A Texas resident ordered software from an out-of-state (Colorado) company that charged sales tax but is no longer permitted to collect Texas sales tax. Does the buyer still owe Texas tax on the software, and if so, to which state — Texas or Colorado?

Plain-English summary

A Texas resident ordered software by mail from an out-of-state company (based in Colorado), didn't include enough money to cover sales tax because they believed they shouldn't owe Colorado tax, and then got a notice from the seller demanding the tax anyway. The seller wouldn't share its Texas Tax Record Number when asked. The buyer wrote to the Comptroller asking whether they had to pay the tax at all, and if so, to which state.

The Comptroller's answer: Texas sales or use tax is due on software delivered to a customer for use in Texas — this is a Texas tax obligation, not a Colorado one, regardless of where the seller is located. In this specific case, the Comptroller's records showed the seller was no longer permitted, as of December 31, 1999, to collect and report Texas sales and use tax. Because the seller could no longer legally collect the tax on Texas's behalf, the buyer was told to remit the use tax directly to a Texas Comptroller Enforcement office rather than through the seller.

What this means for you

Texas residents buying software (or other goods) by mail or online from an out-of-state seller

The tax owed on something delivered for use in Texas is Texas tax, not the seller's home-state tax — don't assume that because a seller is based elsewhere, a different state's tax rules apply. If a seller isn't authorized to collect Texas tax (check their permit status if in doubt), you may need to self-report and pay Texas use tax directly rather than through the vendor.

Out-of-state sellers shipping into Texas

If your Texas sales tax permit has lapsed or been revoked, you're no longer authorized to collect Texas tax from customers — continuing to charge it (or refusing to disclose your permit status when asked) can create exactly the kind of confusion this letter addresses. Customers may be directed to pay use tax directly to the state instead.

Accountants and tax professionals

This letter is a clean, plain-language explanation of the use tax concept for a lay audience: Texas taxes the use of taxable items in Texas regardless of the seller's location, and when the normal collection mechanism (an authorized seller) isn't available, the burden shifts to the purchaser to self-remit.

Common questions

Q: If I buy software from an out-of-state company for use in Texas, do I owe Texas tax or the seller's state's tax?
A: Texas tax. Texas sales or use tax is due on software delivered to a customer for use in Texas, regardless of the seller's location.

Q: What if the seller isn't authorized to collect Texas sales tax?
A: You may need to remit Texas use tax directly to a Texas Comptroller Enforcement office rather than paying it through the seller.

Q: Does it matter whether the software was delivered on a CD or downloaded electronically?
A: The letter doesn't distinguish delivery method — it addresses the tax obligation on software delivered to a customer for use in Texas generally.

Citations and references

No specific statute or rule section was cited in the available text of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200007481L

Original ruling text

July 12, 2000

From: Gilbert Zamora

To: **

Subject: Sales tax collected by company in **, CO.

Dear **:

Thank you for using tax.help e-mail to inquire about paying sales tax for mail
ordered software.

I recently ordered software from COMPANY A.

I did not send enough money to cover the sales tax because I live in Texas and
don't believe I should be paying Colorado sales taxes. I received a notice
from COMPANY A that stated that I would have to pay the sales tax. I then
called them to ask why and they told me they were required to collect the
taxes. I asked them if they could give me their Texas Tax Record Number but
they said they could not give out that information or it wasn't available or
something like that.

Could you tell me if I must pay this sales tax? And if so, would I be paying
the tax to Texas or Colorado? Also, if I have to pay taxes to anyone, why
can't I ask for information relating to the collection of the tax.

Maybe Colorado has tax laws which require the company to collect sales tax from
people outside the state of Colorado? If so, wouldn't they be obligated to
send the revenue to the state of the person paying the tax. I hope I benefit
from the taxes I pay. I can't imagine benefiting from paying taxes to
Colorado. Response: Texas sales or use tax would be due on the sale of
software delivered to a customer for use in Texas. Our records reflect that
COMPANY A (taxpayer #**) is no longer permitted, as of 12/31/99, to
collect and report Texas sales and use tax. Texas use tax is still due on your
purchase of this software for use in Texas. You may remit the tax on the
software that you purchased to one of our Enforcement offices. Contact the
office nearest you for instructions on remitting the tax. A listing of our
Field Offices can be viewed at:
http://www.window.state.tx.us/taxinfo/fieldofc.html

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

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:
Tax Policy Division