Late one afternoon in early June, a chain-smoking, dark-haired man in his mid-forties idly watched an Austin convenience store cashier violate the law. Not until the man got home did he discover that the cashier had illegally charged him sales tax on his sack of groceries—on the milk, onions, and bread; on every single item, in fact, all of which happened to be exempt under the Texas sales tax law.

It was not the loss of the 25 cents that chagrined him; it was the firm suspicion that the store had a deliberate policy of tacking a phony “tax” onto every ticket, unless challenged by the customer. He suspected that, by his absentmindedness, he’d fallen victim to one of the countless petty sales tax rip-offs the State Comptroller has been trying to stamp out. He resolved to do something about it on his next visit. And that’s bad news for the store. Because the customer’s name was Bob Bullock, and he is the Comptroller.

The sales tax is Texas’ most prolific source of government revenue; 38 percent ($1.3 billion) of last year’s state tax collections were derived from what the law books officially call the “Limited Sales, Excise, and Use Tax.” The closest contender—oil and natural gas production taxes—brought in almost exactly half as much ($664 million), and the principal “business tax—corporation franchise taxes-was far down the list with just $167 million.

If the adjective “limited” sounds like wishful thinking to describe a levy that seems to sprout like a weed at the foot of practically every sales receipt, keep in mind that the sales tax statute is an intricate tangle of exemptions. These are at best chaotic, often whimsical, at worst nonsensical—nothing so simple and clear-cut as the popular labels of “food” and “drugs” would make them appear. For the average Texan, the sales tax is the sole everyday rendezvous with the tax collector; and, because of its exemptions, it is also the tax you are most likely to overpay.

That danger has worsened lately—an unintended side effect of Comptroller Bullock’s energetic campaign to crack down on retail stores that charge the tax to their customers and then fail to pass the money along to the state treasury. When the colorful Bullock—who has had several previous incarnations in Texas politics, including four years as a state legislator, five as a savvy, freewheeling lobbyist, one as an assistant attorney general in charge of antitrust, and three more as Governor Preston Smith’s controversial secretary of state—arrived at the Comptroller’s office in January 1975 he discovered that the collection procedures were dismayingly lackadaisical. Under departing Comptroller Robert Calvert, each bureaucratic section operated as an independent fiefdom, often issuing its own tax rulings without even consulting the department’s legal division. Serious audits were a now-and-then/maybe affair; many retail establishments openly and with impunity refused to give the state the sales taxes their customers had already paid. Asked what his official priorities had been concerning the sales tax when he took office, Bullock explained: “Collect it. Just plain collect it.” Thus began the hard-line policy against retail tax cheats—who, Bullock found, were disproportionately concentrated in certain types of highly competitive businesses like carpet stores, restaurants, appliance stores, tire companies, and lumber yards, though there was hardly any line of retail sales in which some merchant somewhere had not been tempted to convert his 5 percent tax collections into 5 percent extra “profit.” Unscrupulous businesses skimmed off money belonging to the public, then put the illegal money to work against law-abiding competitors. “Give those people a five percent advantage,” says Bullock, “and they’ll run their competition right out of business. A few dollars can make the difference in a tire sale or a TV sale.”

Bullock’s Raiders have already paid surprise visits to 285 delinquent businesses owing a total of $2.7 million in tax liabilities. Some have forked over their debt on the spot; others have been padlocked until their owners could produce the missing money. Bullock’s sales tax division collected $993,000 in court judgments during the first sixteen months of his tenure—considerably more than Calvert had collected in his final eight years. His field auditors will, at their present brisk pace, bring in $33 million in otherwise uncollected sales taxes this year, compared to $9 million during the last full year under Calvert.

All of this has flustered retail businesses accustomed to the casual indifference of the Calvert era. For years they were willing to resolve ambiguous tax questions in a good customer’s favor; even though stores are liable for tax on all taxable sales whether or not they collect it from purchasers, full-fledged audits were rare, so they got by comfortably. Now there is a discernible tendency to insist that customers pay the “tax” whenever there is the slightest possibility it could be due. Result: Texas consumers are paying more and more “taxes” they don’t owe. And the pennies add up. “If even one-half of one percent of the sales tax revenue has been erroneously collected,” says Garry Mauro, assistant comptroller for field operations, “that is still a hell of a lot of money”—more than $6.5 million last year.

