Proposed Rules Title 34

TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

SUBCHAPTER HH. MIXED BEVERAGE TAXES

The Comptroller of Public Accounts proposes amendments to §3.1001, concerning mixed beverage gross receipts tax. The comptroller amends this section to reflect the changes in Alcoholic Beverage Code, §§28.1001 (Pickup and Delivery of Alcoholic Beverages for Off-Premises Consumption), 32.01 (Authorized Activities), 32.15 (Removal of Beverages from Premises), 32.155 (Pickup and Delivery of Alcoholic Beverages for Off-Premises Consumption), 32.17 (Cancellation of Suspension of Permit; Grounds), and 57.01 (Authorized Activities), made by House Bill 1024, 87th Legislature, 2021, effective May 12, 2021. The comptroller also amends the section throughout to implement House Bill 1545, 86th Legislature, 2019, effective September 1, 2021, which updated the definition of "permittee" in Tax Code, §183.001 (Definitions) and eliminated the distinction between ale, beer, or malt liquor which are now referred to as a malt beverage. This change is made throughout the section. The comptroller further amends this section throughout to add statutory citations.

The comptroller amends subsection (a)(2) by adding clarification language to define a bad debt as uncollectible. In addition, the comptroller moves language related to the requirements for claiming a bad debt to subsection (n) to be consistent with Tax Code, §183.027 (Credits and Refunds for Bad Debts). The comptroller amends subsection (a)(3) to delete language related to acceptable payment methods to purchase alcoholic beverages. Only distributors, manufactures, and retailers have restrictions under the Alcoholic Beverage Code related to acceptable types of payments. The comptroller also amends subsection (a)(8) to update the definition of the term "permittee." House Bill 1545 consolidated, repealed, and created certain licenses and permits to streamline the permitting process. In addition, the comptroller amends language to be consistent with the definition of Permittee and Licensee as defined in the Alcoholic Beverage Code §1.04 (11) and (16) (Definitions).

The comptroller deletes subsection (b)(4), a graphic related to separate tax disclosure statements, as it is available on the comptroller's website.

The comptroller deletes subsection (c)(1)(I), to delete language related to temporary permits, as only one temporary permit exists within the definition of permittee based on changes made from House Bill 1545. The comptroller renumbers all subsequent paragraphs accordingly.

The comptroller amends subsection (e) to delete redundant language for a holder of a temporary permit to report and remit mixed beverage gross receipts tax as they are included in the definition of "permittee" provided by subsection (a)(8).

The comptroller amends subsection (f) to add new paragraph (8) to include alcoholic beverages sold by a permittee for off-premises consumption in the list of items excluded from mixed beverage gross receipts tax. House Bill 1024 amended the Alcoholic Beverages Code to allow permittees to sell alcoholic beverages for off-premise consumption. Only alcoholic beverages sold for on-premises consumption by a permittee are taxed under Tax Code, §183.021 (Tax imposed on Gross Receipts of Permittee from Mixed Beverages). Because these beverages are for off-premises consumption, the comptroller interprets this to mean these sales are not subject to the mixed beverage gross receipts tax. The comptroller renumbers all subsequent paragraphs accordingly.

The comptroller amends subsection (n)(1) to add new subparagraphs (A) through (C) with language moved from subsection (a)(2). The new subparagraphs are consistent with Tax Code, §183.027.

The comptroller amends subsection (o)(3), to add average pour figures the comptroller may accept for malt beverages and wine in the absence of records or evidence made available for audit. These presumptions are recognized and accepted in the depletion-analysis methodology by the comptroller for auditing mixed beverage taxpayers. See e.g., Comptroller Decision No. 117,284 (2021).

Brad Reynolds, Chief Revenue Estimator, has determined that during the first five years that the proposed amended rule is in effect, the rule: will not create or eliminate a government program; will not require the creation or elimination of employee positions; will not require an increase or decrease in future legislative appropriations to the agency; will not require an increase or decrease in fees paid to the agency; will not increase or decrease the number of individuals subject to the rule's applicability; and will not positively or adversely affect this state's economy.

Mr. Reynolds also has determined that the proposed amended rule would benefit the public by conforming the rule to current statute and improving readability. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses or rural communities. The proposed amended rule would have no significant fiscal impact on the state government, units of local government, or individuals. There would be no anticipated significant anticipated economic cost to the public.

You may submit comments on the proposal to Jenny Burleson, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711-3528. Comments must be received no later than 30 days from the date of publication of the proposal in the Texas Register.

The comptroller proposes the amendments under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture) which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2 (State Taxation).

The amendments implement Tax Code, §183.021 (Tax Imposed on Gross Receipts of Permittee from Mixed Beverages) and Alcoholic Beverage Code, §§28.1001 (Pickup and Delivery of Alcoholic Beverages for Off-Premises Consumption), 32.01 (Authorized Activities), 32.15 (Removal of Beverages from Premises), 32.17 (Cancellation of Suspension of Permit; Grounds), 32.155 (Pickup and Delivery of Alcoholic Beverages for Off-Premises Consumption), 57.01 (Authorized Activities).

§3.1001.Mixed Beverage Gross Receipts 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) Alcoholic beverage--Alcohol, or any beverage containing more than 0.5% of alcohol by volume, which is capable of use for beverage purposes, either alone or diluted.

