Are sales to foreign customers who pick up the goods in Texas counted as Texas gross receipts for franchise-tax apportionment?

Plain-English summary

A corporation asked whether a small share of its sales - made to Mexican customers who drive up from Nuevo Laredo and surrounding areas to pick up the merchandise inside the United States - could be excluded from Texas gross receipts when computing the franchise-tax apportionment factor. The Comptroller said no: those are Texas gross receipts.

• How apportionment works. Both components of the (pre-2008) franchise tax are apportioned to Texas by the amount of business done here. The factor is a fraction: the numerator is sales that count as Texas gross receipts, and the denominator is total sales everywhere.
• Delivery in Texas controls. Under 34 Tex. Admin. Code Secs. 3.549(e)(41) and 3.557(e)(37), receipts from sales of items delivered to a purchaser in Texas are Texas gross receipts.
• Pickup in Texas = delivery in Texas. Because the customers come to Texas to take delivery of the goods, those receipts are Texas gross receipts and belong in the numerator - even though the buyers are from Mexico. They cannot be excluded as export sales.

Currency note: This applies the pre-2008 franchise tax and its apportionment rules. The 2007 legislation (House Bills 3 and 3928) replaced that tax with the current margin tax effective January 1, 2008, which has its own sourcing rules. Treat this as historical.

What this means for you

Businesses selling to cross-border customers

If a foreign buyer physically comes into Texas to take possession of goods, the sale is sourced to Texas for franchise-tax apportionment. The buyer's foreign residence or the fact that the goods may ultimately leave the country does not, by itself, move the receipt out of the Texas numerator when delivery happens in Texas.

Accountants and tax professionals

The pivot is the place of delivery, not the customer's location. Point-of-pickup in Texas puts the receipt in the numerator under Rules 3.549(e)(41) and 3.557(e)(37). Distinguish arrangements where the seller ships or delivers the goods to the purchaser outside Texas.

Common questions

Q: My foreign customers pick up goods in Texas - are those sales Texas receipts?
A: Yes. Receipts from goods delivered to a purchaser in Texas (including pickup in Texas) are Texas gross receipts for apportionment and cannot be excluded.

Q: Does it matter that the buyers are from Mexico?
A: No. Delivery location controls, not the buyer's residence. Delivery in Texas makes the receipt a Texas gross receipt.

Citations and references

Rules:

• 34 Tex. Admin. Code Sec. 3.549(e)(41) (Texas gross receipts - delivery in Texas)
• 34 Tex. Admin. Code Sec. 3.557(e)(37) (Texas gross receipts - delivery in Texas)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200412922L

Original ruling text

December 7, 2004

Dear **:

Thank you for your follow-up letter regarding the sales of your corporation.

The statutes and rules I mention below, as well as other related information,
can be found at http://www.window.state.tx.us/taxinfo/franchise/index.html.

You have indicated that a small amount of your sales are made to Mexican
customers and delivered to them inside the United States. The customers arrive
from Nuevo Laredo and surrounding areas to pick up the merchandise. You have
asked if these sales can also be excluded from Texas gross receipts in the
calculation of your apportionment factor for Texas franchise tax.

As I mentioned before, both components of the tax are apportioned to this state
based on the amount of business done in this state. The numerator is the
amount of sales considered Texas gross receipts, and the denominator is total
sales everywhere.

In calculating the numerator, those receipts from sales of items that are
delivered to a purchaser in Texas should be considered Texas gross receipts.
See Comptroller's Rule Sec. 3.549(e)(41) and Rule Sec. 3.557(e)(37).
Therefore, if the customers come to Texas to take delivery of the merchandise,
the receipts from those sales should be considered Texas gross receipts.

This response is based on the facts presented and current law. If there are
different or additional facts, the response may change.

If you have any questions or need additional information, please call me at
1-800-531-5441, extension 3-4629.

Sincerely,

Lowell Olsen Dunn
Tax Policy Division