Most of the confusion in sales tax collections results from the almost indecipherable glut of exceptions. Bullock has begun to eliminate some of the more spectacular absurdities that he inherited from Calvert. He has, for example, abolished the ruling under which tax was due on baling wire used to bale hay for one’s own farm, but not due on baling wire used to bale hay for sale; he has discarded the ruling that made hand-held posthole diggers taxable and tractor-mounted posthole diggers untaxable. But others remain, either built into the statute by the Legislature or engrafted onto it by administrative fiat: the infamous Six Doughnut Rule, the Sliced Barbecue Test, the Complete Funeral Principle, and the Fudgsicle Savings Clause, to mention a few (see page 116).

The Comptroller has been called upon to decide such weighty questions as whether tax is due on candy sold at PTA carnivals (no), the electricity used in a doghouse at a mine (yes), tarragon herbs (yes if bought as a living plant; no if bought dried in a bottle), and worms (yes if bought as fish bait; no if bought by a farmer to improve his soil). He has ruled that sales tax is due on garage sales, that a Dairy Queen cone is taxable but a pint of Dairy Queen isn’t, and that pet dogs are taxable but stock dogs are not. If, as has been reported, dog meat is considered a delicacy by the Vietnamese, he may soon be called upon to judge whether the purchase of a canine for, say, sweet-and-sour Doberman is a taxable transaction for our newest Texans. (Reluctant to prejudge his legal division, Bullock so far merely says he expects it would be regarded “like sweet-and-sour possum in East Texas.”)

Both the sales tax rate and the number of exceptions have risen since the tax was first passed, over Governor Price Daniel’s long and fierce resistance, in an embattled special legislative session in 1961. The rate, originally 2 percent, rose to 3 in 1967, to 3 ¼ in 1969, and to 4 in 1971. In 1967 cities and towns were given the right to tack on an extra 1 percent for local use, yielding the now-familiar 5 percent tax in most urban areas of Texas. The tax itself, imposed on “the receipts from the sale at retail” of “tangible personal property” within Texas, was originally designed to exclude a host of items that the Legislature considered “essentials” rather than “luxuries,” some of which were essential only to the special-interest groups that successfully persuaded the lawmakers to include them. Tax benefits went to such disparate groups as airlines, labor, and vending machine companies; the oil drillers got their gravy and as time passed, others added their own: in 1968, for example, racehorse breeders pushed through an amendment exempting their thoroughbreds from sales tax. By any reckoning, the most lavish tax breaks went to the farm and ranch lobby; unlike the city dweller, a farmer can, by tapping the right plug, run his home TV and air conditioners on tax-free electricity; feed the family dog tax-free pet food; put tax free oil in his pickup; and  enjoy myriad other privileges. Even the taxable bug spray which the city dweller uses on his home garden is not taxable for the farmer’s crops. (The same is true of ladybugs and praying mantises, which the law considers “work animals” for the farmer.) Tax exemptions on farm machinery, in effect from the beginning, were broadened in 1968 to allow farmers and ranchers to include such machinery as road graders in the tax-free category-a major boon to large property holders in South and West Texas.

One of the biggest special-interest beneficiaries under the sales tax law is the retail merchant himself. Not only does he get to keep a collector’s fee of 1 percent of the total tax he owes (3 percent if he prepays), but the law is designed to let him collect from customers considerably more money than he subsequently will be required to forward to the state treasury. He collects on each individual sale, but he pays only on the aggregate of all his taxable sales. Moreover, the “bracket” system which he can use to compute the tax on those individual sales is skewed to let him collect more than 5 percent on many taxable items. The sales tax can be as high as 10 percent—as anyone who buys a dime postcard or newspaper soon discovers.

It is possible to get a fairly accurate picture of the things a society values and does not value by perusing its tax structure. Texas’ persistent reputation for anti-intellectualism is underscored by its decision, contrary to most states’, to tax newspapers and magazines—though perhaps a magazine is not the place to point that out. (In England, even books are free of tax.)

The most important sales tax exemptions are the result of tenacious efforts by legislative liberals in the 1961 special sessions and in later years. The most well-intentioned exemption is “food for human consumption,” which, however, does not include food “served, prepared, or sold ready for immediate consumption” by restaurants, drugstores, pushcart vendors, and similar businesses, nor does it include various kinds of food the Legislature disapproved of—candy, soft drinks, wine, and Popsicles, for example. By the time the Legislature finished granting special privileges allowing favored organizations like church groups and PTAs to sell even taxable items free of tax, the chaos caused by the food exemptions was extraordinary. “Texas has one of the most elaborate exemption structures in the U.S.,” says Deputy Comptroller Buck Wood. “I grew up thinking the exemptions were a great idea, but now I’m not so sure. Everybody wants to look at the tax structure to accomplish some social purpose, but it doesn’t do a good job of that. A lot of exemptions have just gotten out of hand. Food is the worst. Our number one audit problem is grocery stores that sell both exempt and nonexempt items.”