(2) Bad debts--The unpaid portion of the gross receipts on sales or services of mixed beverages that are uncollectible by the permittee. [~~that have been charged off the books as a bad debt and that are deducted for federal tax purposes during the same or subsequent reporting period.~~]

(3) Cash or ticket bar--A bar at a special function at which guests can purchase alcoholic beverages. [~~Payments for the alcoholic beverages can be made by using cash, credit cards, or debit cards, or by redeeming tickets that are purchased by guests.~~]

(4) Complimentary alcoholic beverage--An alcoholic beverage served without any consideration paid to the permittee.

(5) Mandatory gratuity charge--Any amount required by the permittee in excess of the charge for the sale of alcoholic beverages.

(6) Mixed beverage--A serving of a beverage composed in whole or in part of an alcoholic beverage in a sealed or unsealed container of any legal size for consumption on the premises where served or sold by a permittee.

(7) Open bar--A bar at a special function at which alcoholic beverages have been paid for by the host or are prepaid through an admission fee. This differs from the provision of complimentary alcoholic beverages in that the alcoholic beverages are purchased by the host or donated to the host for the purpose of being served for free at the special function.

(8) Permittee--A person who holds any of the following permits issued by the Texas Alcoholic Beverage Commission: a mixed beverage permit, private club registration permit, private club exemption certificate permit, private club registration permit with a retailer late hours certificate, nonprofit entity temporary event permit, private club registration permit with a food and beverage certificate, mixed beverage permit with a late hours certificate, mixed beverage permit with a food and beverage certificate, or distiller's and rectifier's permit. The term includes an agent, servant, or employee of that person. [A person, agent, or the officer, director, manager, or managing general partner of an entity that is the holder of a mixed beverage permit, a mixed beverage late hours permit, a mixed beverage permit holding a food and beverage certificate, a daily temporary mixed beverage permit, a private club registration permit, a private club exemption certificate permit, a private club late hours permit, a daily temporary private club permit, a private club registration permit holding a food and beverage certificate, a caterer's permit, or a rectifier's and distiller's permit issued by the Texas Alcoholic Beverage Commission.]

(9) Qualified employees--Employees who customarily and regularly provide the service upon which a gratuity is based, including, but not limited to, waiters, waitresses, busboys, service bartenders, wine stewards, and maîtres d'hôtel. The term does not include janitorial help, chefs, cashiers, or dishwashers.

(10) Reasonable mandatory gratuity charge--A mandatory gratuity charge that does not exceed 20%.

(11) Source record--A dated customer service check or ticket; a dated cash register receipt, if coded to reflect all information required by subsection (k) of this section; or the equivalent of a dated customer service check or a dated cash register receipt, subject to approval by the comptroller.

(12) Temporary membership card--A card printed and sold to a private club by the Texas Alcoholic Beverage Commission to be sold by the private club to an individual that entitles the individual to all the privileges of membership in the private club for a period not to exceed three days. The card also entitles the holder to bring not more than three persons into the private club as the holder's guests.

(13) Voluntary gratuity--An amount added to the bill by the purchaser or money given freely by the purchaser over and above the price charged for the sale or service of alcoholic beverages.

(14) Walked checks or tabs--An industry term that refers to the instance of a customer that on a particular business day consumes alcoholic beverages and leaves the permittee's premises without paying or providing the appropriate consideration for the alcoholic beverages. These differ from bad debts in that no agreement exists to extend credit to the customer; and these differ from complimentary alcoholic beverages in that the intent is to sell the alcoholic beverages and not be given away as complimentary alcoholic beverages.

(b) Mixed beverage gross receipts tax. Effective January 1, 2014, the rate of the tax is reduced from 14% to 6.7%. The tax is imposed on the gross receipts of a permittee received from the sale, preparation, or service of alcoholic beverages or from the sale, preparation, or service of ice or nonalcoholic beverages that are sold, prepared, or served for the purpose of being mixed with an alcoholic beverage and consumed on the premises of the permittee. The mixed beverage gross receipts tax is imposed in addition to the mixed beverage sales tax imposed under Tax Code, Chapter 183, Subchapter B-1 (Mixed Beverage Sales Tax).

(1) Gross receipts tax imposed on permittee, not customer. The mixed beverage gross receipts tax is a tax on gross receipts. The tax may not be separately charged to or paid by the customer and cannot be considered included in the gross receipts amount. A receipt, bill, or other invoice for the sale or service of alcoholic beverages may not include a charge labeled a "Tax Reimbursement."

(2) Monthly mixed beverage gross receipts tax reports. Each permittee must file a monthly mixed beverage gross receipts tax report on or before the 20th day of the following month even if no sales or services of alcoholic beverages were made during the month. The Texas Mixed Beverage Gross Receipts Tax report is due in addition to the Texas Mixed Beverage Sales Tax report required to be filed under Tax Code, Chapter 183, Subchapter B-1, and the Texas Sales and Use Tax report required to be filed under Tax Code, Chapter 151 (Limited Sales, Excise, and Use Tax).

