Could an agent buy property tax-free merely because foreign affiliates intended to export it later?

Plain-English summary

The company bought property in Texas as agent for foreign affiliates, held it for weeks or months while arranging transportation and licenses, and wanted authorization to buy tax-free based on intended export. The Comptroller refused. Statements or purchase orders saying the goods would be exported were not sufficient export documentation under Rule 3.323.

The letter offered a resale alternative. The company could buy the goods tax-free with a resale certificate if it resold them to the foreign affiliates and title transferred within the United States, its territories, or possessions. Rule 3.303 documentation would establish the title transfer, and later export documents would substantiate the tax-free sales to the affiliates.

Common questions

Did intended export make the initial purchase tax-free? No.

Were purchase orders stating export intent sufficient? No.

What alternative did the letter allow? A resale-certificate structure when title transferred within the geographic limits identified in the letter.

What supported the later tax-free sale to the affiliate? The export documentation obtained after shipment.

Citations and references

• Texas Comptroller Rule 3.323 — export documentation.
• Texas Comptroller Rule 3.303 — documentation for determining transfer of title.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8512L0689F04

Original ruling text

December 16, 1985

Dear ***:

The situation and question in your letter of December 5, 1985 regarding
export purchases are outlined below with response:

Facts

COMPANY A, a Division of CORP X (hereinafter referred to as X), in the
capacity of an agent, makes purchases of property in Texas on behalf of
its foreign affiliates for ultimate export overseas to that affiliate.
The documentation (i.e., purchase order, invoice and the shipping/
invoicing instructions) involving such purchases clearly establish that
X's foreign affiliate is the purchaser and X is its agent in regards to
the subject purchases. Sample copies of the said documentation for a
single transaction are attached. Further, the said purchases for export
usually remain in Texas anywhere from a few weeks to a few months depending
on the time required to arrange transportation and to obtain export/import
licenses where required by the United States and/or the country to which its
being exported.

Question

The vendors from whom X makes purchases under the circumstances described in
the facts above, are unwilling to forego collection of sales or use tax pending
receipt of export documents, which cannot be obtained until after the property
has actually been exported. We feel that given the number of purchases, it would
be impractical for X to pay the sales or use tax to the seller and later seek a
refund upon obtaining the required export documentation on each and every export
purchase. Given the circumstance, we would appreciate receiving a written
authorization from your office, allowing us to purchase these items tax-free for
export and pay tax only if the items were not exported. Such a letter would
help us overcome our vendor's reluctance to forego collection of tax until such
time we can furnish them the proper export documentation.

Answer

We cannot agree to allow X to purchase items tax-free for export without proper
export documentation.

Statements or purchase orders indicating that the items will be exported are not
sufficient to exempt the sale as an export. Please refer to Rule 3.323, enclosed.

An alternative would be for COMPANY A to purchase the items for resale to its
foreign affiliates. X could purchase the items tax free under a resale certificate
provided title to the items transfers within the United States, its territories and
possessions. Please refer to Rule 3.303 which outlines the documentation required
to determine transfer of title. The export documentation obtained by X would
substantiate the tax-free sales to its affiliates.

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 Policy Section
Tax Administration Division