Who had to collect and report Texas sales tax in a direct-sales organization using distributors and salespeople?

Plain-English summary

The Comptroller made the direct-sales company responsible for collecting and reporting Texas sales tax for its salespeople under Tax Code § 151.024.

When the company sold products to distributors or salespeople for resale, it had to collect tax on the suggested retail selling price and could not accept their resale certificates. When it sold directly to final consumers, tax was based on the actual selling price. Company records had to distinguish the two categories.

Applicable city and MTA tax had to be allocated to the place where the final consumer sale occurred. Salespeople had to give the company sufficient location records. People selling only the company's products were not to hold their own sales-tax permits; existing permits were to be returned for cancellation, and the company was asked to provide a salesperson list.

Common questions

Who collected and reported the tax? The direct-sales company.

What tax base applied to products sent to distributors or salespeople? The suggested retail selling price.

What tax base applied to the company's direct consumer sales? The actual selling price.

Could salespeople give resale certificates? No.

How were city and MTA taxes allocated? To the location of the final consumer sale, using records supplied by salespeople.

Citations and references

• Tex. Tax Code § 151.024 — authority quoted for treating salespeople as agents of a dealer, distributor, supervisor, or employer.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8511L0678E03

Original ruling text

November 14, 1985

Dear ***:

This is to notify you that CORP X, is responsible for collecting and
reporting Texas sales tax for the sales persons in your direct sales
business. This requirement is provided for in SEC. 151.024 of the
Texas Tax Code which states:

If the Comptroller determines that it is necessary for the
efficient administration of this chapter to regard a salesman,
representative, peddler or canvasser as the agent of a dealer,
distributor, supervisor, or employer under whom he operates or
from whom he obtains the tangible personal property that he sells,
whether or not the sales is made in his own behalf or for the
dealer, distributor, supervisor, or employer, the Comptroller may
so regard the salesman, representative, peddler, or canvasser, as
a retailer or seller for the purpose of this chapter.

Under this procedure, sales tax permits will not be issued to dealers,
distributors, supervisors, or employees if the only products sold are
your products. When selling to distributors and sales persons for resale,
CORP X will be required to collect sales tax on the suggested retail
selling price of the products. Resale certificates cannot be accepted from
the sales persons. When CORP X, sells products to final consumers, the sales
tax is to be collected on the actual selling price of the product. Your
company records must clearly distinguish sales to distributors and sales
persons from sales to final consumers.

City sales tax and MTA sales tax, where applicable, must be collected
and allocated to the city and/or MTA authority where the product is
sold to the final consumer. The sales persons must provide you with
sufficient documentation on the location of the sales so that the city
and/or MTA sales tax may be properly allocated.

To verify the accuracy of the report filed by CORP X, the Comptroller
may examine the records of CORP X, and of the salespersons. CORP X,
should notify all sales persons of this procedure. Any person selling
only CORP X, products who hold sales tax permits should be advised to
return the permits to this office for cancellation. We are also requesting
that we be provided with a list of your sales persons so that we
may contact them regarding the cancellation of their permits.

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

If you have any questions or need more information, please call us at
1-800-252-5555 toll free from anywhere in Texas. You may write us at the
Tax Administration Division.

Sincerely,

Tax Administration Division