Most states do tax food—but, as Wood points out, they generally cushion the impact of their food tax upon the poor by providing a corresponding rebate on personal income taxes—an alternative unavailable in Texas, which is one of only eight states without a personal income tax.

Because the grocery exemption is Texas’ way of serving a widely recognized social purpose, it will likely be around for many years to come. Bullock, however, will ask the 1977 Legislature to consider reforming other exemptions, like the one which allows common carriers to purchase replacement parts tax free. He also would not be disappointed if the legislators repealed the sales tax on electricity, at least for residential users.

In the meantime, what should consumers do? There is, unfortunately, no ready summary of exemptions or your rights under the law. The sales tax is so complicated it can’t be summarized: the statute and the official interpretive rulings form a sheaf of paper more than an inch high. Bullock has ordered the preparation of brochures that would explain in simple terms the exemptions applicable to various types of businesses, but according to Carlton Carl, director of tax information, “To try to be specific on everything would cause more confusion than we have now.”

Instead of trying to devise a written explanation for every possibility, Bullock has installed a toll-free WATS line to answer individual taxpayers’ questions, which goes into operation August 1. The number is 800-252-5555. “If you think you’re being overcharged on something,” says Carl, “tell the store to pick up the phone and ask us whether it’s taxable or not.”

If the whole thing seems like too much hassle, you may want to lie down and take an aspirin. OK. But it’s taxable. 


Back in 1961 when the Texas sales tax was new, consumers paid more attention to what was taxable and what wasn’t than they do now. In fifteen years a whole generation has grown up thinking the words “plus tax” arc part of the natural order of things. They are more inclined to pay up than to ask questions. The rest of us have been thoroughly confused—not only by the tangle of exemptions that were woven into the tax at the beginning, but also by the new items that come and go (mostly come) under its provisions. There is ample opportunity for overcharge, intentional or unintentional, in a wide array of commercial transactions.

Some of the most bizarre are illustrated on these pages. With many nontaxable items—fertilizer, for example—your own knowledge is your only protection; many are the checkout clerk who have no idea what’s taxable and what isn’t, so speak up or pay what you don’t owe. If you’re uncertain, call the Comptroller’s toll-free number or if you want to report a violation, contact the nearest local district office. 

The Drinks-With-Dinner Trap
Even as the liquor-by-the-drink law brought the benefits of tequila sunrises to Texas’ deprived millions, it created a tricky pitfall for the unwary diner. If the restaurant you’re visiting has a mixed-drink permit, all its alcoholic beverages are exempt from the sales tax (they are taxed—at 10 percent—under a different law, and that tax must be included in the menu price, not tacked onto the bill). Check to see if the sales tax you are asked to pay has been computed on the price of your dinner and drinks. If so, the management may be gambling that the customer is so used to seeing sales tax that he’ll never notice. An extra 5 percent on what may be $20 or $30 worth of cocktails and wine quickly adds up to a nifty profit margin for the management. At one top Dallas restaurant we sent back such a miscomputed bill; it was discreetly returned a few moments later with the tax computed correctly, but when we paid another visit six months later, the same game was still going on.

But keep in mind two caveats: (1) since 1975, if a restaurant add a mandatory “‘service charge” to your bill, they can properly charge tax on that (“voluntary’’ tips are still exempt, of course), and (2) if the restaurant you visit does not have a mixed-beverage permit—say it just sells wine and beer—it falls under a different provision of the law and wine and beer are subject to sales tax.

Mail-order Swindles
Beware of mail-order form from companies with out-of-state addresses. Nine times out of ten the companies are not registered to do business in Texas, which means that they are not authorized to collect Texas sales tax on the items they sell. Some, of course, don’t even try to; but others have developed the “add applicable tax” ploy. Their order blanks have a line for you to fill in the price of the merchandise and then a line underneath marked “add applicable tax.” The unwitting purchaser dutifully adds 4 or 5 percent and mails away the money. The unregistered company simply pockets the “tax.’’ They haven’t broken any law, because in truth there is no tax on sale of this type; you have just been suckered. But be careful: if the mailing address is in Texas, or if the company is registered to do business here, you do owe tax, and the company will let you know it in no uncertain words—the form will say clearly, “‘Texas residents add 5 percent cent sales tax,” or some other phrase to make it plain exactly what tax is being collected. Another word to the wise: just because you don’t owe Texas sale tax on mail-order merchandise from most out-of-state firms does not, alas, mean it’s tax free. If the item would be taxable if sold in Texas, you are supposed to volunteer to pay the Comptroller a “use tax” in an amount equal to the sales tax. Few do; but on some big ticket items, he will track you down. The taxman thinks of everything.

