When one company collects a fee from subscribers on behalf of another company under a written agency agreement, who is responsible for charging, collecting, and remitting the Texas sales tax on that fee?

Plain-English summary

Two companies in the oil-and-gas information business set up an arrangement: Company A runs an information "library" for subscribers, and licenses maps from Company B to make available to those subscribers for a fee. Under a longstanding practice — later formalized in a written agreement — Company B sets the subscriber fee, and Company A collects it from subscribers and passes the entire amount through to Company B, keeping no cut and treating none of it as its own revenue. The parties treated the subscriber fee as a taxable information service under Section 151.0038 and Rule 3.342(a)(6), and the Comptroller accepted that characterization for purposes of the ruling without independently deciding it.

The real question was who has to charge, collect, and remit the sales tax on that subscriber fee once the parties formalize their relationship as principal (Company B) and agent (Company A) in writing. The Comptroller confirmed a three-part test for a valid agency relationship (drawn from Comptroller's Decision Nos. 40,133 and 102,699): (1) the agent acts for the principal, (2) both parties consent, and (3) the principal controls the agent — and it must be documented in writing.

Once that written agreement is executed: transfers of funds between agent and principal aren't themselves taxable transactions (no resale certificate needed), but the agent effectively stands in the principal's shoes for tax-collection purposes. Company A, as agent, must charge and collect sales tax on the subscriber fee just as if subscribers were buying directly from Company B — and Company A remains liable for that tax until it's actually remitted to the Comptroller, regardless of whether Company A has already forwarded the collected tax to Company B. Until the written agreement is signed, an earlier 2011 letter to Company A (holding that tax was due when Company B transferred information to Company A for a fee) continues to control.

What this means for you

Businesses using agent/reseller/marketplace arrangements

A verbal or informal understanding that one party is "just collecting for" another isn't enough to shift sales-tax collection duties in Texas — you need a written agreement meeting the three-part agency test (acting for the principal, mutual consent, principal control). Once you have it, the agent becomes responsible for collecting and remains on the hook for remitting the tax, even after handing the money to the principal.

Information-service and licensing businesses (especially oil & gas data providers)

This ruling assumes, without independently confirming, that the underlying subscriber fee is a taxable information service — so it's not authority for whether your own product is taxable, only for how collection responsibility shifts once an agency relationship is properly papered.

Accountants and tax professionals

Watch the liability trap: being an "agent" for tax-collection purposes doesn't relieve the agent of liability for unremitted tax — both agent and principal can be liable until the Comptroller actually receives the money (Section 151.024; Rule 3.286(d)(2)). Structuring an agreement to designate one party as "the one who reports and remits" doesn't protect the other party from exposure if that remittance never happens.

Common questions

Q: Does an agent need a resale certificate to receive information from the principal for pass-through to subscribers?
A: No. The ruling states no documentation, including a resale certificate, is required to establish that no taxable transaction takes place between the principal and agent for this pass-through fee.

Q: What happens before the written agency agreement is signed?
A: The prior individual determination (a 2011 letter to Company A) continues to govern, and this ruling doesn't change that earlier result for the pre-agreement period.

Q: If the agent already sent the collected tax to the principal, is the agent off the hook?
A: No. The agent remains liable for the sales tax due until it is actually remitted to the Comptroller — passing funds to the principal doesn't extinguish the agent's own liability.

Q: Can another company in a similar agency arrangement rely on this ruling?
A: No. This is a private letter ruling binding only on the Comptroller as to these taxpayers and these facts, and it cannot be relied upon by anyone else. The Comptroller also noted its agency-relationship rules would be amended to more fully address these issues going forward.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.0038; 34 Tex. Admin. Code Rule 3.342(a)(6) (information service)
• Tex. Tax Code § 151.024 (persons who may be regarded as retailers)
• 34 Tex. Admin. Code Rule 3.286(d)(2) (tax due is a debt of the purchaser until paid)
• 34 Tex. Admin. Code Rule 3.1 (Private Letter Rulings and General Information Letters)
• 34 Tex. Admin. Code Rule 3.10 (Taxpayer Bill of Rights; detrimental reliance)

Prior authority discussed:

• Comptroller's Decision No. 40,133 (2004) (agency relationship elements)
• Comptroller's Decision No. 102,699 (2011) (agency relationship elements)
• August 18, 2011 individual letter to Company A (not on STAR; continues to govern for the period before the written agency agreement)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201604754L

Original ruling text

April 22, 2016

Re: Private Letter Ruling #133450970

Dear *****:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters [ENDNOTE 1], in response to your request originally dated February 14, 2013, and resubmitted with supplemental information November 1, 2013. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You request guidance on the requirements to establish an agent/principal relationship (agency relationship) and the resulting sales tax consequences of such a relationship.

Facts Presented

COMPANY A operates what it terms a library facility that provides subscribers access to certain information relevant to oil and gas exploration.

