SECTION 3.346. Use Tax

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

(1) Storage--The keeping or retention of tangible personal property in Texas for any purpose other than:

(A) transporting property out of state to a location outside Texas for use solely outside of Texas; or

(B) processing, fabricating, or manufacturing of tangible personal property into other property or attaching the tangible personal property to or incorporating the tangible personal property into other property that will be transported outside Texas for use solely outside of Texas.

(2) Use--The exercise of a right or power incidental to the ownership of tangible personal property over tangible personal property, including tangible personal property other than printed material that has been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into this state. With respect to a taxable service, use means the derivation in this state of direct or indirect benefit from the service. The term does not include the following:

(A) the sale of tangible personal property or a taxable service in the regular course of business;

(B) the transfer of a taxable service as an integral part of the transfer of tangible personal property in the regular course of business;

(C) the transfer of tangible personal property as an integral part of the transfer of a taxable service in the regular course of business;

(D) the exercise of a right or power over tangible personal property for the purpose of subsequently transporting the property outside Texas for use solely outside of Texas; or

(E) the exercise of a right or power over tangible personal property for the purpose of processing, fabricating, or manufacturing of tangible personal property into other property or attaching the tangible personal property to or incorporating the tangible personal property into other property that will be transported outside Texas for use solely outside of Texas.

(3) Use tax--A nonrecurring tax that is complementary to the sales tax and is imposed on the storage, use, or other consumption of a taxable item in this state.

(b) Imposition of the use tax.

(1) Out-of-state purchases. Use tax is due on taxable items purchased out of state that are stored, used or consumed in Texas.

(2) Direct payment permit purchases. Use tax is due on taxable items purchased under a direct payment permit that are stored, used or consumed in Texas. See §3.288 of this title (relating to Direct Payment Procedures and Qualifications) and subsection (g) of this section.

(3) Construction contracts.

(A) Use tax is due on taxable items used, consumed or incorporated into real property in Texas by a contractor in the performance of a lump-sum contract for construction of a new improvement to realty or for repair and remodeling of a residential improvement to realty. See §3.291 of this title (relating to Contractors).

(B) Use tax is due on taxable items used or consumed in Texas by a person in the performance of a lump sum or separated contract for nonresidential repair or remodeling, or in the performance of a separated contract for construction of a new improvement to realty or for repair or remodeling of a residential improvement to realty. See §3.357 of this title (relating to Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance) and §3.291 of this title.

(4) Shipments of taxable items from out-of-state suppliers and sellers to purchaser's designees. Use tax is due on taxable items, such as gifts, catalogs and promotional goods purchased outside this state by a purchaser engaged in business in this state if the taxable items are delivered at the direction of the purchaser to a location in Texas designated by the purchaser.

(A) A purchaser is engaged in business in Texas if the purchaser is required to collect sales or use tax under Tax Code, Chapter 151 or if the purchaser has nexus or is engaged in business in Texas as defined in §3.286 of this title (relating to Seller's and Purchaser's Responsibilities, including Nexus, Permits, Returns and Reporting Periods, Collection and Exemption Rules, and Criminal Penalties).

(B) Local use taxes (city, county, transit, special purpose district) are also due, but only to the extent that the purchaser is engaged in business in the local taxing jurisdictions into which deliveries are made.

(5) Raw materials manufactured or incorporated into other tangible personal property. Use tax is due on raw materials (tangible personal property), other than printed materials as provided under paragraph (6) of this subsection, purchased outside this state that have been processed, fabricated, or manufactured into other property or attached to or incorporated into other property outside this state and subsequently transported into this state, and, except as provided by Tax Code, §151.056(b) regarding property incorporated under a separated contract for the improvement of realty, includes the incorporation of tangible personal property into real estate or into improvements of real estate whether or not the real estate is subsequently sold.

(6) Printed materials.

(A) Use tax is due on the total cost of printed materials, including printing, paper and ink, purchased out of state, such as a book, brochure or catalog, and then shipped or delivered into Texas. An example of such printed material is a catalog where either the purchaser or the printer of the catalog first purchased ink and paper outside of Texas that was then printed and bound before being mailed to Texas residents in the form of a catalog. The item being used by the purchaser in this state is the catalog and since the catalog is not incorporated into another item, use tax is due on the total cost of the catalogs delivered into Texas.

(B) Use tax does not apply to printed materials purchased outside of this state that have been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into this state. An example would include the purchase of printed pages by a Texas customer from an out-of-state printer who ships the items directly to another out-of-state firm that binds the items into a manual or book. The charge by the out-of-state binder to the Texas customer is subject to tax. The charge by the vendor that sold the printed materials to the Texas customer is not taxable since the printed materials have been processed, fabricated, or manufactured into other property or attached to or incorporated into other property transported into this state.

(7) Occasional sales.

(A) A person who holds or is required to hold a sales and use tax permit must accrue use tax on the purchase of a taxable item from a person entitled to the occasional sale exemption from sales tax provided by Tax Code, §151.304(b)(1) and remit it to the comptroller. Tax Code, §151.304(b)(1) relates to one or two sales during a 12-month period by a person who does not habitually engage, or hold himself out as engaging, in the business of selling taxable items at retail.

