In a two-step resale chain (seller to out-of-state Company A to a Texas Company B), who is responsible for Texas sales/use tax if Company A isn't itself "engaged in business" in Texas?

Plain-English summary

A company sold materials to a customer ("Company A"), which then resold those same materials to another company ("Company B") located in Texas. The seller asked the Comptroller how the tax responsibilities flow through this two-step resale chain.

The Comptroller's answer breaks it into two separate questions:

The original sale (seller to Company A) is exempt as a sale for resale. Company A can give the seller a Texas resale certificate instead of paying Texas sales tax, and can validate that certificate using its own state's retail registration number (here, South Carolina's), per Rule 3.285(d). Company A doesn't need a Texas registration number to issue a valid Texas resale certificate.

Who owes tax on the resale to the Texas end buyer (Company B) depends on Company A's Texas nexus. If Company A is "engaged in business" in Texas as defined in Rule 3.286(a)(1), Company A itself needs a Texas sales and use tax permit and must collect and remit Texas tax on its sale to Company B. But if Company A is NOT engaged in business in Texas, the responsibility shifts: Company B (the Texas buyer) must accrue and pay the use tax directly to the Comptroller under Rule 3.286(e)(1). If Company B happens to hold a direct payment permit, it instead follows the direct-payment-permit procedure in Rule 3.288 to self-accrue and remit the tax.

What this means for you

Manufacturers/wholesalers selling to out-of-state resellers

You can sell tax-free to a reseller anywhere in the country as long as they give you a valid resale certificate -- the certificate can be validated with the reseller's own home-state registration number, it doesn't need to be a Texas number.

Out-of-state resellers with Texas customers

Whether you must collect Texas tax on your own sale to a Texas customer depends specifically on whether you're "engaged in business" in Texas under Rule 3.286(a)(1) -- if you're not, you're off the hook for collecting, but that just shifts the burden to your Texas customer.

Texas businesses buying from out-of-state resellers

If your out-of-state supplier doesn't have Texas nexus and doesn't charge you Texas tax, you're not off the hook -- you must self-accrue and pay Texas use tax directly to the Comptroller (or follow your direct payment permit procedures, if you have one).

Common questions

Q: Does a reseller need a Texas registration number to give a valid Texas resale certificate?
A: No -- per this letter, an out-of-state reseller can validate a Texas resale certificate using its own state's retail registration number.

Q: If my out-of-state supplier's reseller doesn't collect Texas tax from me, do I owe anything?
A: Yes, if that reseller isn't "engaged in business" in Texas -- you as the Texas buyer must accrue and pay Texas use tax directly to the Comptroller (or follow direct-payment-permit rules if you hold one).

Q: Does this letter bind the Comptroller for my transaction chain?
A: No -- this is an informal 2001 letter addressing one taxpayer's specific facts, not a modern Private Letter Ruling or General Information Letter, and it cannot be relied on by anyone else.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.285(d) (resale certificates and sales for resale)
• 34 Tex. Admin. Code Rule 3.286(a)(1) ("engaged in business" definition)
• 34 Tex. Admin. Code Rule 3.286(e)(1) (purchaser's obligation to accrue tax when seller lacks Texas nexus)
• 34 Tex. Admin. Code Rule 3.288 (direct payment permits)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200109498L

Original ruling text

September 24, 2001

Subject: Sales Tax Question

Dear **:

Thank you for your recent email concerning your company's recent sale of
materials to a customer, **, (COMPANY A).

COMPANY A sold the material bought from your company to COMPANY B, a company
located in CITY, Texas.

Your company's sale to COMPANY A is a sale for resale. COMPANY A may issue
your company a Texas resale certificate in lieu of paying Texas sales tax.
COMPANY A may validate the Texas resale certificate with its South Carolina
retail registration number. See Rule 3.285(d) concerning resale certificates
and sales for resale.

COMPANY A is required to have a Texas sales and use tax permit if it is
"engaged in business" in Texas as defined in Rule 3.286(a)(1) concerning
seller's and purchaser's responsibilities. If COMPANY A is not engaged in
business in Texas, COMPANY B is responsible for accruing and paying the sales
tax directly to the Comptroller as provided in Rule 3.286(e)(1). If COMPANY B
is a direct payment permit holder, COMPANY B is required to accrue and pay the
use tax directly to the Comptroller as outlined in Rule 3.288 concerning direct
payment permits.

The referenced Comptroller rules are available at:
. Click on
State Tax Rules and scroll down to the referenced rule(s).

You may view or down load a Texas resale certificate at
and then click on the following:

1. Tax Forms
2. Sales & Use Tax
3. 01-339 (Texas Resale/Exemption Certificate)

This opinion is based on the facts presented. If there are additional or
different facts, the opinion may change.

You may call me toll free 1-800-531-5441, extension 3-4683, if you have any
questions or need more information. You may write to Tax Policy Division,
Comptroller of Public Accounts, P.O. Box 13528, Austin, Texas 78711-3825. My
email address is .

Sincerely,

Eddie C. Washington
Tax Policy Division