Fertilizer Flimflams
Fertilizer is exempt from sales tax in Texas, regardless of who the purchaser is or what he plans to use it for. But outside of farm and ranch stores in rural areas, this exemption is widely unknown and ignored. “Inadvertently paying tax on large exempt items like fertilizer is one of the most frequent mistakes a consumer make,” says Deputy Comptroller Buck Wood. The more urban the location, the more likely the error; recently we picked up a bag of fertilizer at our downtown Woolworth’s, were charged tax, questioned it, and were told by the checkout girl, “Nobody ever told me it isn’t taxable.” True, nobody had; and since almost everything else Woolworth’s sells is taxable, her assumption was a natural one. We decided to see how long it might take to get things straightened out; after talking with two supervisors, the manager, and waiting for him to telephone the comptroller, we got our tax-free fertilizer in about 25 minutes. 

Tires and Fishing Gear
The federal excise tax is applied to a wide variety of items. In most cases—radios and batteries, for instance—the state sales tax is due on the entire purchase price, including the federal tax. Not so, however, with two privileged types of merchandise: tires and fishing equipment.

Tire dealers are fiercely competitive, and some of them are not above quoting you an attractive deal and then gigging you at the last minute with an inflated “sales tax.’’ Study any tire bill closely: has the sales tax been figured on the price of the tires after deduction for any trade-in, and before the federal excise tax is added? If so, you’re ok: if not, holler.

The same is true with fishing equipment, though in that case mistakes are more often the result of sales clerk ignorance than company trickery. We owe both these peculiar exemptions to the Legislature.

Convenience Store Chicanery
Convenience food stores sell so much that is taxable (anywhere from 30 to 70 percent of their sales are beer), that they often charge tax on virtually anything you buy. Whether they do this because they don’t stop to think or because they are confident you won’t stop to think is a matter of some debate. Recently, at our neighborhood Seven-Eleven, a customer brought two 37 cent cans of tomato paste to the checkout counter. Nothing could have been more clearly “food.” This exchange ensued:

Clerk: “That’ll be seventy-four cents plus four cents tax, seventy-eight cents.”

Customer: “But this is food, there’s no tax on this.”

Clerk: “‘Well, there is tax, but we won’t worry about it, okay?”

Seven-Eleven is by no means the sole offender. At a local Utotem, the ice cream cabinets were brazenly festooned with large stickers reading, “Fudgsicles 17 cents plus tax” and ‘‘Ice Cream Sandwiches 20 cent plus tax”—despite the fact that both articles, being dairy products, have always been tax free when old in grocery store .

A familiar convenience store practice is to tax soft drinks in returnable bottles based on a lump sum that includes the deposit on the bottle. No way. Although soft drinks are taxable, bottle deposits are not. The gambit is not limited to convenience food stores—any time you go to your grocery without bottles, pick up a carton or two, and the clerk rings up a lump sum for the drink and bottles together, you can be sure he has hit the “taxable” button for the whole amount. Bottle deposits should be added on at the bottom of your bill, after the tax has been computed, or else rung up as nontaxable “groceries.”

Rural One-Percenters
City folk tend to forget that the Texas state sales tax is 4 percent, not 5. The other penny goes to the municipalities which have elected to piggyback their own 1 percent sales tax on top of the state’s. Almost every city and town of any size has done so. But that extra penny stops at the city limits; stores in rural areas can charge no more than the basic 4 percent.

Result: some rural businesses, especially those just outside the city limits, hit up unsuspecting city slickers for the extra 1 percent and (unless the Comptroller catches them) pocket it. Few customers notice, because 5 percent tax is so widely accepted.

“Rounding Off”
An increasingly common practice isto “round off” the sales tax to the nearest nickel. Somehow, it always seems toget rounded off up, not down.

Unlike most ales tax rip-offs, which are perpetrated either in ignorance or by sharpies who are obviously sharpies, this one is both deliberate and most likely to happen to you at a better-class establishment. If you question the extra three or four cents, the management will probably tell you, “Oh, we just don’t like to fool with pennies here,” implying by a suitably arched eyebrow that you must be some sort of Silas Marner for fooling with them yourself. For even noticing, in fact. 