(B) A purchaser who holds or is required to hold a sales and use tax permit is not required to accrue use tax and remit it to the comptroller on a purchase from a person entitled to claim the occasional sales exemption from sales tax provided by Tax Code, §151.304(b)(2) - (5). Tax Code, §151.304(b)(2) relates to the sale of the entire operating assets of a business or of a separate division, branch, or identifiable segment of a business; Tax Code, §151.304(b)(3) relates to the transfer of all or substantially all the property used by a person in the course of an activity if after the transfer the real or ultimate ownership of the property is substantially similar to that which existed before the transfer; Tax Code, §151.304(b)(4) relates to the sale of not more than 10 admissions for amusement services during a 12-month period by a person who does not hold himself out as engaging, or does not habitually engage, in providing amusement services; Tax Code, §151.304(b)(5) relates to sales of items purchased for use by an individual who does not hold, and is not required to obtain a sales and use tax permit. In order to be exempt from sales tax, total sales by the individual must not exceed $3,000 per calendar year. See §3.316 of this title (relating to Occasional Sales; Joint Ownership Transfers; Sales by Senior Citizens' Organizations; Sales by University and College Student Organizations; and Sales by Nonprofit Animal Shelters).

(c) Inapplicability of use tax.

(1) Use tax is not applicable if the purchaser of a taxable item paid sales tax to a Texas seller or owes sales tax to a Texas seller who failed to collect it. The comptroller may proceed against the seller or the purchaser for the sales tax owed by either.

(2) Use tax is not applicable to the storage, use, or other consumption of taxable items in this state if the sale, lease, or rental of the taxable items would be exempt from the sales tax had the items been purchased within Texas.

(d) User liability, payment of the tax and credit for tax paid to another state.

(1) The person storing, using, or consuming a taxable item in this state is liable for the tax imposed under this section, and except as provided by paragraph (2) of this subsection, the liability continues until the tax is paid to the state.

(2) The liability may be extinguished by payment of the Texas use tax directly to the comptroller or to a seller authorized to collect it. See the use tax permit requirements for out-of-state sellers in §3.286 of this title.

(3) The basis of the use tax is the total purchase price of the taxable item, including any related charges such as shipping and handling fees, regardless of whether such fees are separately stated. See §3.303 of this title (relating to Transportation and Delivery Charges).

(4) The tax must be reported and remitted to the comptroller with the return covering the period in which the taxable items are first stored, used, or otherwise consumed in Texas as provided by §3.286 of this title. Purchasers without a sales and use tax permit should refer to §3.286 of this title to view the tax responsibilities of non-permitted purchasers.

(5) Credit is allowed against the use tax liability to the extent that a similar sales or use tax was legally due and paid to another state under the conditions provided in Tax Code, Chapter 141 and Chapter 151, §151.303. See §3.338 of this title (relating to Multistate Tax Credits and Allowance of Credit for Tax Paid to Suppliers).

(e) Presumption.

(1) Tangible personal property that is shipped or brought into this state by, or at the direction of, a purchaser is presumed, in the absence of evidence to the contrary, to have been purchased from a seller for storage, use, or consumption in this state. A taxable service used in this state is presumed, in the absence of evidence to the contrary, to have been purchased from a seller for use in this state.

(2) Tangible personal property purchased out of state and used for its intended purpose outside of Texas for more than one year before the date of entry into Texas will not be presumed to have been purchased for use in Texas. This presumption applies only if the use outside Texas is substantial and constitutes a primary use for which the property was purchased. Either the comptroller or the purchaser may introduce evidence to establish the intent or absence of intent to use the taxable items in Texas at the time of purchase.

(3) If tangible personal property is shipped outside of Texas by the seller such that the transaction is exempt from sales tax under Tax Code, §151.330(a), and the property is outside of Texas for less than one year before reentering Texas, the presumption is that the property is purchased for use in Texas.

(f) Local use tax is due to the jurisdictions where taxable items are first stored, used, or consumed.

(g) Direct payment permit holders - election to pay use tax at time of first storage or upon first removal from storage for use in Texas. If, at the time an item is purchased and stored in the state, it is not known if the item will be used in Texas or removed from the state for use elsewhere, a direct payment permit holder can elect to either pay state and local use tax at the time an item is first removed from storage for use in Texas or elect to pay state and local use tax on the item when first stored in Texas. This election must consistently apply to all stored items once the election is made and consistently apply to all state and local taxes that are due. Local tax is due to the jurisdictions where the item is first stored regardless of which election is chosen. A direct pay permit holder who elects to pay Texas use tax when items are first stored may claim a refund as provided by other sections of this title of taxes paid on items that are removed from storage in Texas for use elsewhere.

Source Note: The provisions of this §3.346 adopted to be effective March 7, 1979, 4 TexReg 554; amended to be effective November 17, 1981, 6 TexReg 4070; amended to be effective December 3, 1984, 9 TexReg 5929; amended to be effective December 21, 1990, 15 TexReg 7029; amended to be effective February 9, 2011, 36 TexReg 587; amended to be effective November 11, 2012, 37 TexReg 8857