nonprofit hospitals, may be purchased tax free as sales for resale. The contract between the persons performing the work and the organization covered by the Tax Code, sec.151.309 or sec.151.310, may be either lump sum or separated. (C) Consumable items, machinery, or equipment used but not incorporated into the realty being repaired, remodeled, or restored for entities covered by the Tax Code, sec.151.309 or sec.151.310, other than school districts or nonprofit hospitals, are taxable to the persons performing the work. (6) Repairs, restoration, or remodeling performed upon a structure which is used both for residential and commercial purposes will be taxable in total unless the labor on the residence is separately identified. The labor to repair, restore, or remodel the residence will not be taxable if separately stated. (7) When both remodeling and new construction are being performed under the same contract, the parties to the contract should separately identify taxable from nontaxable labor in a construction contract and the charges applicable to each or the entire contract will be presumed to be for repair, restoration, and remodeling. Documentation which clearly defines the work being performed should be retained by both parties to show that had the new construction and remodeling been done independently of each other, the cost of each would be reasonably near the allocation of charges. Examples of acceptable documentation include written contracts which detail the scope of work, bid sheets, tally sheets, schedules of values and blueprints. If there is not a written contract signed by both parties clearly showing agreement as to the taxable and nontaxable work being performed, the customer and the service provider must prepare, at the time of the transaction, a written certification verifying the allocation of charges for remodeling and new construction. The comptroller may recalculate the charges if the allocation appears unreasonable and either party may be held responsible for the additional tax due. (8) Repainting is presumed to be a restoration or remodeling activity unless it meets the definition of maintenance found in subsection (a)(4) of this section. Persons performing repainting or other restoration activities should collect sales tax on their total charge unless their customer provides a properly completed exemption certificate as outlined in subsection (c)(2) or (4) of this section. (9) Where nontaxable unrelated services, new construction services, real property maintenance, or residential real property remodeling, and taxable services are sold or purchased for a single charge and the portion relating to taxable services represents more than 5.0% of the total charge, the total charge is presumed to be taxable. The presumption may be overcome by the service provider at the time the transaction occurs by separately stating to the customer a reasonable charge for the taxable services. However, if the charge for the taxable portion of the services is not separately stated at the time of the transaction, the service provider or the purchaser may later establish for the comptroller, through documentary evidence, the percentage of the total charge that relates to nontaxable unrelated services. Examples of acceptable documentation include written contracts detailing the scope of work, bid sheets, tally sheets, schedules of values and blueprints. (c) Exemptions. (1) It is the responsibility of the repairman or remodeler to verify any exemption claimed by the customer, except for real property scheduled maintenance or the customer is a governmental agency or a nonprofit school. (2) A charge for labor to maintain real property is not taxable. Persons providing maintenance on real property are liable for tax on all materials used. A service provider's customer must be able to substantiate by way of maintenance schedules or work orders or other evidence that the services meet the definition in subsection (a)(4) of this section. If the person performing the service does not have a written contract, but is only hired as needed, the service provider must presume that the labor is for repair or restoration and collect tax. If the service provider's customer has documentation to prove that the labor qualifies as maintenance, the customer may issue an exemption certificate in lieu of paying tax to the service provider. The certificate must state that the labor is maintenance as defined in subsection (a)(4) of this section, rather than repair or restoration, as defined in subsection (a)(9) and (11) of this section, and that the customer will be liable for any additional tax due in the event that it is determined that repairs rather than maintenance were performed. Repairs or restoration performed under a claimed maintenance contract will not change a nontaxable maintenance contract into a taxable repair or restoration contract as long as the charges attributable to repairs and restoration are 5.0% or less of the overall charge. Note: The 5.0% test applies to each contract and subcontract. For example, if five different companies provide lump-sum contracts for services, each contract stands alone in determining if taxable services are 5. 