For better or worse, however, the U.S. government still mints pennies, and the Texas sales tax s still computed in them. Within 48 hour after Maryln Schwartz of the Dallas Morning News did a front-page exposé about “rounding off” in Dallas, Bullock issued a new regulation forbidding it and imposing civil penalties of up to $500 per day for violations. He also began audits of the offending businesses. But elsewhere, the practice still goes on.

Repair Contract Pitfalls
Repairs are one of the most complicated areas of the sales tax. Say you take your ragged old venetian blinds to be restrung. The repairman can either divide your bill into “materials” and “labor,” or he can write your bill for one lump sum covering everything. If he does the former, he is entitled to charge you tax on the material but not the labor; if he does the latter, the whole bill is free of sales tax. Obviously, then, it’s to your advantage to get a lump-sum repair bill if you can—provided your repairman follows the rules and doesn’t add sales tax onto that, as many unfortunately do.

Caveat: What makes the repair area so complicated is that some things which look like repairs aren’t legally repairs. If you take an old upholstered chair and have it re-upholstered, that’s a repair; but if you take a chair frame and have it upholstered for the first time, that’s “processing” or “fabrication,” for which a whole different set of rule applies. According to Tom Henderson, director of the sales tax division, “If the work substantially modifies the nature or purpose of the item, rather than simply restoring it to its original condition, then it’s not a ‘repair.’ ” Thus, if you bring a seamstress cloth to make drape , her bill is fully taxable; if you ask her to mend the drapes you already have, she is performing a repair and a lump-sumn bill from her should be tax free.

Mobile Home and Used Car Gimmicks
In sheer dollars lost, no sale tax rip-off can equal the game played by some unscrupulous used-car sale men and mobile-home dealers. Neither automobiles nor mobile homes are subject to the sales tax. They are covered, instead, by the motor vehicle tax, an entirely separate levy which dates from 1941 and is payable not to the retailer but to the county tax collector directly. (You pay the 4 percent motor vehicle tax at the time you register your car and pick up the tags.)

A fast-talking used car salesman can bamboozle unsuspecting purchasers out of a big chunk of money. “Some of these guys,” says Buck Wood, “will tell you, ‘Yessiree, this one’s a beautiful baby, you bet, just nine hunnert dollars, that’ all, just nine hunnert dollar plus tax,’ and you’ll listen to their pitch and wind up paying forty-five dollars you don’t owe. Later, when you go to transfer your title, you’ll find out you still owe the state the motor vehicle tax of four percent. And when you go back to locate the guy who took your money, he’s nowhere to be found.”

The same sales swindle occasionally happens to unlucky mobile-home buyer, with even more disastrous results, since the phony “sales tax” on a $10,000 mobile home can be as much a $500. Because mobile home are not issued tags except for highway use, moreover, the purchaser who buys one for a fixed residence may never learn that he has been had.

Use Tax Evaders
The tenth rip-off is one that hurts you primarily as a citizen, not as a consumer. It’s the failure of many businesses (and individuals) to pay “use tax” on expensive items they purchase from out of state, thereby shortchanging the state treasury. Technically, of course, even the tiniest mail-order purchase may be subject to the use tax, but the cost of the paperwork required to process such a minuscule payment would exceed the revenue the state might get. Not so, however, with things like bank computers, printing presses, television towers, convenience store coolers, pleasure boats, and airplanes—all of which, the Comptroller has found, are being purchased out of state by Texans who bring them home and use them without paying tax. The revenue loss is substantial; an unpaid five percent use tax on a $3 million printing press is an even $150,000. An $800,000 corporate jet involves $40,000.

Some businesses aren’t even aware of the use tax. Others know perfectly well what they are doing. A common practice is to purchase, say, a Cessna out of state, fly it surreptitiously into Texas, and put it in a hangar. “How do we ever find it?” says Bullock. “We can go out and check the registration number with the FAA, but that’s a tedious process.” Nor are private individuals above cutting tax corners at the expense of their fellow citizens. “People in Galveston or Beaumont buy pleasure boats tax-exempt in Louisiana, bring them back, and don’t pay the use tax,” says Bullock. “We have a hell of a time finding them. But what they’re doing is unfair to the Texas merchant; that Louisiana salesman has a $5000 advantage on a $100,000 boat. He can make you a pretty good deal on that boat.”

Bullock has instructed his auditor to keep a sharp eye out for possible use tax violations. In so doing, he hopes to put a noticeable dent in the present multimillion-dollar losses for unreported and unpaid use taxes.