SECTION 3.369. Sales Tax Holiday--Certain Energy Star Products, Certain Water-Conserving Products, and WaterSense Products

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

(1) Energy-efficient product--A product that has been designated as an Energy Star qualified product under the Energy Star program jointly operated by the United States Environmental Protection Agency and the United States Department of Energy and that is an:

(A) air conditioner priced at $6,000 or less (room and central units);

(B) clothes washer;

(C) ceiling fan;

(D) dehumidifier;

(E) dishwasher;

(F) incandescent or fluorescent light bulb;

(G) programmable thermostat; or

(H) refrigerator (including a mini-fridge) priced at $2,000 or less.

(2) Exchange--The act of giving or taking one thing in return for another.

(3) Exemption period--The period beginning at 12:01 a.m. on the Saturday preceding the last Monday in May (Memorial Day) and ending at 11:59 p.m. on the last Monday in May.

(4) Layaway sales--A transaction in which merchandise is set aside for future delivery to a person who makes a deposit, agrees to pay the balance of the purchase price over a period of time, and, at the end of the payment period, receives the merchandise.

(5) Qualifying products--Energy-efficient, water-conserving, and WaterSense products eligible for exemption from sales and use tax if purchased, leased, or rented during the exemption period.

(6) Rain check--A document assuring that a person can take advantage of a sale or special offer made by a seller at a later time if the item offered is not available.

(7) Water-conserving product--

(A) tangible personal property that is used on residential property and is not used for business or trade, and when used or planted in an outdoor residential property, may result in:

(i) water conservation or groundwater retention;

(ii) water table recharge; or

(iii) a decrease in ambient air temperature that limits water evaporation.

(B) Examples of water-conserving products include:

(i) a soaker or drip-irrigation hose;

(ii) a moisture control for a sprinkler or irrigation system;

(iii) mulch;

(iv) a rain barrel or an alternative rain and moisture collection system;

(v) a permeable ground cover surface that allows water to reach underground basins, aquifers, or water collection points;

(vi) grasses, plants, shrubs, and trees; and

(vii) water-saving surfactants designed to help water penetrate the soil.

(C) Products purchased by a business, including an apartment complex or nursing home, are used for business or trade and are not water-conserving products.

(D) Products that are incorporated into real property under a lump-sum contract are used for business or trade by the person improving the real property and are not water-conserving products.

(8) WaterSense product--A product that has been designated as a WaterSense certified product under the WaterSense program operated by the United States Environmental Protection Agency, or a similar successor program.

(b) Exempt sales.

(1) Sales or use tax is not due on the sale of a qualifying product if the sale takes place during the exemption period.

(2) There is no limit to the number of qualifying products one can purchase exempt from sales tax during the exemption period.

(3) The exemption applies to each qualifying product sold during the exemption period, regardless of how many qualifying products are sold on the same invoice to a person. For example, if a person purchases two refrigerators for $1,800 each, then both refrigerators qualify for the exemption, even though the person's total purchase price ($3,600) exceeds $2,000.

(4) Qualifying products may be rented or leased tax-free, including under a "rent to own" contract, if the rental or lease contract is executed during the exemption period. The exemption applies only to the specified rental or lease period designated by the contract. Extensions or renewals of rental or lease contracts do not qualify for the exemption unless executed during the exemption period.

(c) Taxable sales. The exemption under this section does not apply to:

(1) products designated as Energy Star products under the Energy Star program that are not specifically identified in subsection (a)(1) of this section;

(2) products that may conserve water but that do not meet the definition of a water-conserving product provided in subsection (a)(7) of this section;

(3) repair or replacement parts for qualifying products that are used to repair or remodel products already owned by a person and that do not otherwise qualify for exemption. For example, an individual may own a central air conditioner with a faulty compressor. The individual cannot obtain the exemption on the purchase of a new Energy Star qualified compressor;

(4) an Energy Star qualified air conditioner that sells for more than $6,000. For example, if a person purchases an Energy Star qualified air conditioner that costs $6,055, then sales tax is due on the entire $6,055;