COMPANY A licenses maps from COMPANY B for its own personal or internal use (Arrangement A). COMPANY B collects a fee from COMPANY A, on which COMPANY B charges and collects sales tax. This specific license precludes COMPANY A from

making the licensed maps available to its subscribers. Arrangement A is not at issue and is not addressed in this ruling response.

COMPANY A also licenses maps from COMPANY B for use in its library (Arrangement B). A separate license authorizes COMPANY A to make the licensed maps available to its subscribers for a fee (subscriber fee). Pursuant to a longstanding agreement, COMPANY B sets the subscriber fee, which COMPANY A is obligated to collect and remit to COMPANY B in its entirety. COMPANY A retains no part of the fee and does not add any type of mark- up. COMPANY A does not treat the fee as revenue or income.

COMPANY A and COMPANY B have drafted a written agreement with regards to Arrangement B which, in addition to memorializing the provisions of the longstanding agreement set out above, specifically provides: (a) COMPANY A is acting as COMPANY B’s agent; (b) COMPANY A will collect applicable Texas sales and use taxes on the subscriber fee; (c) COMPANY A will remit the fee and associated sales tax collected directly to COMPANY B; and (d) COMPANY B will report and remit the sales tax related to this fee to the Comptroller.

The subscriber fee is treated by the parties as the sale of a taxable information service pursuant to Section 151.0038 and Rule 3.342(a)(6). For purposes of this ruling, we accept the parties’ characterization of the subscriber fee as a taxable information service. This ruling makes no determination about the proper characterization of the subscriber fee.

Rulings and Analysis

According to agency hearing decisions, three elements are necessary to demonstrate that an agency relationship exists – (1) one person (the agent) is acting for another (the principal), (2) both parties consent to the arrangement, and (3) the agent is under the control of the principal. See, e.g., Comptroller’s Decision Nos. 40,133 (2004) and 102,699 (2011). In addition, these authorities require that the agency relationship be established in writing.

Existing authority does not expressly state the responsibilities of each party to an established agency relationship with respect to collecting and remitting sale and use tax on taxable sales or paying sales and use tax on taxable purchases.

When an agency relationship is established by means of an executed, written agreement as set out above, transfers of funds between the agent and principal are not taxable transactions. The agent stands in the place of the principal and takes on the responsibilities of the principal for collecting and remitting sales and use tax due on taxable transactions. When the agent makes a taxable sale or taxable purchase on behalf of the principal, both the agent and the principal are liable for any sales and use tax due until such tax is remitted to the Comptroller. See Section 151.024 (relating to Persons Who May Be Regarded As Retailers) and Rule 3.286(d)(2) (stating that sales and use tax due is a debt of the purchaser until paid).

Based on the facts presented and once the written agency agreement for Arrangement B is executed, the transaction between COMPANY A and the subscribers under Arrangement B is treated as if the subscribers were purchasing directly from COMPANY B. COMPANY A is acting in place of COMPANY B as the seller of taxable services. COMPANY A, therefore, is required to charge and collect the sales tax applicable to the subscriber fee. COMPANY A remains liable for the sales tax due until the tax is remitted to the Comptroller, whether or not COMPANY A has remitted the collected sales tax to COMPANY B.

In addition, no taxable transaction takes place between COMPANY A and COMPANY B when COMPANY B transfers information to COMPANY A to license to the subscribers under Arrangement B. No documentation, such as a resale certificate, is required to establish that no taxable transaction takes place between COMPANY A and COMPANY B with respect to the subscription fee.

The private letter ruling request references an August 18, 2011, letter written by this agency to COMPANY A [ENDNOTE 2], which stated that sales tax was due when COMPANY B, or any predecessor entity to COMPANY B, transferred information to COMPANY A for a fee. This letter remains applicable for transactions between COMPANY A and COMPANY B, or any of COMPANY B’s predecessor entities, under Arrangement A. This 2011 letter from the agency to COMPANY A will also apply to transactions under Arrangement B until the date on which a written agreement establishing an agency relationship is executed by COMPANY A and COMPANY B.

Prior to the execution of the proposed agency agreement noted above and, in the absence of documents or other information establishing an agency relationship, the information provided in the August 18, 2011 letter remains applicable and this private letter ruling does not change the determination of that letter.

Appropriate agency rules will be amended to explain the requirements to establish an agent/principal relationship as set out above as well as the consequences of that relationship with respect to any sales and use tax that is due.

If you have questions about this private letter ruling, please email us through our website at https://www.comptroller.texas.gov/taxhelp/ and reference Private Letter Ruling #133450970.

Regards,

Tax Policy Division

ENDNOTES:

1. Unless otherwise indicated, all references herein to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code. Comptroller’s Decisions and STAR Documents cited below can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the are all accessible from the Comptroller’s website at http://comptroller.texas.gov/taxinfo/sales/.

2. The August 18, 2011, letter was issued directly to COMPANY A and is not on the State Tax Automated Research (STAR) System.