(3) Separate tax disclosure statement. For informational purposes only, a permittee may add a separate statement on a customer's invoice, bill, or other receipt that is not shown as part of the charges to the customer and that clearly discloses:

(A) the amount of mixed beverage gross receipts tax to be paid by the permittee to the comptroller on that sale; or

(B) the total amount of mixed beverage gross receipts tax to be paid by the permittee to the comptroller combined with the amount of mixed beverage sales tax collected by the permittee to be remitted to the comptroller on that sale.

~~[(4) Examples of separate tax disclosure statements.]~~

~~[Figure 34 TAC §3.1001(b)(4)]~~

(1) The mixed beverage gross receipts tax base includes, but is not limited to, receipts for the following items:

(A) receipts from the sale or service of alcoholic beverages;

(B) receipts from the sale or service of nonalcoholic beverages that are mixed and consumed with alcoholic beverages on the permittee's premises;

(C) receipts from cover charges, door charges, entry fees, or admission fees when the Texas Alcoholic Beverage Commission has determined that the collection of the cover charge, door charge, entry fee, or admission fee is in violation of the Texas Alcoholic Beverage Commission rules or regulations. In this instance the tax base is the entire receipts from the cover charge, door charge, entry fee, or admission fee plus the reduced sales or service prices received for the alcoholic beverages;

(D) the normal selling price of alcoholic beverages served with meals with no separate charge. If the specific alcoholic beverage is being sold or served at a reduced price at the same time as the meal, the tax base for the alcoholic beverage is the reduced price;

(E) any portion of a reasonable mandatory gratuity charge that is not disbursed to qualified employees;

(F) the entire mandatory gratuity charge when in excess of 20%, regardless of how the gratuity is disbursed;

(G) miscellaneous charges in conjunction with the sale or service of alcoholic beverages such as bar set-up fees, bartender fees, corkage fees, maîtres d'hôtel charges, etc.;

(H) all sales or services of alcoholic beverages by caterers; and

[(I) all sales or services of alcoholic beverages sold or served by the holder of a temporary permit listed in subsection (a)(8) of this section or by the holder of a beer and wine only temporary permit issued to a mixed beverage permittee; and]

(I) [~~(J)~~] all sales of coupons, tokens, tickets, etc., that are redeemed or used in any manner to purchase or pay for the sale or service of an alcoholic beverage.

(2) Thefts of money or legal tender received from the sale or service of alcoholic beverages are not deductible from the mixed beverage gross receipts tax base.

(d) Private clubs, special events, and functions. The gross receipts from alcoholic beverages served at special events or functions, such as golf or tennis tournaments at private clubs when a lump-sum charge entitles the member or guest to various items such as green fees, food, alcoholic beverages, golf cart rentals, etc., shall be computed by one of the following methods.

(1) The club shall maintain documentation that shows the normal cost to a member or guest for each of the items provided for the lump-sum charge. The permittee may then compute the percentage of the total of all the charges attributable to the sale or service of the alcoholic beverages. This percentage is then applied to the actual lump-sum amount paid by the member or guest to determine the amount of gross receipts subject to the mixed beverage gross receipts tax. For example, if the total of all the items would normally cost $300 and the permittee estimates that the portion attributable to the sale or service of alcoholic beverages is $30, then 10% of the actual lump-sum amount would be reported as subject to the mixed beverage gross receipts tax. If the lump-sum amount paid by the member or guest is $200, then the mixed beverage gross receipts tax base would be $20. The documentation used by the permittee is subject to review by the comptroller's personnel and any amounts determined to be inaccurate or unreasonable may be adjusted.

(2) The permittee may choose to use the normal sales or service prices of the alcoholic beverages as the tax base for the mixed beverage gross receipts tax.

(e) Nonprofit organizations holding fundraising and other special events where 100% of the net profit of the event goes to the nonprofit organization. Nonprofit organizations with an IRS Section 501(c)(3), (4), (8), (10), or (19) status who are permittees, [~~including organizations who have been issued a temporary permit,~~] are responsible for paying the mixed beverage gross receipts tax as follows:

(1) if tickets are sold to an event with an open bar, the nonprofit organization owes mixed beverage gross receipts tax on the cost to the organization of any alcoholic beverages purchased for the event;

(2) if tickets are sold to an event with an open bar and the alcoholic beverages are donated to the nonprofit organization, the nonprofit organization does not owe mixed beverage gross receipts tax or use tax as provided by Tax Code, Chapter 151, on the donated alcoholic beverages, but owes mixed beverage gross receipts tax on the cost of any alcoholic beverages purchased for the event;

(3) if an event is one with a cash or ticket bar (with or without an entry fee), the nonprofit organization owes mixed beverage gross receipts tax on the total receipts from the sale and service of alcoholic beverages;

(4) if an event is one with no entry fee and an open bar, the nonprofit organization does not owe mixed beverage gross receipts tax, but owes use tax as provided by Tax Code, Chapter 151, on the cost of any alcoholic beverages purchased by the organization for the event.

(f) Items excluded from the mixed beverage gross receipts tax base. The mixed beverage gross receipts tax does not apply to receipts for the items described in this subsection.