(5) an Energy Star qualified refrigerator that sells for more than $2,000. For example, if a customer purchases an Energy Star qualified refrigerator that costs $2,055, then sales tax is due on the entire $2,055;

(6) system components sold individually. Qualifying products must be sold as a unit in order to qualify for the exemption. The components cannot be priced separately and sold as individual items in order to obtain the exemption. For example, central air conditioners must be priced at $6,000 or less and sold as a unit in order to qualify for the exemption. If an Energy Star qualified central air conditioner sells for $7,000, the entire $7,000 charge is subject to tax and cannot be split into separate charges for a compressor, metering device, evaporator coil and blower in order to qualify for the exemption; and

(7) disposal fees charged for the removal of old appliances. Disposal or "haul away" fees charged for the removal of an old appliance are taxable as a waste removal service.

(d) Sales of pre-packaged combinations containing both exempt and taxable items.

(1) When a qualifying product is sold together with taxable merchandise in a pre-packaged combination or single unit, the full price is subject to sales tax unless the price of the qualifying product is separately stated. For example, a clothes washer and clothes dryer sold as a "set" for a single price is taxable if the washer and dryer are separate appliances. A separately stated charge for the Energy Star rated washing machine is eligible for the sales tax exemption during the holiday period. Tax is due on the dryer. An Energy Star rated combination washer and dryer unit that is designed to be sold as a single unit and that cannot be sold separately will, however, qualify for the exemption.

(2) When a qualifying product is sold in a pre-packaged combination that also contains a taxable item as a free gift, and no additional charge is made for the gift, the qualifying product may qualify for the exemption under this section. For example, the sale of a dishwasher may include a free bottle of rinse aid. If the price of the set is the same as the price of the dishwasher sold separately, the product that is being sold is the dishwasher, which is exempt from tax if sold during the exemption period. Note: When a retailer gives a taxable item away free of charge, the retailer owes sales or use tax on the purchase price that the retailer paid for the item. See §3.301 of this title (relating to Promotional Plans, Coupons, Retailer Reimbursement).

(e) Delivery charges.

(1) Air conditioners and refrigerators. Delivery charges that are billed by the seller to the purchaser are included as part of the total sales price of a qualifying product, regardless of whether the charges are separately stated, and as such must be considered when determining whether air conditioners and refrigerators qualify for the exemption. The addition of delivery charges to the retail price of a refrigerator or air conditioner will cause the loss of the exemption if the total price exceeds the applicable cap. For example, assume a person purchases an Energy Star qualified refrigerator priced at $1,985. The charge to deliver the refrigerator is $25, causing the total sales price to be $2,010. Since the total sales price of the refrigerator exceeds $2,000, the refrigerator does not qualify for the exemption, and tax is due on the total sales price of $2,010.

(2) Items other than air conditioners and refrigerators. Delivery charges that are billed by the seller to the purchaser are exempt if the product sold is exempt. For example, delivery fees billed in connection with the sale of a qualifying energy-efficient dishwasher during the exemption period are exempt.

(3) "Per item" delivery fees. Delivery charges billed on a "per item" basis must be properly allocated when a delivery to the same person contains both exempt and taxable items. Except as provided in paragraph (4) of this subsection, if multiple items are shipped on a single invoice, the delivery charges must be allocated to each item ordered and separately identified on the invoice. For example, assume that a person purchases a qualifying clothes washer tax-free during the exemption period. The same person also purchases a clothes dryer, which does not qualify for the exemption. The retailer charges the person an additional fee of $25 per appliance for delivery. The $25 delivery fee connected to the delivery of the qualifying clothes washer is exempt from sales tax, but the $25 fee connected to the delivery of the clothes dryer is subject to tax.

(4) "Flat rate" delivery fees. If the delivery charge is a flat rate per delivery address, and the amount charged is the same regardless of how many items are included in the delivery, for purposes of the exemption, the total charge may be attributed to one of the items in the delivery rather than proportionately allocated between the items. The delivery fee can be allocated to either an exempt qualifying product or a taxable product. The following examples illustrate the way these charges should be handled.

