34 Tex. Admin. Code § 3.331 - Transfers of Common Interests in Tangible Personal Property; Intercorporate Services

(a) Transfer of common interests.

(1) Sales or use tax is not due when an interest in tangible personal property is sold to a purchaser who, either before or after the sale, owns a joint or undivided interest in the tangible personal property with the seller.

(2) In order for the sale to be exempt, the following requirements must be met.

(A) The seller must have paid sales or use tax on the tangible personal property when it was purchased.

(B) The sale must be made pursuant to the terms of a good faith contractual relationship between the seller and the purchaser. Good faith contractual relationship means a legal relationship established between two or more persons created for considerations other than the avoidance of the limited sales and use tax.

(C) It is necessary that the purchaser, either before or after the sale, own a joint or undivided interest in the property with the seller. The joint ownership transfer exemption does not apply to sales between related corporations or other entities if the only joint ownership is the ultimate ownership of the corporation stock.

(b) Research and development ventures. Sales and use tax is not due on tangible personal property sold by a joint research and development venture as defined by 15 United States Code §4301 to a participating entity if the tangible personal property is created, developed, or substantially modified by or for the joint research and development venture.

(c) Intercorporate services.

(1) Sales or use tax is not due on charges for taxable services if the seller and purchaser are affiliated entities that are members of an affiliated group under 26 U.S.C. § 1504, and if both entities report their income to the Internal Revenue Service on a single consolidated income tax return with at least one corporation that is a member of the affiliated group for the tax year in which the taxable service is provided. If either the seller or the purchaser elects to file a separate federal income tax return even though it is eligible to file a consolidated federal income tax return with other members of the affiliated group, the exemption provided by this subsection does not apply.

(2) Sales or use tax is not due on charges for taxable services if both the seller and purchaser are entities classified as members of an affiliated group under 26 U.S.C. § 1504, but either the seller or purchaser or both cannot file a consolidated federal income tax return because of the exclusions provided by 26 U.S.C. §1504(b).

(3) The exemption provided by this subsection does not apply to sales of tangible personal property between affiliated corporations or sales of services that were taxable before September 2, 1987. The following services were taxable before September 2, 1987:

(A) amusement services;

(B) cable television services;

(C) personal services;

(D) motor vehicle parking and storage;

(E) the repair, remodeling, maintenance, or restoration of tangible personal property except maintenance of computer software and those services excluded from tax by Tax Code, § 151.0101(a)(5); and

(F) telecommunications services.

(4) A seller of a taxable service must pay sales or use tax on its purchase of tangible personal property that the seller transfers as an integral part of the taxable service if the sale of the taxable service is exempt from sales tax under this subsection. The seller may not claim a sale for resale exemption.

(5) A seller of a taxable service must pay sales or use tax on its purchase of a taxable service that the seller transfers as an integral part of the taxable service sold if the sale of the taxable service is exempt from sales tax under this subsection. The seller may not claim a sale for resale exemption.

(6) When a contract contains charges for taxable items and charges for services that qualify for exemption under this subsection, the total charge will be taxable unless the charge for taxable items is separately stated to the customer.

Notes

34 Tex. Admin. Code § 3.331

The provisions of this §3.331 adopted to be effective March 18, 1988, 13 TexReg 1146; amended to be effective February 10, 1993, 18 TexReg 590; amended to be effective June 1, 2004, 29 TexReg 5415