Texas Sales Taxes on Purchases
Tax Exemption Status
The State of Texas (Texas) charges sales tax on all purchases made by individuals or entities unless the purchasing entity has state tax-exempt status. Texas State University (Texas State), as a state governmental entity, claims federal tax-exempt status under Section 115 of the Internal Revenue Code. Although the university is generally exempt from paying sales tax in Texas, some purchases are not exempt. Tax-exempt purchases, taxable purchases, and allowable sales tax payments and reimbursements are discussed below.
Texas State does not pay sales tax when purchasing taxable items which are considered necessary to the university's tax-exempt purpose. An authorized agent or employee (purchaser) for Texas State may obtain items tax-free for the university if a Sales Tax Exemption Certificate (exemption certificate) is presented. Tax-free items cannot be used for a private party's or individual's benefit.
When tax-exempt items are purchased for the university, the purchaser is required to complete an exemption certificate, available on the Office of Payroll and Tax Compliance’s Texas Sales & Use Tax webpage. The purchaser signing the document will be responsible for any transaction questions during a sales tax audit.
Efforts should be made to purchase tax-exempt items via a Purchase Order (either through SAP or TSUS Marketplace), direct payment form (e-NPO with the merchant as the vendor), or P-card to ensure sales tax is not unnecessarily paid.
Texas sales tax regulations consider certain purchases taxable even when they are made by a tax-exempt entity. An exemption certificate may not be given to a merchant for the following taxable purchases:
- Motor vehicles (lease or rental).
- Items of a personal nature, even if the purchaser will later be reimbursed by the university. Such items include, but are not limited to, meals, toiletries, and clothing. See additional guidance below concerning the purchase of business meals.
- Meals or parking when the purchaser is in travel status on official university business. Employees must pay sales tax on all taxable purchases even if they will later be reimbursed per diem or for actual expenses incurred.
Allowable Sales Tax Payments or Reimbursements
Sales tax may be paid or reimbursed on taxable purchases at the discretion of the account manager. Prior to a taxable purchase, account managers should advise their employees whether the taxes will or will not be reimbursed.
Sales tax may not be paid or reimbursed on tax-exempt purchases. If a purchaser fails to submit an exemption certificate for a tax-exempt purchase, they are personally responsible for the sales tax portion of the payment. See FSS PPS 03.16, Section 02.13, for the Cabinet Officer approval requirement to reimburse sales tax on tax-exempt purchases.
Special Guidance for Business Meals
Texas sales tax regulations specifically list meals as an example of items of a personal nature. Although no definition is provided for ‘items of a personal nature,’ the regulations are clear that such purchases are taxable. However, the university does not consider all meal purchases to be items of a personal nature. For example, business meals purchased directly by the university are not considered items of a personal nature and are, therefore, considered tax-exempt. Properly identifying whether a meal is an item of a personal nature is key to determining whether it is taxable or tax-exempt. To assist employees in making such determinations, the following guidance is provided.
When a business meal is purchased via cash or personal credit card, it is considered an item of a personal nature, even if the meal will be consumed in conjunction with official Texas State business. Therefore, the purchaser may not present an exemption certificate to the merchant to claim exemption. Since the purchaser is unable to have the sales tax waived, it is considered a valid business expense and may be reimbursed at the discretion of the account manager.
Efforts should be made to purchase business meals via a Purchase Order (either through SAP or TSUS Marketplace), direct payment form (e-NPO with the merchant as the vendor), or P-card to ensure sales tax is not unnecessarily paid. When meals, in conjunction with official Texas State business, are purchased by one of these methods, the meal is considered tax-exempt and the agent or employee must present an exemption certificate.