(A) Delivery fee allocated to exempt item. Assume a seller charges a flat fee of $50 per customer address for delivery regardless of the number of items delivered to that address and during the exemption period, a person purchases an Energy Star qualified refrigerator priced at readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=180962&p_tloc=9868&p_ploc=1&pg=2&p_tac=&ti=34&pt=1&ch=3&rl=369,900, a taxable stove and a taxable microwave. The seller may attribute the $50 delivery charge to the sale of the refrigerator bringing the sales price of the refrigerator to readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=180962&p_tloc=9868&p_ploc=1&pg=2&p_tac=&ti=34&pt=1&ch=3&rl=369,950. The refrigerator sales price does not exceed $2,000, so it still qualifies for the exemption. The seller does not have to allocate the delivery charge between the refrigerator, stove and microwave. The sales invoice must clearly identify that the delivery charge was attributed to the exempt item and must separately state the tax due on the taxable items.

(B) Delivery fee allocated to taxable item. Assume a seller charges a flat fee of $50 per customer address for delivery regardless of the number of items delivered to that address and during the exemption period, a person purchases an Energy Star qualified refrigerator priced at readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=180962&p_tloc=9868&p_ploc=1&pg=2&p_tac=&ti=34&pt=1&ch=3&rl=369,975 and a taxable stove. The seller may attribute the entire $50 delivery charge to the sale of the stove, thus allowing the total sales price of the refrigerator to remain readtac$ext.TacPage?sl=T&app=9&p_dir=F&p_rloc=180962&p_tloc=9868&p_ploc=1&pg=2&p_tac=&ti=34&pt=1&ch=3&rl=369,975. Since the refrigerator sales price does not exceed $2,000 it still qualifies for the exemption. The seller does not have to allocate the delivery charge between the refrigerator and stove. The sales invoice must clearly identify that the delivery charge was attributed to the taxable stove and must separately state the tax due on the taxable item.

(f) Installation charges. A charge for the installation of a qualifying product purchased during the exemption period qualifies for exemption only if the item remains tangible personal property after installation. If the product becomes real property after installation, the charge for installation labor may be taxable or nontaxable depending on whether the product is installed in residential or nonresidential property or as part of a new construction contract.

(1) Tangible personal property. Products that are free-standing or mobile, such as clothes washers, dehumidifiers, refrigerators, portable dishwashers and window or room air conditioning units are tangible personal property. If qualifying tangible personal property retains its identity as tangible personal property after installation, the installation charge billed by the seller of the item becomes part of the sales price of the item. As part of the sales price, an installation charge billed by the seller qualifies for the exemption, even if the installation is performed after the exemption period. If however, the charge for installation of an Energy Star qualified refrigerator, which remains tangible personal property after installation, causes the total sales price to exceed $2,000, the entire charge of the refrigerator, delivery and installation, is taxable.

(2) Improvements to real property. Items such as programmable thermostats, central air conditioning units, ceiling fans and built-in refrigerators and dishwashers that are plumbed, wired or otherwise permanently attached to a building structure are improvements to real property. For items that become improvements to real property, the taxability of the installation labor is determined by the type of jobsite: residential, new construction or nonresidential repair or remodeling.

(A) Residential and new construction. No tax is due on charges for labor to install items such as ceiling fans, programmable thermostats or central air conditioning units in residential property or during a new construction project. See §3.291 of this title (relating to Contractors).

(B) Nonresidential repair and remodeling. Nonresidential repair and remodeling is a taxable service. Therefore, tax is due on charges for labor to install ceiling fans, built-in appliances, programmable thermostats and central air conditioning units in existing nonresidential real property, regardless of when the installation is performed. Charges for installation labor performed on existing nonresidential real property should be separately stated on the invoice from the sales price of qualifying energy-efficient or WaterSense products. Separately stated charges for products that may conserve water but that are not water-conserving products because they are installed in nonresidential real property are taxable. A lump sum charge for the purchase of a qualifying product and installation labor is subject to tax as the purchase of nonresidential repair and remodeling. See §3.357 of this title (relating to Nonresidential Real Property Repair, Remodeling, and Restoration; Real Property Maintenance).