0% or less of that contract. In the absence of a written contract, the 5.0% test will apply to each billing or invoice to the customer. Maintenance contracts or services billed with repair and restoration as defined in subsection (a)(9) and (11) of this section, that exceed 5.0% will be taxable in total unless the charges for repairs and restoration are separately identified to the customer in the contract or billing. However, see subsection (b)(9) of this section. (3) Modifying parts of existing structures for the sole purpose of supporting the addition of new space will not change a new construction contract into a remodeling contract as long as the charges attributable to remodeling are 5.0% or less of the overall charge. Examples include changing a one-story building to a two-story building and adding a stairway to the existing structure to provide access to the new space, or removing a wall to add additional structural support in the process of adding on a new room outside the original structural space. Contracts with remodeling charges exceeding 5.0% will be taxable in total unless the charges for remodeling are separately identified to the customer. However, see subsection (b)(9) of this section. (4) An exemption certificate may be issued for the labor involved in remodeling, restoring, or repairing buildings listed in the National Register of Historic Places. An organization exempted under the Tax Code, sec.151.309 or sec.151.310, may issue an exemption certificate if the repair, restoration, or remodeling appears reasonably related to the exempt purpose of the organization. See sec.3.322 of this title (relating to Exempt Organizations). (5) The labor to repair real or tangible personal property damaged within a disaster area by the condition or occurrence that caused the area to be declared a disaster area is exempt from tax if the charge for labor is separately stated to the customer. The materials used to perform the repairs are taxable. A person having property repaired under this paragraph should issue the service provider an exemption certificate in lieu of tax. The service provider must presume that all work is taxable until the customer issues an exemption certificate covering the separately stated labor portion of the bill. If the charge for the repair is lump-sum, the total charge is taxable. (6) No sales tax is due on the wages or salary paid by an employer to an employee who provides the labor to repair, remodel, or restore real property belonging to and used by the employer. A person will be considered the employee of the employer if the employer pays the person's salary, withholds applicable federal taxes from the employee's salary, pays employment-related benefits, such as health insurance, etc., and exercises direct control over the work performed by the person. (d) Resale certificates. (1) Persons who repair, restore, and remodel real property may issue a resale certificate in lieu of tax to suppliers of tangible personal property only if the tangible personal property will be incorporated into the customer's realty. For example, a repairman or remodeler purchases paint to repaint a repaired or remodeled area. The paint is transferred to the customer as a part of the finished job. The repairman or remodeler may purchase the paint tax free by issuing a resale certificate. Tax is due on the total amount charged the customer, including amounts for the paint and for the services. A resale certificate may not be issued for materials and supplies used or consumed by the repairman or remodeler which are not incorporated into the customer's realty. (2) A resale certificate may be issued for a service if the buyer intends to transfer the service as an integral part of taxable services. A service will be considered an integral part of a taxable service if the service purchased is essential to the performance of the taxable service and without which the taxable service could not be rendered. Examples of services for which a resale certificate may be issued in lieu of tax are landscaping and surveying services if the landscaping or surveying are performed upon the property being remodeled. (e) Local taxes. Local taxes (city, county, transit authority, city transit department, and special purpose districts) apply to services in the same way as they apply to tangible personal property. (1) Generally, service providers must collect local sales taxes if their place of business is within a local taxing jurisdiction, even if the service is actually provided at a location outside that jurisdiction. (2) Transit sales taxes do not apply to services provided outside the boundaries of a transit area. (3) If the service provider's place of business is outside a local taxing jurisdiction but the service is provided to a customer within a local taxing jurisdiction, local use taxes apply and the service provider is required to collect them. (4) For information on the collection and reporting responsibilities of providers and purchasers of taxable services, see sec.3.374 of this title (relating to Collection and Allocation of the City Sales Tax), sec.3.375 of this title (relating to City Use Tax), sec.3.424 of this title (relating to Collection and Allocation of Transit Sales Tax), and sec.3.425 of this title (relating to Transit Use Tax). (f) Use tax. If a seller of a service is not engaged in business in Texas or in a specific local taxing jurisdiction and is not required to collect Texas tax, it is the Texas customer's responsibility to report and pay the use tax directly to this office. (g) Effective date. Written contracts or bids signed on or before July 21, 1987, but not completed prior to January 1, 1988, shall be governed by the provisions of sec.3.319 of this title (relating to Prior Contracts). Contracts signed after July 21, 1987, are subject to state tax to the extent the contracts were performed on or after January 1, 1988. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 2, 1995. TRD-9502692 Martin Cherry Chief, General Law Comptroller of Public Accounts Effective date: March 23, 1995 Proposal publication date: November 15, 1994 For further information, please call: (512) 463-4028 TITLE 40. SOCIAL SERVICES AND ASSISTANCE Part XIX. Texas Department of Protective and Regulatory Services Chapter 736. Memoranda of Understanding with Other State Agencies Memorandum of Understanding for Coordinated Services to Children and Youths 40 TAC sec.736.701 The Texas Department of Protective and Regulatory Services (TDPRS) adopts an amendment to sec.736.701, without changes to the proposed text as published in the January 27, 1995, issue of the Texas Register (20 TexReg 430). The justifications for the amendment are to: add the Texas Department of Human Services (TDHS) and the Texas Interagency Council on Early Childhood Intervention (ECI) to the agencies participating in the MOU; replace the term "multiproblem children and youth" with the term "children and youths with multi- agency needs"; generally improve the clarity and directness of the MOU; and require participating agencies to work with the Texas Health and Human Services Commission to ensure that the commission's strategic plan includes appropriate plans for delivering coordinated services to children and youths with multi- agency needs, and help the commission identify and remedy structural problems, gaps, and inefficiencies in the state's systems for delivering health and human services to children and youths with multi-agency needs. The chief executive officers of the agencies participating in the MOU have all signed the amended MOU. The amendment will function by ensuring that children and youths with multi- agency needs receive effective coordinated services from TDPRS, the Texas Commission for the Blind (TCB), the Texas Department of Health (TDH), TDHS, the Texas Department of Mental Health and Mental Retardation (TXMHMR), the Texas Education Agency (TEA), ECI, the Texas Juvenile Probation Commission (TJPC), the Texas Rehabilitation Commission (TRC), and the Texas Youth Commission (TYC). No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 4413(503) historical note (Vernon Supplement 1993), 72nd Legislature, which transferred all functions, programs, and activities related to the child protective services program from the Texas Department of Human Services (TDHS) to the Texas Department of Protective and Regulatory Services; and which established the Health and Human Services Commission as the state agency with primary responsibility for ensuring the delivery of state health and human services in a manner that emphasizes coordination, flexibility, and decision making at the local level; and which requires the Health and Human Services Commission to develop a coordinated, six-year strategic plan for providing health and human services in Texas, and to update the plan every two years. The amendment implements the Human Resources Code, Title 2, Chapter 41, which authorizes TDPRS to enter into a memorandum of understanding with the TCB, TDH, TDHS, TXMHMR, TEA, ECI, TJPC, TRC, and TYC regarding the coordination of services to multiproblem children and youths. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on March 3, 1995. TRD-9502765 Nancy Murphy Section Manager, Media and Policy Services Texas Department of Protective and Regulatory Services Effective date: April 1, 1995 Proposal publication date: January 27, 1995 For further information, please call: (512) 450-3765 TITLE 43. TRANSPORTATION Part II. Texas Turnpike Authority Chapter 51. Practice and Procedure The Texas Turnpike Authority adopts the repeal of sec. sec.51.1-51.15, concerning practice and procedure, and new sec.sec.51.1-51.43, concerning bylaws of the Texas Turnpike Authority, without changes to the proposed text as published in the December 27, 1994, issue of the Texas Register (19 TexReg 10337). The Texas Turnpike Authority has determined to repeal its old bylaws and to adopt new bylaws in order to update them and to conform such bylaws to modifications within the organizational structure of the Texas Turnpike Authority. No comments were received regarding adoption of the repeals and new sections. 43 TAC sec.sec.51.1-51.15 The repeals are adopted pursuant to the Texas Civil Statutes, Article 6674v, sec.5 and the Texas Administrative Code, Title 43, Chapter 51. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 28, 1995. TRD-9502630 James W. Griffin Executive Director Texas Turnpike Authority Effective date: March 22, 1995 Proposal publication date: December 27, 1994 For further information, please call: (214) 522-6200 Chapter 51. Bylaws of the Texas Turnpike Authority 43 TAC sec.sec.51.1-51.43 The new sections are adopted pursuant to the Texas Civil Statutes, Article 6674v, sec.5 and the Texas Administrative Code, Title 43, Chapter 51. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 28, 1995. TRD-9502631 James W. Griffin Executive Director Texas Turnpike Authority Effective date: March 22, 1995 Proposal publication date: December 27, 1994 For further information, please call: (214) 522-6200 Chapter 52. Directors and Officers Indemnification 43 TAC sec.52.1 The Texas Turnpike Authority adopts the repeal of sec.52.1, concerning directors and officers indemnification, without changes to the proposed text as published in the December 27, 1994, issue of the Texas Register (19 TexReg 10341). The pertinent provisions currently contained within sec.52.1 will be included in the new Chapter 51. The Texas Turnpike Authority has determined to repeal its old bylaws and to adopt new bylaws in order to update them and to conform such bylaws to changes within the organizational structure of the Texas Turnpike Authority. No comments were received regarding adoption of the repeal. The repeal is adopted pursuant to the Texas Civil Statutes, Article 6674v, sec.5 and the Texas Administrative Code, Title 43, Chapter 52. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. Issued in Austin, Texas, on February 28, 1995. TRD-9502629 James W. Griffin Executive Director Texas Turnpike Authority Effective date: March 22, 1995 Proposal publication date: December 27, 1994 For further information, please call: (214) 522-6200