(1) Complimentary alcoholic beverages. Use tax as provided by Tax Code, Chapter 151, is due on the taxable ingredients of the complimentary alcoholic beverages. A serving of an alcoholic beverage shall not be a complimentary alcoholic beverage if any consideration is paid to the permittee, which may include, but is not limited to, the following: the alcoholic beverage is served in connection with food or any other thing sold to the recipient or an entertainment or entry fee is charged that includes one or more drink coupons or tickets. Any alcoholic beverage served under the identified or similar conditions is subject to the gross receipts tax, computed on the basis of the normal charge for the sale or service of such alcoholic beverage.

(2) Complimentary alcoholic beverages served during promotional periods such as happy hours at hotels or motels. If, however, there is an increase in guest room rates attributable to the promotional periods, the comptroller will have the option to tax either the increase in the room rate under Tax Code, Chapter 156 (Hotel Occupancy Tax), or assess use tax on the taxable ingredients of the complimentary drinks. The comptroller will have the authority to use information such as the room rates at comparable hotels and motels in the area to determine if an increased rate is attributable to the promotional period of alcoholic beverages.

(3) Complimentary alcoholic beverages served to holders of free drink cards or free drink tokens, for which no consideration was paid to the permittee.

(4) Voluntary gratuities.

(5) Reasonable mandatory gratuity charges, subject to the requirements of subsection (i)(1) of this section.

(6) Walked checks or tabs.

(7) Receipts from cover charges, door charges, entry fees, or admission fees that are for entertainment, food specials, and other purposes, and receipts from the sale of temporary membership cards. Sales tax as provided by §3.298 of this title (relating to Amusement Services) is due on these receipts.

(8) Alcoholic beverages sold by a permittee for off-premises consumption.

(9) [~~(8)~~] Bad debts. For more information on bad debt refunds or credits, refer to subsection (n) of this section.

(10) [~~(9)~~] Mixed beverage sales taxes. Mixed beverage sales taxes are not part of the mixed beverage gross receipts tax base. A permittee who sells mixed drinks with mixed beverage sales tax included in the sales price should deduct the mixed beverage sales tax before calculating the mixed beverage gross receipts tax base.

(g) Alcohol loss. No mixed beverage gross receipts tax is due on alcoholic beverages destroyed due to spillage or breakage.

(h) Inventory for cooking. No mixed beverage gross receipts tax is due on alcoholic beverages used in cooking.

(1) Purchases. Purchases of alcoholic beverages used in cooking must be documented either:

(A) by purchase invoices that have such beverages clearly denoted by either the seller or purchaser; or

(B) by separate purchase invoice.

(2) Storage. Alcoholic beverages used in cooking may be stored with regular bar stock or in a separate storage area.

(3) Use. The withdrawal from inventory of alcoholic beverages used in cooking must be recorded at the time of withdrawal on a service check or other permanent source record. Use tax as provided by Tax Code, Chapter 151, is not due on alcoholic beverages used in cooking.

(i) Mandatory gratuity charges.

(1) Reasonable mandatory gratuity charges are excluded from the mixed beverage gross receipts tax base if they are:

(A) separated from the sales price of the alcoholic beverage served;

(B) identified as a tip or gratuity by any reasonable means, including such terms as service fee or service charge; and

(C) disbursed to qualified employees. Any portion of a reasonable mandatory gratuity charge that is retained by the employer is included in the mixed beverage gross receipts tax base.

(2) Mandatory gratuity charges in excess of 20%. If a mandatory gratuity charge exceeds 20% then the entire mandatory gratuity charge is included in the mixed beverage gross receipts tax base regardless of how the gratuity is disbursed.

(j) Record requirement. Records required by the comptroller for mixed beverage permittees must be kept for a minimum of four years and throughout any period in which any tax, penalty, or interest may be assessed, collected, or refunded by the comptroller, or in which an administrative hearing or judicial proceeding is pending. Records must be made available upon request within a reasonable time for examination by the comptroller or authorized agents or employees. The records, in general, must be contemporaneous and must reflect the total gross receipts from the sale or service of alcoholic beverages and those associated services that are subject to the gross receipts tax, as provided by subsections (c), (d) and (e) of this section. Records may be written documents or their electronic equivalents. Permittees must contact the Texas Alcoholic Beverage Commission for information concerning Texas Alcoholic Beverage Commission record keeping requirements.

(k) Source records.

(1) The information described in this subsection is required to be printed on a source record in a manner that makes such information clearly evident or by a system of symbols (codes) if such symbols and their meaning are printed on the source record or maintained on the licensed premises.

(A) Each individual serving of an alcoholic beverage and the price charged. When using service checks, it is permissible to make one entry on a service check for more than one individual serving if all of the servings are of the same type (e.g., 3 Scotch & Water @ $2.00 = $6.00). If all of the servings are not of the same type, a separate entry must be made on the service check for each type of service (e.g., 3 Scotch & Water @ $2.00 = $6.00, 2 Rum & Coke @ $2.00 = $4.00). When using a cash register only, regardless of the type of service, each individual serving must be rung up separately. When using a combination of service checks and a cash register, it is not necessary to itemize each serving on the cash register tape if all the required information is shown on the service check.