(g) Purchases by real estate developers, dealers, service providers and contractors. Real estate developers, dealers, service providers and contractors may purchase qualifying products tax-free during the sales tax holiday as discussed in this subsection.

(1) An exemption or resale certificate is not required for purchases of energy-efficient or WaterSense products.

(2) A resale certificate must be provided for purchases of water-conserving products that will be subsequently resold to customers or incorporated into customers' real property under a separated contract.

(3) An exemption certificate or resale certificate may not be provided for purchases of products that may conserve water but will be incorporated into real property under a lump-sum contract.

(4) There is no limit to the number of qualifying products a person may purchase tax-free during the exemption period.

(5) Held in inventory. Qualifying products purchased tax-free during the exemption period may be held in inventory until ready for use as discussed in this subsection.

(A) No use tax is due if an energy-efficient product or WaterSense product purchased tax free during the exemption period by a contractor, developer, etc., is subsequently incorporated into the realty of a contractor's customer under a lump sum contract for new construction or residential repair and remodeling. See §3.291 of this title. Use tax is due on products that may conserve water but do not meet the definition of water-conserving products provided in subsection (a)(7) of this section because the products were incorporated into real property under a lump sum contract.

(B) Sales tax is due on sales of energy-efficient or WaterSense products transferred to customers as part of a nonresidential repair and remodeling contract preformed after the exemption period. Nonresidential repair and remodeling service providers are responsible for collecting sales tax from customers on sales of energy-efficient or WaterSense products under a separated contract or under a lump sum contract for nonresidential repair and remodeling, unless the transaction (the sale of the energy-efficient or WaterSense product) between the customer and service provider, dealer or contractor occurs during the exemption period under a separated contract. See §3.357 of this title.

(h) Discounts and coupons. An Energy Star qualified air conditioner must be priced at $6,000 or less in order to qualify for the exemption. An Energy Star qualified refrigerator must be priced at $2,000 or less to qualify for the exemption. A seller may offer a discount or a coupon that reduces the sales price of an Energy Star qualified air conditioner or refrigerator. A discount or a coupon affects the application of the exemption as explained in paragraphs (1) and (2) of this subsection. The total sales price of the product includes delivery and installation charges as explained in subsections (e) and (f) of this section. See §3.301 of this title.

(1) Discounts. If a discount reduces the sales price of an Energy Star qualified air conditioner to $6,000 or less, or reduces the sales price of an Energy Star qualified refrigerator to $2,000 or less, the air conditioner or refrigerator qualifies for the exemption under this section. For example, a person buys an Energy Star qualified free-standing refrigerator that has a sales price of $2,050, including shipping, handling and installation of tangible personal property, from a seller who offers a 10% discount. After application of the 10% discount, the final sales price of the refrigerator is $1,845. The refrigerator is exempt because its sales price does not exceed $2,000.

(2) Coupons. When sellers accept a manufacture's or other coupon as a part of the sales price of any taxable item, the value of the coupon reduces the sales price, the same as a cash discount, regardless of whether the retailer is reimbursed for the amount that the coupon represents. Therefore, a coupon can be used to reduce the sales price of an Energy Star qualified air conditioner to $6,000 or less, or to reduce the sales price of an Energy Star qualified refrigerator to $2,000 or less. The item then qualifies for exemption under this section. For example, a person buys an Energy Star qualified free-standing refrigerator that has a sales price of $2,050, including shipping, handling and installation of tangible personal property, with a coupon worth $100. After application of the $100 coupon, the sales price of the refrigerator is $1,950. The refrigerator is exempt because its sales price does not exceed $2,000.

(i) Rebates.

(1) Rebates given at the time of sale. Rebates provided by a seller are cash discounts when given at the time of sale and as such are excludable from the tax base. The rebate, like a discount when taken at the time of the sale, is a reduction in the amount subject to tax.

(2) Rebates that occur after the sale. Rebates that are paid to a purchaser after the exemption period do not affect the sales price of an item purchased for purposes of determining whether an item qualifies for exemption under this section. The full amount of the sales price, before the rebate, is used to determine whether the exemption applies. For example, if a person purchases an Energy Star qualified air conditioner for $6,050 and receives a $300 mail-in rebate from the manufacturer, the seller must collect tax on the $6,050 sales price of the air conditioner.

