SECTION 3.316. Occasional Sales; Transfers Without Change in Ownership; Sales by Senior Citizens' Organizations; Sales by University and College Student Organizations; and Sales by Nonprofit Animal Shelters

(a) Sales exempt. A taxable item that is sold or purchased by way of an occasional sale is exempt from sales and use taxes, except as provided by subsection (i) of this section.

(b) Occasional sales by persons not in the business of selling, leasing, or renting.

(1) One or two sales of taxable items, other than an amusement service, during any 12-month period by a person who does not hold himself out as engaged (or who does not habitually engage) in the business of selling taxable items are occasional sales.

(2) The third sale of a taxable item in a 12-month period by a person not previously in the business of selling, leasing, or renting taxable items causes that person to become a retailer. Tax must be collected and reported on the third sale and all subsequent sales unless the sale qualifies for exemption under paragraph (4) of this subsection or subsection (d) or (e) of this section. If three or more sales are made in a 12-month period, then the person must obtain a permit. See §3.286 of this title (relating to Seller's and Purchaser's Responsibilities, including Nexus, Permits, Returns and Reporting Periods, and Collection and Exemption Rules). Example: A lump-sum contractor sells a backhoe in October, a typewriter in December and a crane in February. The contractor has not sold, leased or rented any construction equipment prior to the sale of the backhoe; therefore, the contractor can sell the backhoe and typewriter tax free as occasional sales. The sale of the crane is the third sale within 12 months from the sale of the back-hoe. The sale of the crane is not an occasional sale. The contractor must obtain a permit, collect tax on the sale of the crane and, until an intervening 12 months have passed between sales, all subsequent sales of taxable items.

(3) The sale of not more than ten admissions for amusement services during a 12-month period by a person who does not hold himself out as engaged (or who does not habitually engage) in the provision of amusement services are occasional sales.

(4) The sale of tangible personal property by an individual is an occasional sale if:

(A) the property was originally purchased by the individual or a member of the individual's family for either of their personal use;

(B) the individual does not hold a sales tax permit and is not required to hold a sales tax permit;

(C) the sale is not made through the use of an auctioneer, broker, or factor, other than an online auction; and

(D) the total receipts from such sales do not exceed $3,000 in a calendar year. If the total receipts from the individual's sales of such tangible personal property exceed $3,000 in a calendar year, the individual must obtain a sales tax permit and collect tax on all sales of taxable items in this state, beginning with the first sale which causes the total receipts to exceed $3,000.

(5) The exemption provided under subsection (b) of this section does not apply to a rental or lease of a taxable item.

(c) Persons who hold permits.

(1) Persons who hold themselves out as engaged in the business of selling, leasing, or renting taxable items and persons who sell, lease, or rent three or more taxable items in a 12-month period are retailers for the purposes of this section. Also, persons who sell more than 10 admissions for amusement services during a 12-month period are retailers for the purposes of this section.

(2) Sales that retailers and other persons who hold sales or use tax permits make are not occasional sales, even if the sales are not made in the regular course of business (e.g., a restaurant owner sells a dining table). All sales by a retailer or permit holder are subject to tax, unless the sales qualify for exemption under subsection (d) or (e) of this section.

(3) Sales that persons who hold direct payment permits make are not occasional sales. All sales by direct payment permit holders are subject to tax unless the sales qualify for exemption under subsection (d) or (e) of this section.

(d) Sale of a business or an identifiable segment of a business.

(1) The sale of the entire operating assets of a business or of a separate division, branch, or identifiable segment of a business is an occasional sale. The lease or rental of an identifiable segment does not qualify as an occasional sale.

(2) The sale of the entire operating assets of a separate division, branch, or identifiable segment of a business is an occasional sale if, prior to the sale, the income and expenses attributable to the separate division, branch or identifiable segment could be separately established from the books of account or record.

(3) For the purposes of this section, a "separate division, branch, or identifiable segment" means an enterprise engaged in providing a product or service to customers, usually for a profit. "Income" means revenue generated by the enterprise in providing that product or service. "Expenses" mean those operating expenses incurred by the enterprise in providing the product or services that are directly traceable to that enterprise. "Operating assets" means tangible personal property used exclusively by the enterprise in providing the product or service but does not mean tangible personal property maintained and used both for general business purposes and by the specific enterprise. Inventory and intangible property are not operating assets for purposes of the exemption.

(4) The entire operating assets of the business or of the division, branch, or identifiable segment of the business must be sold in a single transaction to a single purchaser. The sale of the entire operating assets through several transactions to several purchasers does not qualify as an occasional sale under this section.

(e) Transfer without change in ownership.

(1) Any transfer of all or substantially all the property held or used by a person in the course of an activity, when after such transfer the real or ultimate ownership of such property is substantially similar to that which existed before such transfer, is an occasional sale. Since ownership must be transferred, "transfer" does not include the lease or rental of property.

(2) For the purposes of this section, stockholders, bondholders, partners, or other persons who hold an interest in a corporation or other entity are regarded as having the "real or ultimate ownership" of the property of such corporation or other entity. Ownership is "substantially similar" if the person who transfers the property owns 80% or more of the stock in the corporation to which the transfer is being made. Ownership is "substantially similar" if 80% or more of the stock in the corporation that makes the transfer is owned by the transferee.

(3) "All or substantially all" of the property is considered transferred if 80% or more is transferred.

(f) Occasional sales as defined in subsections (d) and (e) of this section are not restricted by subsections (a) and (b) of this section. Three or more sales of the type defined in subsections (d) and (e) of this section would not result in the loss of the occasional sale exemption.

(g) Resale certificates - occasional sales - leases.