(B) For an alcoholic beverage not served as an individual separate serving, the unit of the serving used and the price charged. When using service checks, units of servings that are more than an individual separate serving shall be recorded as such (e.g., 2 pitchers of a malt beverage [~~beer~~] @ $3.25 = $6.50, 1 pitcher of daiquiri @ $6.00 = $6.00). When using a cash register only, each unit of serving which is more than an individual separate serving must be rung up separately, with the price list identifying the unit of serving. When using a combination of service checks and a cash register, it is not necessary to itemize each serving on the cash register tape if all the required information is shown on the service check.

(C) Each separate serving or other unit shall be clearly identified as to the kind of drink (e.g., daiquiri, tequila sunrise) or class of beverage (e.g., malt beverage [~~beer~~], wine, whiskey). If a cash register does not have sufficient keys for the classification, the price list used for identifying the units of servings must also identify the kinds of servings.

(D) The date of the transaction. For this purpose the "date" begins as of 3:00 a.m. one day and continues until 3:00 a.m. the next day.

(E) Complimentary alcoholic beverages, which shall be recorded on service checks only. A check must be prepared for each individual or party served. The check should be prepared as if the service of the complimentary alcoholic beverage was a normal sale and then clearly marked as being complimentary. The service checks should be grouped daily and filed with the daily summary showing the information on the summary as required by subsection (l) of this section.

(F) Mandatory gratuity charges that exceed 20% of the charge for alcoholic beverages must be recorded and identifiable on a source record. A reasonable mandatory gratuity charge must be recorded and identifiable on the source record only if the gratuity is disbursed to recipients other than qualified employees, including, for example, owners, club managers with no direct involvement in the particular event, janitorial help, chefs, cashiers, and dishwashers. Voluntary gratuities are not to be recorded on a source record.

(2) Source records shall be maintained in sequence by date.

(l) Daily Summaries. Each permittee must maintain a daily summary that includes the following information:

(1) all information required to be recorded on source records;

(2) complimentary alcoholic beverages dispensed, showing the number of services, type of service, kind of drink, and normal selling price;

(3) alcoholic beverages that were lost through theft, showing the number of containers lost by size, brand, and class. The theft must be reported to the proper police department and must be substantiated by the report of such police department;

(4) alcoholic beverages that were lost through a disaster, showing the number of containers lost by size, brand, and class. The disaster must be reported to the comptroller;

(5) alcoholic beverages that were lost through breakage or spillage, showing the number of containers lost by size, brand, and class or type of drink and size. A written report must be prepared at the time of the loss;

(6) alcoholic beverages that were lost through the cleaning, servicing, or repair of dispensing equipment lines, showing the amount lost by class or type of drink and supported by:

(A) reports prepared by the permittee at the time of the malfunction; or

(B) repair/service invoices prepared by the repair/service company;

(7) alcoholic beverages taken from inventory for use in cooking;

(8) cover charges, door charges, entry fees, or admission fees. Cover charges, door charges, entry fees, and admission fees are subject to sales tax as provided by §3.298 of this title, unless the Texas Alcoholic Beverage Commission determines that the cover charges, door charges, entry fees, or admission fees collected are in violation of the Texas Alcoholic Beverage Commission rules or regulations; and

(9) information pertaining to changes made during the month concerning prices, glass sizes, bulk machine (e.g., margarita machine) recipes, ounces per serving, parties, or promotions.

(m) Purchase invoices.

(1) A record of all alcohol and alcoholic beverages purchased or received showing the date, the name and address of the person from whom purchased or received, the location from where shipped, the location received, the quantity and kind of beverage (brand and class) received, and the total price paid for each brand and class received.

(2) Alcoholic beverages used in mixing drinks as the secondary ingredient (e.g., vermouth, triple sec) must be supported by purchase invoices which have such beverages clearly denoted by the purchaser.

(n) Bad debts refund or credit.

(1) A permittee may take a credit against taxes to be paid to the comptroller or claim a refund on taxes paid to the comptroller for bad debt on sales if the permittee:[.]

(A) determines that the unpaid portion will be uncollectible;

(B) enters the unpaid portion of the sales gross receipts on their books as a bad debt; and

(2) To establish bad debt credit or refund, a permittee's records must show:

(A) date of sale or service;

(B) name and address of purchaser;

(D) evidence that the gross receipts tax was paid to the comptroller;

(E) all payments or credits applied to the account of the purchaser;

(F) a designation that the account is a bad debt; and

(G) evidence that the account has been or will be claimed as a bad debt deduction for federal income tax purposes.

(3) To determine the amount of bad debt allowance for tax, all payments or credits in reduction of a customer's account must be applied ratably between alcoholic beverages and other goods sold to that customer.

(4) If all or part of the amount claimed as a bad debt is later collected, the amount collected must be reported as a taxable receipt in the reporting period in which the collection was made.

(5) Accounts may not be labeled as a bad debt for the purpose of delaying the payment of the mixed beverage gross receipts tax.

(o) Audit and examination of tax account.

(1) Determination of tax liability. In examining the tax account of any permittee, the comptroller may compute and determine the amount of gross receipts tax liability based on reports filed with the comptroller, records or information obtained from the permittee, records or information obtained from any seller who furnished alcoholic beverages to the permittee, or such other information as may come to the attention of the comptroller. The comptroller presumes that the disposition of all alcoholic beverages purchased by the permittee is taxable until established otherwise.