(j) Layaway sales and purchases by means other than in person.

(1) the sale of an energy-efficient product, WaterSense product, or water-conserving product under a layaway plan or purchased by mail, telephone, email, internet, custom order, or any other means other than in person qualifies for exemption when:

(A) the purchaser places the item on layaway during the exemption period and the seller accepts the order for immediate delivery upon full payment, even if delivery is made after the exemption period;

(B) the purchaser places the order and the seller accepts the order during the exemption period for immediate shipment, even if delivery is made after the exemption period; or

(C) final payment on a layaway order is made by, and the merchandise is given to, the purchaser during the exemption period.

(2) For purposes of this subsection, the seller accepts an order when the seller has taken action to fill the order for immediate shipment. Actions to fill an order include placement of an "in date" stamp on a mail order, or assignment of an "order number" to a telephone order. An order is for immediate shipment notwithstanding that the shipment may be delayed because of a backlog of orders or because stock is currently unavailable to, or on back order by, the seller.

(k) Rain checks. Qualifying products that are purchased during the exemption period with use of a rain check qualify for the exemption regardless of when the rain check was issued. However, issuance of a rain check during the exemption period will not cause the purchase of a qualifying product to be exempt if the item is actually purchased after the exemption period.

(l) Exchanges.

(1) If a person purchases a qualifying product during the exemption period, and, after the exemption period has ended, exchanges the item for a qualifying product of equal or lesser value, no additional tax is due. For example, a person purchases a $60 qualifying dehumidifier during the exemption period. After the exemption period, the person exchanges it for a $60 qualifying dehumidifier of a different brand. Tax is not due on the $60 sales price of the new dehumidifier.

(2) If a person purchases a qualifying product during the exemption period, and after the exemption period has ended, exchanges the product for a qualifying product of greater value, tax is due on the difference between the prices of the two products. For example, assume a person purchases a $60 qualifying dehumidifier during the exemption period. After the exemption period, the person exchanges it for $70 in qualifying light bulbs. Tax is due on the $10 difference between the two sales prices.

(3) If a person purchases a qualifying product during the exemption period, and after the exemption period has ended, exchanges the products for a nonqualifying item, tax is due on the original sales price of the nonqualifying item. For example, assume a person purchases a $60 qualifying dehumidifier during the exemption period. After the exemption period, the person exchanges it for a $60 nonqualifying microwave. Tax is due on the $60 sales price of the nonqualifying microwave.

(4) If a person purchases a qualifying product before the exemption period, but, during the exemption period, returns the product and receives credit on the purchase of a different qualifying product, no sales tax is due on the sale of the new product if the new item is purchased during the exemption period. For example, assume a person purchases a $60 qualifying dehumidifier before the exemption period. During the exemption period, the person returns the dehumidifier and receives credit on the purchase of a $70 qualifying ceiling fan. No tax is due on the sale of the ceiling fan if it is purchased during the exemption period.

(m) Returned merchandise. When a person returns an item that would qualify for the exemption, no credit for or refund of sales tax shall be given unless the person provides a receipt or invoice that shows tax was paid, or the retailer has sufficient documentation to show that tax was paid on the specific item.

(n) Documenting exempt sales.

(1) A seller is not required to obtain an exemption certificate on sales of energy-efficient or WaterSense products during the exemption period; however, the retailer's records should clearly identify the type of item sold, the date on which the item was sold, and the sales price of the item.

(2) A seller is not required to obtain an exemption certificate on sales of items identified as examples of water-conserving products in subsection (a)(7)(B) of this section; however, the retailer's records should clearly identify the type of item sold, the date on which the item was sold, and the sales price of the item. A seller should obtain an exemption certificate on sales of items that do not clearly meet the definition of a water-conserving product.

Source Note: The provisions of this §3.369 adopted to be effective September 9, 2010, 35 TexReg 8138; amended to be effective November 20, 2016, 41 TexReg 9018