SALES TAX EXEMPTIONS YOU (POSSIBLY) AREN’T AWARE OF Efficient Strategies for Sales Tax Savings SALES TAX EXEMPTIONS YOU (POSSIBLY) AREN’T AWARE OF Presented by: Stephen Hanebutt, CPA Annual CPE Event For UTA Alumni And Friends August 11, 2016 1 www.salestaxtexas.com

Seller Buyer/Seller Buyer Efficient Strategies for Sales Tax Savings THE RESALE EXEMPTION Seller Buyer/Seller Buyer 2 www.salestaxtexas.com

THE RESALE EXEMPTION Also applies to rentals Efficient Strategies for Sales Tax Savings THE RESALE EXEMPTION Also applies to rentals This includes replacement parts on rented items Many opportunities for restaurants 3 www.salestaxtexas.com

TPP TRANSFERRED IN CONNECTION WITH A TAXABLE SERVICE Efficient Strategies for Sales Tax Savings TPP TRANSFERRED IN CONNECTION WITH A TAXABLE SERVICE When a provider of taxable services transfers tangible personal property in connection with the providing of the service, the tangible personal property transferred may be purchased tax-free by the service provider. 4 www.salestaxtexas.com

TPP TRANSFERRED IN CONNECTION WITH A TAXABLE SERVICE Efficient Strategies for Sales Tax Savings TPP TRANSFERRED IN CONNECTION WITH A TAXABLE SERVICE Janitorial Services Lawn Maintenance Services Pool Cleaning Services Golf Courses 5 www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION In general, a purchase of otherwise taxable TPP or a taxable service will be nontaxable when purchased by a manufacturer in the process of making a chemical or physical change to property being manufactured for ultimate sale so long as the item purchased is necessary and essential to the manufacturing process. 6 www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION The manufacturing process is defined to be “Each operation beginning with the first stage in the production of tangible personal property and ending with the completion of tangible personal property.” 7 www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION Raw Materials www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION Manufacturing Equipment 9 www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION Energy 10 www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION Packaging Supplies Boxes Tape Strappers Labels Pallets 11 www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION Industrial Solid Waste Disposal Scrap Must be a result of the manufacturing process Take a percentage 12 www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION Pollution Control Equipment Quality Control Equipment 13 www.salestaxtexas.com

THE MANUFACTURING EXEMPTION Efficient Strategies for Sales Tax Savings THE MANUFACTURING EXEMPTION Cleanrooms 14 www.salestaxtexas.com

THE RESIDENTIAL EXEMPTION Efficient Strategies for Sales Tax Savings THE RESIDENTIAL EXEMPTION Improvements - the labor to improve real residential property is nontaxable (exclusion). If labor charges are separated from materials charges, the labor charges are exempt and the materials charges are taxable. If there is a lump-sum charge for both materials and labor, the entire amount is nontaxable. 15 www.salestaxtexas.com

THE RESIDENTIAL EXEMPTION Efficient Strategies for Sales Tax Savings THE RESIDENTIAL EXEMPTION Applies to: Single family homes Apartment complexes Nursing homes Does not apply to: Hospitals Most hotels 16 www.salestaxtexas.com

THE RESIDENTIAL EXEMPTION Efficient Strategies for Sales Tax Savings THE RESIDENTIAL EXEMPTION ABC Carpet Cleaning Co. Heavy clean Deodorize Spot treatment Pet stains Mildew treatment 17 www.salestaxtexas.com

THE RESIDENTIAL EXEMPTION Efficient Strategies for Sales Tax Savings THE RESIDENTIAL EXEMPTION ABC Carpet Cleaning Co. Water extraction Furniture moving Replace pad Dehumidifier rental Blower charge After-hours service call 18 www.salestaxtexas.com

THE RESIDENTIAL EXEMPTION Efficient Strategies for Sales Tax Savings THE RESIDENTIAL EXEMPTION Energy 19 www.salestaxtexas.com

THE HOME BUILDER’S EXEMPTION Efficient Strategies for Sales Tax Savings THE HOME BUILDER’S EXEMPTION Builders of residential properties are eligible. Single family homes Apartment complexes Nursing homes 20 www.salestaxtexas.com

THE HOME BUILDER’S EXEMPTION Efficient Strategies for Sales Tax Savings THE HOME BUILDER’S EXEMPTION Applies to real property services. Landscaping Lawn and yard maintenance Janitorial/custodial services Waste disposal services Pest control Surveying 21 www.salestaxtexas.com

Efficient Strategies for Sales Tax Savings EXEMPT ENTITIES It is important to keep in mind that the sales tax exemption for exempt entities applies to their purchases, not their sales. There is an exemption available to for-profit entities owned in a partnership by tax-exempt entities. 22 www.salestaxtexas.com

NEW CONSTRUCTION EXEMPTION Efficient Strategies for Sales Tax Savings NEW CONSTRUCTION EXEMPTION The labor to build newly constructed property is nontaxable (exclusion). If labor charges are separated from materials charges, the labor charges are exempt and the materials charges are taxable. If there is a lump-sum charge for both materials and labor, the entire amount is nontaxable. 23 www.salestaxtexas.com

NEW CONSTRUCTION EXEMPTION Efficient Strategies for Sales Tax Savings NEW CONSTRUCTION EXEMPTION New construction defined Building new structures Adding new usable square footage to an existing building (expansion) Initial finish out work Rebuilding from the ground up a structure that has been demolished down to the foundation 24 www.salestaxtexas.com

OIL AND GAS EXEMPTION Fracturing Perforating Workover Acidizing Efficient Strategies for Sales Tax Savings OIL AND GAS EXEMPTION Fracturing Perforating Workover Acidizing Logging Plug and abandon Pull back charges Swabbing Jetting 25 www.salestaxtexas.com

MAINTENANCE OF REAL PROPERTY Efficient Strategies for Sales Tax Savings MAINTENANCE OF REAL PROPERTY Distinguished from repair, remodeling or restoration Must be scheduled and periodic 26 www.salestaxtexas.com

GOOD PROSPECTS FOR SAVING FROM HAVING A SALES TAX REFUND REVIEW Efficient Strategies for Sales Tax Savings GOOD PROSPECTS FOR SAVING FROM HAVING A SALES TAX REFUND REVIEW Manufacturers Apartment Complexes and Nursing Homes (Property Management Companies) Home Builders Construction Companies Oil and Gas Companies 27 www.salestaxtexas.com