(2) Access to all information. The comptroller may examine all books, records, papers, documents, supplies, and equipment of a permittee. Additional records that may be required to be presented include, but are not limited to, the following:

(A) all procedure and operation manuals;

(B) all financial ledgers, journals, and registers;

(C) all financial statements prepared internally or by an outside bookkeeper, accountant, or certified public accountant;

(D) all bank statements;

(E) all federal income tax returns; and

(F) all state and federal employment tax returns and supporting documents.

(3) Failure to maintain or make records available for audit. In examining the tax account of each permittee, if the comptroller finds that the permittee has failed to maintain or make available the records required by any regulation of the comptroller, the comptroller may compute and determine the amount of the gross receipts tax liability from any available source or records, and estimates of the tax liability may be made by use of any available records for any period for which the permittee has failed to maintain records or file a report with the comptroller. In the event records are not made available, the comptroller will presume all alcohol purchased was sold. In the absence of records or evidence to the contrary, the comptroller may use [~~accept~~] an average pour size [~~figure~~] of 1.25 ounces for [~~per serving of~~] liquor; 16 ounces for a malt beverage; and 6 ounces for wine.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 23, 2024.

TRD-202403897

Jenny Burleson

Director, Tax Policy

Comptroller of Public Accounts

Earliest possible date of adoption: October 6, 2024

For further information, please call: (512) 475-2220

34 TAC §3.1002

The Comptroller of Public Accounts proposes amendments to §3.1002, concerning mixed beverage sales tax. The comptroller amends the section to reflect the changes in Alcoholic Beverage Code, §§28.1001 (Pickup and Delivery of Alcoholic Beverages for Off-Premises Consumption), 32.01 (Authorized Activities), 32.15 (Removal of Beverages from Premises), 32.155 (Pickup and Delivery of Alcoholic Beverages for Off-Premises Consumption), 32.17 (Cancellation of Suspension of Permit; Grounds), and 57.01 (Authorized Activities), made by House Bill 1024, 87th Legislature, 2021, effective May 12, 2021.

The comptroller amends subsection (a) to delete references to definitions defined in other statutes and rules and adds those definitions from those references to enhance readability. The comptroller amends paragraph (1) to add the definition of an alcoholic beverage as defined in Alcoholic Beverage Code, §1.04(1) (Definitions). The comptroller amends paragraph (2) to add the definition of complimentary alcoholic beverage as defined in §3.1001 (Mixed Beverage Gross Receipts). The comptroller amends paragraph (3) to add the definition of a governmental entity as defined in Tax Code, §151.309. The comptroller amends paragraph (5) to define the term permittee as defined in Tax Code, §183.001(b)(1) (Definitions).

The comptroller amends subsection (b) to replace the reference to §3.1001(f)(7) (Mixed Beverage Gross Receipts Tax) with §3.1001(f)(8). This implements House Bill 1024, which relates to alcoholic beverages sold by a permittee for off-premises consumption. These types of beverages are not subject to mixed beverage taxes as they are not consumed on premises as required by Tax Code, §183.041 (Tax Imposed on Sales of Mixed Beverages and Related Items). The change is consistent with proposed amendments to §3.1001 of this title.

The comptroller rearranges subsection (c)(5) related to bad debts for readability.

The comptroller deletes subsection (d)(4), a graphic related to examples of disclosure of tax statements, as it is available on the comptroller's website.

The comptroller amends subsection (f)(6) by deleting reference to obsolete mixed beverage permits and adding general language of permit, license, or certificate.

Mr. Reynolds also has determined that the proposed amended rule would benefit the public by conforming the rule to current statutes and improving readability. This rule is proposed under Tax Code, Title 2, and does not require a statement of fiscal implications for small businesses or rural communities. The proposed amended rule would have no significant fiscal impact on the state government, units of local government, or individuals. There would be no anticipated significant economic cost to the public.

You may submit comments on the proposal to Jenny Burleson, Director, Tax Policy Division, P.O. Box 13528, Austin, Texas 78711 or to the email address: tp.rule.comments@cpa.texas.gov. The comptroller must receive your comments no later than 30 days from the date of publication of the proposal in the Texas Register.

The comptroller proposes the amendments under Tax Code, §111.002 (Comptroller Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2 (State Taxation).

The amendments implement Alcoholic Beverage Code, §§28.1001 (Pickup and Delivery of Alcoholic Beverages for Off-Premises Consumption), 32.01 (Authorized Activities), 32.15 (Removal of Beverages from Premises), 32.155 (Pickup and Delivery of Alcoholic Beverages for Off-Premises Consumption), 32.17 (Cancellation of Suspension of Permit; Grounds), and 57.01 (Authorized Activities).

