Texas Comptroller of Public Accounts    STAR System


200710104L



October 1, 2007

RE: Multistate Tax Credits

Dear **************: 

Thank you for directing our attention to the discrepancy between the 
information provided on the Occasional Use Tax webpage and the information 
contained in Comptroller Rule 3.338(b)(2) regarding multistate tax credits.  I 
have restated the facts pertaining to this issue below, followed by my 
response.  

Rule 3.338(b) provides that as a member of the Multistate Tax Compact, Texas 
will allow as a credit against Texas use tax due any combined amounts of 
legally imposed sales or use taxes paid on the same property to another state 
or any subdivision of another state.  The rule further provides that the credit 
shall be applied first against any amount of local use tax due, then shall be 
applied to the state.  

The Occasional Use Tax web page provides instructions for calculating the 
amount of use tax owed when claiming a multistate tax credit.  The instructions 
simply direct taxpayers to reduce the taxable sales for both the state and 
local jurisdictions using the same calculation.  The reduced amount of taxable 
sales is then used to determine the total amount of state and local sales and 
use taxes due to both the state and local jurisdictions.  The directions on the 
web page (and use tax return, Form 01-156) do not instruct taxpayers to apply 
the credit to the local taxes first.  

You asked whether the information contained in the rule is correct or whether 
the instructions on the form and web page are correct.  

Response:  Neither source of information is correct.  

The directions in Comptroller Rule 3.338(b)(2) mistakenly instruct taxpayers to 
apply a multistate tax credit to local taxes first, then to state tax.  As 
noted above, the use tax web page instructs taxpayers to claim a multistate tax 
credit proportionally against all Texas state and local use taxes due by 
reducing the amount reported as a taxable purchase.  

In actuality, by statute, multistate tax credits should be applied to state tax 
first, then to local taxes.  

Texas Tax Code Section 141.001, Article 5, Paragraph 1 states:  

"Tax Credit

1. Each purchaser liable for a use tax on tangible personal property shall be 
entitled to full credit for the combined amount or amounts of legally imposed 
sales or use taxes paid by him with respect to the same property to another 
state and any subdivision thereof. The credit shall be applied first against 
the amount of any use tax due the state, and any unused portion of the credit 
shall then be applied against the amount of any use tax due a subdivision." 
(Emphasis added.)

Therefore, you should disregard the directions in Rule 3.338(b)(2) and the 
instructions on the use tax web page and return and instead apply the credit in 
accordance with the statute.  

The credit should be applied first against state use tax due. Then, any 
remaining credit should be applied against any local use taxes due, based on 
the following hierarchy.  After state tax, the credit should first be applied 
to any transit tax due, if any; then against any amount of special purpose 
district tax due, if any; then against county use tax due, if any, and finally, 
any remaining credit shall be applied against any city use tax due, if any.   

The following example illustrates how the tax should be calculated:

You buy a laptop computer in Oklahoma for $1300 and pay 5 percent sales tax, 
and then take the computer to Dallas. You owe use tax on this purchase at the 
rate of 8.25 percent, but you can receive a credit for the 5 percent tax that 
you paid to Oklahoma. The 8.25 percent use tax is based on 6.25 percent state 
tax, 1.0 percent Dallas city tax, and 1.0 percent Dallas MTA tax.

8.25% Texas state and local tax rate @ point of delivery/use - 5.00% Oklahoma 
state and local sales tax / 3.25% remaining amount of Texas state and local use 
tax owed = $42.25 total additional use tax due 

Tax allocation using 141.001, Article 5 (credit applied to state taxes first)

$1300.00 x 1.25 % (Texas state use tax) = $16.25 use tax owed to the state
$1300.00 x 1 % (Dallas MTA use tax) = $13.00 use tax owed to the Dallas MTA
$1300.00 x 1 % (Dallas city use tax) = $13.00 use tax owed to the City of 
Dallas

The Comptroller's office will amend Rule 3.338 and the information provided on 
the use tax web page and Form 01-156 to reflect the guidelines established by 
statute. 

Thank you for bringing this matter to our attention.  

Complete Texas sales tax information, including rules, statutes, publications, 
and frequently asked questions can be found on the Sales and Use Tax web page 
at:  http://window.state.tx.us/taxinfo/sales/.

This opinion is based on the information presented.  Other information, though 
similar, may provide a different result.  

If you have any questions or need additional information, you can reply to this 
email, call me at 1-800-531-5441 ext. 31810, or write to Tax Policy Division, 
P. O. Box 13528, Austin, Texas 78711-3528.

Our goal is to provide you with prompt, professional service.  Please take a 
moment to complete our on-line survey at 
http://aixtcp.cpa.state.tx.us/surveys/tpsurv/.

Regards,


Robin Corrigan
Tax Policy
Texas Comptroller of Public Accounts




ACCESSION NUMBER: 200710104L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 10/01/2007
TAX TYPE: SALES