(1) When a lessor purchases a taxable item tax free for rental or lease and later sells, leases, or rents the item by way of an occasional sale as provided in subsection (d) or (e) of this section, then the lessor owes tax on the amount by which the lessor's purchase price exceeds the amount of rent, if any, upon which tax has been collected and reported from the prior rental or lease of the item.

(2) If the item was exempt from sales tax when originally purchased by the lessor or if tax was paid on the full purchase price at the time of purchase by the lessor, then the lessor does not incur sales tax liability on the original purchase price when sold by way of an occasional sale as provided in subsection (d) or (e) of this section.

(h) Purchases exempt from tax. The purchase price of an item that is sold by means of an occasional sale is not subject to tax, except as provided in subsection (i) of this section.

(i) Exception to subsection (h) of this section. A person who holds a permit that is issued pursuant to Tax Code, Chapter 151, and who makes a purchase in a transaction on which the seller is not required to collect tax under subsection (b) of this section, must accrue and remit tax to the comptroller on the transaction.

(j) Senior citizens' organizations. Sales that a senior citizens' organization makes are exempt from tax if all of the following qualifications are met:

(1) all of the taxable items sold are manufactured, produced, made, or assembled exclusively by persons 65 years old or older;

(2) the sale is part of a fund-raising drive held or sponsored by a nonprofit organization created for the sole purpose of providing assistance to elderly persons;

(3) all net proceeds from the sale go to either the organization or the person who produced the taxable item sold or both; and

(4) the organization has not conducted more than four separate fund-raising drives each calendar year for a total of not more than 20 days per year.

(k) University and college student organizations.

(1) A sale of a taxable item by a qualified student organization is exempt from sales tax if:

(A) the student organization sells the items at a sale that lasts for one day only, and the primary purpose of the sale is to raise funds for the organization;

(B) the student organization holds not more than one fund-raising sale each calendar month for which the exemption is claimed;

(C) the student organization has as its primary purpose a purpose other than being engaged in business or performance of an activity that is designed to make a profit; and

(D) the sales price of the taxable item is $5,000 or less, except that a taxable item that the organization manufactures or has received by donation may be sold tax free during the one-day sale, regardless of sales price, if the item is not sold to the donor.

(2) A taxable item acquired tax free under paragraph (1) of this subsection is exempt from use tax on its storage, use, or consumption until the item is resold or subsequently transferred.

(3) The first $5,000 of a qualified student organization's total receipts from sales of taxable items in a calendar year that are not exempted under paragraph (1) of this subsection are exempt from sales tax.

(4) A qualified student organization must be affiliated with an institution of higher education as defined by Education Code, §61.003, or a private or independent college or university that is located in this state and that is accredited by a recognized accrediting agency under Education Code, §61.003. A student organization must file with the comptroller a certification issued by the institution, college, or university showing that the organization is affiliated with the institution, college, or university. A college, university, or institution may designate one of its departments or officers to compile a list of registered or certified student organizations and submit the list to the comptroller in lieu of having each student organization submit individual certifications. The certification is valid until the institution, university, or college notifies the comptroller that a student organization is decertified, suspended, or otherwise loses its campus privileges or affiliation with the institution, university, or college.

(l) Sales by religious, educational, charitable organizations, and organizations classified as 501(c)(3), (4), (8), (10), or (19).

(1) A religious, educational, charitable, eleemosynary organization, or an organization exempt under Internal Revenue Code, §501(c)(3), (4), (8), (10), or (19) that has been granted exempt status by the comptroller, and each bona fide chapter of an exempt organization, is not required to collect sales tax on the sales price of taxable items sold for $5000 or less at a sale or auction held by the organization or chapter only twice a calendar year and each sale or auction lasting only one day. See §3.322 of this title (relating to Exempt Organizations). Additionally, a taxable item may be sold tax free during a one-day tax-free sale or auction, regardless of price, if the item is one that the organization manufactured or has received by donation and the item is not sold to the donor.

(2) One day is a consecutive 24-hour period. If a designated tax-free sale or auction exceeds a consecutive 24-hour period, the organization or chapter may not hold another tax-free sale or auction that calendar year. An organization or chapter may hold the two tax-free sales or auctions consecutively, but the two tax-free sales or auctions by that organization or chapter cannot exceed a maximum of 48 consecutive hours in a calendar year.

(3) The organization may employ an auctioneer to conduct the sale or auction and pay the auctioneer a reasonable fee not to exceed 20% of the gross receipts.

(4) If two or more exempt organizations or chapters jointly hold a tax-free sale or auction, each is considered to have held a tax-free sale or auction during that calendar year. Each exempt organization that participates in a joint one-day tax-free sale or auction may hold one other tax-free sale or auction during the remainder of that calendar year.

(m) Sales by nonprofit animal shelters. The sale, including the acceptance of a fee for adoption, of an animal by a nonprofit animal shelter is exempt from sales and use taxes. The term "animal shelter" is defined in Health and Safety Code, §823.001, as a facility that keeps or legally impounds stray, homeless, abandoned, or unwanted animals.

Source Note: The provisions of this §3.316 adopted to be effective January 1, 1976; amended to be effective April 12, 1977, 2 TexReg 1446; amended to be effective January 31, 1978, 3 TexReg 195; amended to be effective August 10, 1981, 6 TexReg 2693; amended to be effective December 24, 1984, 9 TexReg 6187; amended to be effective May 3, 1994, 19 TexReg 2959; amended to be effective May 17, 1996, 21 TexReg 3946; amended to be effective November 30, 2000, 25 TexReg 11665; amended to be effectiveMarch 20, 2002, 27 TexReg 2051; amended to be effective October 22, 2015, 40 TexReg 7242