(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
  (1) Equipment--Any apparatus, device, or simple machine used to perform a service.
  (2) Federal government--The government of the United States of America and its unincorporated agencies and instrumentalities, including all parts of the executive, legislative, and judicial branches and all independent boards, commissions, and agencies of the United States government unless otherwise designated in this section.
  (3) Integral part--An essential element without which the whole would not be complete. One taxable item is an integral part of a second item if the taxable item is necessary, as opposed to desirable, for the completion of the second item, and if the second item could not be provided as a whole without the taxable item.
  (4) Internet hosting service--The provision to an unrelated user of access over the Internet to computer services using property that is owned or leased and managed by the service provider and on which the unrelated user may store or process the user's own data or use software that is owned, licensed, or leased by the unrelated user or service provider. The term does not include telecommunications services as defined in §3.344 of this title (relating to Telecommunications Services).
  (5) Machinery--All power-operated machines.
  (6) Mexico--Within the geographical limits of the United Mexican States.
  (7) Purchaser--A person who is in the business of selling, leasing, or renting taxable items.
  (8) Seller--Every retailer, wholesaler, distributor, manufacturer, marketplace provider, or any other person who sells, leases, rents, or transfers ownership of tangible personal property or performs taxable services for consideration. Specific types of sellers, such as direct sales organizations, pawnbrokers, marketplace providers, and auctioneers, are further defined in §3.286 of this title (relating to Seller's and Purchaser's Responsibilities).
  (9) Taxable item--Tangible personal property and taxable services. Except as otherwise provided by Tax Code, Chapter 151, the sale or use of a taxable item in an electronic form instead of on physical media does not alter the item's tax status.
  (10) Tax-free inventory--A stock of tangible personal property purchased tax-free for resale, whether from out-of-state or by issuing a properly completed resale certificate, by a purchaser who, at the time of purchase:
    (A) holds a valid Texas sales and use tax permit;
    (B) makes sales of taxable items in the regular course of business; and
    (C) does not know whether the tangible personal property will be resold in the normal course of business or used in the performance of a service.
  (11) United States--Within the geographical limits of the United States of America or within the territories and possessions of the United States of America.
(b) Sale for resale.
  (1) Except as provided in paragraphs (3) - (6) of this subsection, each of the following is a sale for resale:
    (A) the sale of a taxable item to a purchaser who acquires the taxable item for the purpose of reselling it as a taxable item in the United States or Mexico in the normal course of business:
      (i) in the form or condition in which it is acquired; or
      (ii) as an attachment to or as an integral part of another taxable item;
    (B) the sale of tangible personal property to a purchaser who acquires the property for the sole purpose of leasing or renting it in the United States or Mexico in the normal course of business to another person, but not if incidental to the leasing or renting of real estate, as described in §3.294(k) of this title (relating to Rental and Lease of Tangible Personal Property);
    (C) the sale of tangible personal property to a purchaser who acquires the property for the purpose of transferring the property to a customer in the United States or Mexico as an integral part of a taxable service;
    (D) the sale of a taxable service performed on tangible personal property that the purchaser of the service holds for sale, lease, or rental;
    (E) the sale of tangible personal property or a taxable service to a purchaser who acquires the tangible personal property or service for the purpose of transferring it as an integral part of performing a contract, or a subcontract of a contract, for the sale, other than the lease or rental, of tangible personal property with an entity or organization exempted from the taxes imposed by this chapter under Tax Code, §151.309 (Governmental Entities) or Tax Code, §151.310 (Religious, Educational, and Public Service Organizations) only if the purchaser:
      (i) allocates and bills to the contract the cost of the tangible personal property or service as a direct or indirect cost; and
      (ii) transfers title to the tangible personal property to the exempt entity or organization under the contract or subcontract and any applicable acquisition regulations;
    (F) the sale of a wireless voice communication device, such as a cellular telephone, to a purchaser who acquires the device for the purpose of transferring the device as an integral part of a taxable telecommunication service when the purchase of the service is a condition for receiving the device, regardless of whether there is a separate charge for the device or whether the purchaser is the provider of the taxable service. See §3.344 of this title for information about telecommunication services; and
    (G) the sale of a computer program to a provider of Internet hosting services who acquires the computer program from an unrelated vendor for the purpose of selling the right to use the computer program to an unrelated user of the provider's Internet hosting services in the normal course of business and in the form or condition in which the provider acquired the computer program, without regard to whether the provider transfers care, custody, and control of the computer program to the unrelated user. The performance by the provider of routine maintenance of the computer program that is recommended or required by the unrelated vendor of the computer program does not affect the application of this subsection. For purposes of this subsection, the purchase of the computer program by the provider qualifies as a sale for resale only if:
      (i) the provider offers the unrelated user a selection of computer programs that are available to the public for purchase directly from an unrelated vendor;
      (ii) the provider executes a written contract with the unrelated user that specifies the name of the computer program sold to the unrelated user and includes a charge to the unrelated user for computing hardware;
      (iii) the unrelated user purchases the right to use the computer program from the provider through the acquisition of a license; and
      (iv) the provider does not retain the right to use the computer program under that license.
  (2) To qualify as a sale for resale, the taxable item must be acquired for the purpose of selling, leasing, or renting it in the regular course of business or for the purpose of transferring it as an integral part of a taxable service performed in the regular course of business.
  (3) A sale for resale does not include the sale of internal or external wrapping, packing, or packaging supplies to a purchaser who acquires the supplies for use in wrapping, packing, or packaging tangible personal property, or in the performance of a service, for the purpose of furthering the sale of the tangible personal property or the service. See §3.314 of this title (relating to Wrapping, Packing, Packaging Supplies, Containers, Labels, Tags, Export Packers, and Stevedoring Materials and Supplies).
  (4) A sale for resale does not include the sale of tangible personal property or a taxable service to a purchaser who acquires the property or service for the purpose of performing a service not listed as a taxable service under Tax Code, §151.0101 ("Taxable Services"), regardless of whether title transfers to the service provider's customer, unless the tangible personal property or taxable service is purchased for the purpose of performing a contract, or a subcontract of a contract, for a service, including a taxable service under Tax Code, §151.0101, with any branch of the Department of Defense, Department of Homeland Security, Department of Energy, National Aeronautics and Space Administration, Central Intelligence Agency, National Security Agency, National Oceanic and Atmospheric Administration, or National Reconnaissance Office to the extent allocated and billed to the contract with the federal government.
Cont'd...