§3.1002.Mixed Beverage Sales 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) Alcoholic beverage--Alcohol, or any beverage containing more than 0.5% of alcohol by volume, which is capable of use for beverage purposes, either alone or diluted. [~~This term has the same meaning as assigned by §3.1001 of this title (relating to Mixed Beverage Gross Receipts Tax).~~]

(2) Complimentary alcoholic beverage--An alcoholic beverage served without any consideration paid to the permittee. [~~This term has the same meaning as assigned by §3.1001 of this title.~~]

(3) Governmental entity--The United States; an unincorporated instrumentality of the United States; a corporation that is an agency or instrumentality of the United States and is wholly owned by the United States or by another corporation wholly owned by the United States; the state of Texas; a county, city, special district, or other political subdivision of Texas; or other state or governmental unit boarding Texas but only to the extent those units exempt or do not impose tax on similar sales of items to Texas or a political subdivision of Texas. [An organization that is exempted from sales and use tax otherwise imposed on their purchases under Tax Code, Chapter 151 (Limited Sales, Excise, and Use Taxes), by operation of Tax Code, §151.309 (Governmental Entities).]

(4) Nonprofit organization--An organization that is exempted from the sales and use tax imposed under Tax Code, Chapter 151, by operation of Tax Code, §151.310(a) (Religious, Educational, and Public Service Organizations).

(5) Permittee--A person who holds any of the following permits issued by the Texas Alcoholic Beverage Commission: a mixed beverage permit, private club registration permit, private club exemption certificate permit, private club registration permit with a retailer late hours certificate, nonprofit entity temporary event permit, private club registration permit with a food and beverage certificate, mixed beverage permit with a late hours certificate, mixed beverage permit with a food and beverage certificate, or distiller's and rectifier's permit. The term includes an agent, servant, or employee of that person. [~~This term has the same meaning as assigned by §3.1001 of this title.~~]

(b) Mixed beverage sales tax. A tax at a rate of 8.25% is imposed on each alcoholic beverage sold, prepared, or served by a permittee, and on ice and each nonalcoholic beverage sold, prepared, or served by a permittee to be mixed with alcohol and consumed on the permittee's premises. The sales price of each item on which mixed beverage sales tax is imposed includes, but is not limited to, those items identified in §3.1001(c) of this title. Those items identified in §3.1001(f)(1) - (8) [~~(7)~~] of this title are excluded from the sales price of items on which mixed beverage sales tax is imposed. Mixed beverage sales tax is imposed in addition to the mixed beverage gross receipts tax imposed under Tax Code, Chapter 183, Subchapter B.

(1) Except as otherwise provided in this paragraph, mixed beverage sales tax is administered, collected, and enforced in the same manner as sales and use tax is administered, collected, and enforced in Tax Code, Chapter 151, except:

(A) a permittee may not deduct or withhold any amount of taxes collected as reimbursement for the cost of collecting the tax, pursuant to Tax Code, §151.423 (Reimbursement to Taxpayer for Tax Collection); [~~and~~]

(B) a permittee may not receive a discount for prepaying the tax, pursuant to Tax Code, §151.424 (Discount for Prepayments); and[.]

(C) any record, report or other instrument required to be filed by a permittee is not confidential under Tax Code, §151.027(a) (Confidentiality of Tax Information).

(2) Tax due is debt of the purchaser. Mixed beverage sales tax is a debt of the purchaser to the permittee until collected.

(3) Tax-included sales price. The total amount shown on a customer's sales invoice, billing, service check, ticket, or other receipt for sales that are subject to mixed beverage sales tax is presumed to be the sales price, without tax included. Contracts, bills, invoices, or other receipts that merely state that "all taxes" are included are not sufficient to relieve either the customer or the permittee of their tax responsibilities on the transaction. The permittee may overcome the presumption by using the permittee's records to show that tax was included in the sales price.

(4) Record-keeping requirements. Permittees are responsible for creating and maintaining records of purchases and sales as required by §3.1001(j) - (m) and (o) of this title.

(5) Bad debts. [~~The exclusion of bad debts from the mixed beverage gross receipts tax base, as established in §3.1001(n) of this title, does not apply to mixed beverage sales tax.~~] Bad debt deductions from mixed beverage sales tax are treated in the same manner as bad debt deductions from sales tax. For more information on bad debt deductions from sales tax, refer to §3.302 of this title (relating to Accounting Methods, Credit Sales, Bad Debt Deductions, Repossession, Interest on Sales Tax, and Trade-Ins). The exclusion of bad debts from the mixed beverage gross receipts tax base, as established in §3.1001(n) of this title, does not apply to mixed beverage sales tax.

(d) Separate tax disclosure statement.

(1) A permittee may include on a customer's sales invoice, billing, service check, ticket, or other receipt that includes an item subject to mixed beverage sales tax:

(A) a statement that mixed beverage sales tax is included in the sales price;

(B) a separate statement of the amount of mixed beverage gross receipts tax to be paid by the permittee on that sale;

(D) a statement of the combined amount of mixed beverage gross receipts tax and mixed beverage sales tax to be paid on that item; or

(E) a statement of the combined amount of mixed beverage sales tax and sales and use tax imposed under Tax Code, Chapter 151, to be paid on all items listed on that sales invoice, billing, service check, ticket, or other receipt.

(2) Mixed beverage gross receipts tax cannot be charged to or paid by the customer. A receipt with a statement of the combined amount of mixed beverage gross receipts tax and mixed beverage sales tax provided in paragraph (1)(D) of this subsection must clearly show that the customer is not being charged mixed beverage gross receipts tax.

