If goods originally purchased for export are stuck in storage at a Texas freight forwarder after the export deal falls through, and a new buyer is found in Texas instead, does the sale lose its tax-exempt export status?

Plain-English summary

A non-Texas company that imports and exports electrical equipment contracted in 2013 to sell five mobile power plants to the government of Venezuela. The plants were delivered to a freight forwarder in Texas in 2014; two were exported in 2015, but export of the remaining three stalled because the Venezuelan customer hadn't built the needed infrastructure. Then, on November 1, 2018, a U.S. presidential executive order imposed sanctions blocking transactions with Venezuela, killing the deal entirely for the plants still in Texas. The company managed to sell one power plant to a different foreign buyer in 2018, but the last two remained parked at the Texas freight forwarder — untouched since 2014 — until the company found a new buyer who wants to use them for electricity generation right there in Texas. The company asked whether selling these formerly-export-bound plants to a Texas buyer is now permitted without triggering the tax the original export exemption was meant to avoid.

Texas said yes. Under the constitutional Import-Export Clause and Texas's own exemption statutes, goods brought into Texas for export are tax-exempt as long as they retain their character as an export — but that status is lost if the owner stores, uses, or consumes the property in Texas (with a 30-day storage presumption). The critical wrinkle here: property sitting with a freight forwarder is specifically carved out of that "storage by the owner" rule — a freight forwarder isn't the owner, so goods sitting there don't count as the owner storing or using them, no matter how long they sit. Since the company never touched, used, or stored the power plants itself (they went straight from the vendor to the freight forwarder in 2014 and stayed there), the export exemption was never lost — even though the export never happened and years passed. That means selling the plants now, in the same condition they were acquired, to a new Texas buyer counts as a nontaxable "sale for resale," though the company must register for a Texas sales tax permit and either collect tax from the new buyer or get a resale/exemption certificate.

What this means for you

Importers/exporters with goods stranded by sanctions, trade disputes, or customer delays

If your export deal falls through and your goods have been sitting at a freight forwarder (not in your own warehouse or facility) the whole time, you likely haven't lost your export tax status even after years of delay — and you may be able to pivot to a domestic sale without incurring use tax on your original purchase.

Companies considering where to store goods awaiting export

Using a freight forwarder rather than taking goods into your own custody or storage in Texas preserves flexibility: it protects your export exemption status if the deal falls through and you need to redirect the goods to a different buyer, foreign or domestic.

Accountants and tax professionals

The freight-forwarder carve-out in Rule 3.323(c)(3) is the linchpin of this ruling — note the 30-day storage presumption applies to property in the owner's own custody, not property held by a third-party freight forwarder. This is a useful precedent for any client with export inventory disrupted by geopolitical events (sanctions, trade wars, customer nonperformance).

Common questions

Q: Would the outcome differ if the company had taken possession of the power plants itself instead of leaving them with the freight forwarder?
A: Yes — the ruling explicitly notes that "property stored or otherwise used or consumed in Texas by the owner loses its exemption as an export." Taking the goods into the company's own custody or storage (rather than a freight forwarder's) for more than 30 days would have jeopardized the export exemption.

Q: Does the company now owe sales tax on its original purchase of the power plants from its vendor?
A: No — because the company never used the property, selling it in the same form/condition it was acquired in qualifies as a sale for resale, meaning the company can obtain a resale certificate rather than paying tax on its own purchase.

Q: What does the company need to do to sell the plants in Texas now?
A: Register for a Texas sales and use tax permit (since it's now selling in Texas) and either collect sales tax from the new buyer under Section 151.052 or obtain a properly completed resale or exemption certificate from that buyer.

