Did an out-of-state pipe seller become engaged in business in Texas by temporarily storing sales inventory here despite having no Texas salespeople?

Plain-English summary

A Colorado pipe seller had no Texas sales representatives, but temporarily stored sales inventory in pipe-threader and trucking-company yards in Texas. Buyers called Colorado to complete purchases, and yard workers could not transact the seller's business.

The Comptroller nevertheless treated the company as a retailer engaged in business in Texas under Section 151.107 because it temporarily used Texas storage places for sales inventory. The absence of Texas salespeople did not eliminate the collection burden.

If the seller documented that customers had already accrued and paid the tax, the letter said the auditor could remove those sales from the audit.

STAR adds a later alert stating that, as of January 15, 2015, a place of business meant an established outlet, office, or seller-operated location used to sell taxable items to people other than employees, contractors, and affiliated individuals.

Common questions

Did temporary inventory storage create Texas collection nexus? Yes under the cited 1986 statute.

Did the lack of Texas salespeople change the result? No.

Could customer-paid tax reduce the audit? Yes, when documented.

Does STAR flag a later definition? Yes, effective January 15, 2015.

Citations and references

• Tex. Tax Code § 151.107 — retailer engaged in business in Texas.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8604L0725C12

Original ruling text

Alert: As of 01/15/2015, a place of business is defined as "an established outlet, office, or location operated by a seller for the purpose of selling taxable items to those other than employees, independent contractors, and individual persons affiliated with the seller."

April 24, 1986

Dear ***:

Thank you for your recent letter which is restated with response below.

I am writing to your department in regards to a policy question concerning whether or not we are liable to collect sales tax in the State of Texas. Let me explain our business.

CORP ABC was incorporated in the State of Colorado in November 1974. We sell oilfield tubing and casing as well as large diameter steel construction pipe. During the period in question, we have had no sales representation in Texas, although we have had some pipe stored in other people's yards, for instance, our pipe threaders in CITY A and various other trucking company yards. If someone does want to buy this pipe in our Texas inventory yards, they must call CITY B, Colorado, to make the purchase. The yard hands are not CORP ABC employees and cannot transact CORP ABC business.

The State of Texas has just conducted a sales tax audit and has determined that we should be charging sales tax even though these are an out-of-state deliveries for us. On deliveries out of the State of Colorado, we stamp the following phrase: "Please remit tax directly to state or local agency."

Over the past few years, we have called the Comptroller's Office for the State of Texas and we have always been told if we do not have representation in Texas, such as, a salesman representing CORP ABC then we do not need to collect sales tax. Right after the sales tax audit started I personally called the sales tax division explaining our company and situation and was told that we do not need to collect sales tax. I told the person of our current audit and that the auditor was going to assess us taxes. She asked three other people and reported that two said we did not need to collect taxes and that one said we did need to collect taxes. She also added that since there was so much confusion we should write to the Policy Section and get a written ruling. Hence the letter.

Let me assure you that we are not trying to cheat the State of Texas out of any sales tax. Most of our customers are pipe distributors who are reusing the pipe anyway.

We find it very difficult to conduct business in the State of Texas, if we cannot get a firm consistent ruling. The reasons we have not thought we were liable for sales tax is as follows:

1. On several occasions we have made specific telephone inquiries to the Sales Tax Division and on all occasions have been told we did not need to collect sales tax. Since we received a "NO" answer on each inquiry, we never thought it necessary to get this answer in writing.

2. We have no salesman or other representation in Texas during this period. If someone buys from inventory temporarily stored in Texas, they must call CITY B, Colorado, to buy the pipe.

3. We have been stamping "Please remit tax directly to state or local agency," on all Texas invoices and we believe the customer has been remitting the proper taxes.

Response: For purposes of The Sales Tax Statute, you are considered to be a retailer engaged in business in Texas because you are temporarily storing part of your sales inventory in this state. The appropriate section is restated below:

Sec. 151.107. Retailer Engaged in Business in This State. For the purpose of this subchapter and in relation to the use tax, a retailer is engaged in business in this state if the retailer:

(1) maintains, occupies, or uses in this state permanently, temporarily, directly, or indirectly or through a subsidiary or agent by whatever name, an office, place of distribution, sales or sample room or place, warehouse, storage place, or any, other place of business; or

(2) has a representative, agent, salesman, canvassed or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling or delivering or the taking of orders for a taxable item. History: Title 122A, Art. 20.031(B) (part).

The fact that you do not send sales representatives into Texas is not in itself sufficient to relieve you of the burden of tax collection. I would like to apologize for any confusion that has been caused.

To the extent that you are able to provide documentation that your customers have accrued and paid the tax, I'm sure the auditor will delete these sales from the audit.

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

Please feel free to contact us if you have additional questions. You may write us, call toll free 1-800-252-5555 from anywhere in Texas.

Sincerely,

Tax Policy Section

Tax Administration Division