(3) For each receipt with a statement of the combined amount of mixed beverage sales tax and sales and use tax, as provided in paragraph (1)(E) of this subsection, the permittee's books and records must clearly show the amount of mixed beverage sales tax and sales and use tax on each sale of alcohol.

~~[(4) Examples of disclosure of tax statements.]~~

~~[Figure: 34 TAC §3.1002(d)(4)]~~

(e) Complimentary beverages. A permittee owes sales and use tax, as imposed by Tax Code, Chapter 151, on the purchase of alcoholic beverages, ice, and nonalcoholic beverages that are ingredients of a complimentary alcoholic beverage or that are served or provided by the permittee, without any consideration from the customer, to be mixed with a complimentary alcoholic beverage and consumed on the permittee's premises. The permittee also owes sales and use tax on taxable items that are furnished with a complimentary alcoholic beverage, such as napkins and straws.

(f) Exemptions; governmental entities; nonprofit organizations; university and student organizations; volunteer fire departments; temporary permit.

(1) Governmental entity exempt on purchase of alcohol. A governmental entity can claim an exemption from mixed beverage sales tax on the purchase of alcohol in the same manner as a governmental entity can claim exemption from the payment of sales and use tax on the purchase of alcohol under Tax Code, §151.309.

(2) Purchase of alcohol by nonprofit organization not exempt. A nonprofit organization cannot claim an exemption from the mixed beverage sales tax on the purchase of alcohol. In addition, except as provided in this subsection, a nonprofit organization is responsible for collecting mixed beverage sales tax on the sale, preparation, or service of alcoholic beverages to the same extent that the organization is responsible for paying mixed beverage gross receipts tax on such beverages. For more information, refer to §3.1001(e) of this title.

(3) Nonprofit organizations; fundraising events.

(A) The sale, preparation, or service of alcohol is exempt from mixed beverage sales tax when sold by a nonprofit organization that qualifies for exemption from sales and use tax under Tax Code, §151.310(a)(1) or (2) during a qualifying fundraising sale or auction authorized by Tax Code, §151.310(c).

(B) Except as provided in subparagraph (A) of this paragraph, the sale, preparation, or service of alcohol by a nonprofit organization that qualifies for exemption from sales and use tax under Tax Code, §151.310(a)(1) or (2) is computed in the same manner as mixed beverage gross receipts tax is computed in §3.1001(e) of this title.

(4) University and college student organizations. The sale, preparation, or service of alcohol is exempt from mixed beverage sales tax when sold by a university or college student organization that is certified as an affiliated organization by a university or college as defined in Education Code, §61.003 (Definitions) during a sale authorized by Tax Code, §151.321 (University and College Student Organizations).

(5) Volunteer fire departments; fundraising events. The sale, preparation, or service of alcohol is exempt from mixed beverage sales tax when sold by a volunteer fire department that qualifies for exemption from sales and use tax under Tax Code, §151.310(a)(4) during a qualifying fundraising sale or auction authorized by Tax Code, §151.310(c-1). This exemption is effective May 28, 2015. A previous exemption from mixed beverage sales tax on the sale, preparation, or service of alcohol when sold by volunteer fire departments at fundraising events expired on September 1, 2014.

(6) Temporary mixed beverage permit required. Nonprofit organizations, university or college student organizations, and volunteer fire departments must hold a permit, license or certificate [~~daily temporary mixed beverage permit or daily temporary private club permit~~], issued by the Texas Alcoholic Beverage Commission, in order to sell alcoholic beverages and claim an exemption from mixed beverage sales tax on those sales pursuant to paragraphs (3) - (5) of this subsection.

(7) Governmental entities and nonprofit organizations owe mixed beverage gross receipts tax. A governmental entity or nonprofit organization is not exempt from the payment of mixed beverage gross receipts tax on receipts from the sale, service, or preparation of alcoholic beverages. This includes sales of alcohol during any fundraising sale or auction. For more information, refer to §3.1001(e) of this title.

(g) Lump-sum charges that include alcoholic beverages and additional items together for a single price.

(1) Permittees shall compute mixed beverage sales tax on alcoholic beverages that are served together with meals for a single charge in the same manner as mixed beverage gross receipts tax is computed in §3.1001(c)(1)(D) of this title.

(2) Permittees shall compute mixed beverage sales tax on alcoholic beverages that are served at private clubs, special events, or functions in the same manner as mixed beverage gross receipts tax is computed in §3.1001(d) of this title.

(h) Inventory used in cooking. Alcoholic beverages used in cooking are exempt from both mixed beverage sales tax under Tax Code, Chapter 183, and sales and use tax under Tax Code, Chapter 151, provided that the permittee follows the record-keeping requirements set out in §3.1001(h) and (l) of this title.

(i) Monthly mixed beverage sales tax reports. Each permittee must file a monthly mixed beverage sales tax report on or before the 20th day of the following month even if no sales or services of alcoholic beverages were made during the month. Reports and payments due on a Saturday, Sunday, or legal holiday may be submitted on the next business day. The Texas Mixed Beverage Sales Tax report is due in addition to the Texas Mixed Beverage Gross Receipts Tax report to be filed under Tax Code, Chapter 183, Subchapter B, and the Texas Sales and Use Tax report required to be filed under Tax Code, Chapter 151.