Q: Does this ruling apply to my stranded export inventory?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts — particularly that the goods stayed with a freight forwarder and were never used or stored by the owner. Different custody arrangements could change the analysis.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010 (sales tax imposition; taxable item)
• Tex. Tax Code § 151.307, § 151.330 (import/export exemptions)
• U.S. Const. art. I, § 10, cl. 2 (Import-Export Clause)
• 34 Tex. Admin. Code § 3.323(b), (c)(3) (Imports and Exports — freight forwarder carve-out; 30-day storage presumption)
• 34 Tex. Admin. Code § 3.285(b)(1)(A) (Resale Certificate; Sales for Resale)
• Tex. Tax Code § 151.052 (Collection by Retailer)
• Executive Order 13850 (Nov. 1, 2018) (Venezuela sanctions)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202005020L

Original ruling text

May 7, 2020

RE: Private Letter Ruling No. PLR 20190410110028

Dear ****:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE: (1)] We are responding to your request dated April 5, 2019. Additional information was provided on May 15, 2019. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the taxability of property sent to a freight forwarder, that is subsequently sold for resale in Texas.

Facts Presented

**** (Taxpayer) is a non-Texas corporation in the business of importing and exporting electrical equipment including mobile power plants, turbines, and related items. Taxpayer does not do business in Texas nor do they have a Texas Sales and Use Tax Permit.

In 2013, Taxpayer entered into a contract with the government of Venezuela (customer) for the purchase and installation of five mobile power plants (power plants) and entered into another contract with COMPANY (vendor) for the purchase of the power plants. The vendor delivered the power plants to a freight forwarder in Texas in 2014. Two power plants remain in the custody and possession of the freight forwarder.

Two power plants were exported in 2015 per the customer contract and export of the remaining three was delayed due to the customer not having built the appropriate infrastructure in time. On Nov. 1, 2018, The President of the United States issued Executive Order 13850 which prohibited certain transactions with Venezuela, preventing Taxpayer from completing their contract and exporting the last three power plants.

Because the power plants become obsolete quickly, Taxpayer was forced to find other buyers, and was able to export one to a foreign buyer in 2018.

Taxpayer has found a buyer for the two remaining power plants in Texas. This buyer intends to use them to generate electricity in Texas. The remaining two power plants have never left storage at the freight forwarder.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Are the two remaining power plants sent to a freight forwarder, which were originally purchased for export, now eligible to be sold in Texas?

Ruling: Yes.

Analysis: Texas imposes a sales tax on the sale of each taxable item in this state. Section 151.051 (Sales Tax Imposed). The term “sale” includes the furnishing, preparation, or service of food, meals, or drinks. Section 151.005(6) (“Sale” or “Purchase”). The “term taxable item” includes tangible personal property and taxable services. Section 151.010 (Taxable Item).

On the basis of the import and export clause of the United States Constitution, Article 1, §10, clause 2, tangible personal property imported into or exported from Texas is exempt from taxation by the Tax Code, §151.307 and §151.330, so long as the property retains its character as an import or export. Rule 3.323(b) (Imports and Exports).

Rule 3.323(c)(3) states:

Storing property in Texas by the owner prior to exportation is a use of that property in Texas. Property stored or otherwise used or consumed in Texas by the owner loses its exemption as an export... Sufficient time will be allowed to arrange for shipping. Property in Texas longer than 30 days from date of purchase will be presumed to have been stored. Any use of the property in Texas by the owner prior to export also causes the loss of the export exemption. Property in the hands of a freight forwarder is not covered by this provision.

Taxpayer initially purchased the remaining two power plants from the vendor for the purpose of exporting them to a customer outside of the United States. These were shipped to the freight forwarder and placed into storage in 2014 and have remained there to date. Under the provision of Rule 3.323(c)(3) Taxpayer never made use of the power plants.

A sale for resale includes the sale of a taxable item to a purchaser who acquires the taxable item for the purpose of reselling it with or as a taxable item in the United States or Mexico in the normal course of business in the form or condition in which it is acquired. Rule 3.285(b)(1)(A) (Resale Certificate; Sales for Resale).

Because Taxpayer has not made use of the power plants, they would be selling them in the normal course of business in the form or condition in which they were acquired and would meet the definition of a sale for resale in Rule 3.285(b)(1)(A). Taxpayer is responsible for collection of any sales tax due under Section 151.052 (Collection by Retailer) or obtaining a properly completed resale or exemption certificate. Because Taxpayer is selling items in Texas, they must obtain a Texas sales and use tax permit.

The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20190410110028.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

1. Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.