After Texas HB 61, when were freight and local delivery charges on business forms included in taxable sales price?

Plain-English summary

The August 31 update applied HB 61 § 151.007 to six business-forms shipping arrangements.

Freight remained nontaxable when forms shipped FOB shipping point by contract or common carrier, the purchaser paid the freight on receipt, and the distributor billed only for the forms.

After October 1, 1987, freight became taxable when the manufacturer prepaid it and billed the distributor, which then billed the customer for forms and freight separately. The same applied when the carrier billed the distributor and the distributor separately rebilled the customer.

The update also said all transportation charges in the remaining distributor and warehouse scenarios—including local freight and separately stated charges—were taxable after October 1, 1987, even where title had transferred to the customer.

The STAR record preserves the earlier April 6 answers and the August 27 request for updated guidance. The April letter had used FOB terms, title passage, and proof of when title vested to reach more nontaxable outcomes before the HB 61 update.

What this means for you

Under the historical update, direct payment by the end customer to the carrier remained distinct from freight the distributor paid or received through its invoice. The 1987 law change sharply reduced the role of separate statement and title passage in the listed scenarios.

Common questions

When was freight still nontaxable? When the customer paid the carrier on receipt and the distributor billed only for the forms.

What if the manufacturer prepaid freight and billed the distributor? The distributor's separate freight charge to the customer was taxable after October 1, 1987.

What if the carrier billed the distributor directly? The distributor's rebilled transportation charge was also taxable after that date.

Did separately stating local delivery prevent tax? No, under the August 31 updated answers.

Citations and references

• HB 61 § 151.007 — legislative change identified in the August 31 update.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8708L0833A01

Original ruling text

BOB BULLOCK
Comptroller of Public Accounts
Austin, Texas 78774

August 31, 1987

Dear ***:

You have asked me to address the same questions you asked in your letter
of April 1, 1987, concerning the taxability of transportation charges in
respect to the legislative changes contained in HB 61, sec. 151.007.

The answers are as follows:

1. Assuming a contract or common carrier is used, freight charges
   when the forms are shipped to the end user, FOB shipping point from
   the manufacturer with the purchaser paying the freight charges upon
   receipt of the goods and the forms distributor billing only for the
   forms, the freight charges are not subject to tax.

2. When forms are shipped FOB from the manufacturing plant to the
   customer with the manufacturing plant paying the freight, adding it
   to its bill to the forms distributor, and the forms distributor there-
   after billing the customer for freight and the forms separately, the
   charge for freight will be subject to sales tax after October 1, 1987.

3. When forms are shipped FOB from the manufacturing plant to the
   customer with the common carrier billing the distributor who in turns
   bills the customer separately for the transportation and forms, the
   transportation charges are subject to sales tax after October 1, 1987.

4. All transportation charges whether separately stated or not are
   subject to tax including the local freight charges even where title
   has been transferred to the customer.

5. All transportation charges will be subject to sales tax after
   October 1, 1987, in this situation.

6. Assuming the facts are as set out in question 5, all transpor-
   tation charges will be subject to sales tax after October 1, 1987.

I hope this letter satisfactorily answers your questions.

Sincerely,
Wade Anderson
Executive Counsel

BOB BULLOCK
Comptroller of Public Accounts
Austin, Texas 78774

April 6, 1987

Dear ***:

In your letter of April 1, you set out several questions you would like
answered concerning the taxability of transportation charges. For the
sake of brevity, I will not set out the questions again but will answer
them in the order asked.

I have discussed the questions and answers with Ms. Harriet Burke,
Director Taxation Division, Texas Attorney General's Office. She concurs
with my responses.

The answers are as follows:

1. Assuming a contract or common carrier is used, freight charges
   when the forms are shipped to the end user, FOB shipping point from
   the manufacturer, are not taxable when paid by the customer.

2. Assuming a contract or common carrier is used, freight charges
   paid by the manufacturer, invoiced to the distributor, and then col-
   lected by the distributor from the end user as a separate item are
   not taxable when the product is shipped FOB shipping point by the
   manufacturer.

3. Freight charges when forms are shipped FOB shipping point by
   the manufacturer with the distributor paying the carrier direct and
   then billing the end user separately for the freight charges are not
   taxable.

4. When goods are shipped to a distributor by a manufacturer who
   takes title to the goods, transportation charges are not exempt re-
   gardless of the FOB terms. Local transportation charges are presumed
   taxable even if separately stated unless it can be established title
   passed to the end user prior to delivery.

5. I find it hard to believe this example exists. In the absence
   of substantial proof title vested in the end user before the property
   left the manufacturer's plant, tax would be owing on the transportation
   charges from the manufacturer's plant to the distributor's location.
   Similarly, proof of title had passed before local shipment was made
   would be required before tax would not be imposed on the local deliv-
   ery charges. If it could be shown title vested in the end user at the
   manufacturer's plant, all transportation charges thereafter would be
   excluded from the sales price.

6. The answer to this question is the same as five above. In the
   absence of proof of vesting title in the end user at the manufacturer's
   plant, the transportation charges will be subject to sales tax even if
   the common carrier is paid by the distributor.

You also mentioned some concern about the possible treatment of other
named companies. These rules are the same for everyone. If the
companies you listed are not complying with them, tax will ultimately be
assessed against them. At this time, we have no reason to believe the
companies are not handling these charges correctly.

This opinion is based strictly on the facts presented in your hypotheti-
cal questions. If there are additional facts the opinion may change.

I hope this letter satisfactorily answers your questions.

Sincerely,
Wade Anderson
Executive Counsel

August 27, 1987

Mr. Wade Anderson
Executive Counsel
Comptroller of Public Accounts
111 E. 17th, LBJ Building
Austin, Texas 78774

Dear Mr. Anderson:

You were very helpful in resolving the *** questions regarding
the taxability of transportation charges. A copy of our correspondence
is enclosed.

Considering the passage of H. B. 61, Sec. 151.007, we would appreciate
your updated opinion on the same six questions.

As always your help is greatly appreciated. Perhaps this will finally
put this problem to bed.

Sincerely,

Listed on the following page are six typical transactions by
both direct manufacturers and independent distributors:

1. Forms are shipped FOB shipping point from manufacturing plant to the
   end user. The manufacturing plant ships freight collect, customer pays
   freight bill on arrival. Forms distributor bills customer for forms only.

2. Forms are shipped FOB shipping point from manufacturing plant to end
   user. The manufacturing plant prepays the freight and adds it to his
   invoice to the distributor. The distributor adds the same freight charge
   as a separate item on his invoice to the end user.

3. Forms are shipped FOB shipping point from manufacturing plant to the
   end user. The common carrier bills the distributor direct for prepaid
   freight. The manufacturing plant bills the distributor only for the
   product shipped. The distributor adds the same freight charge that the
   carrier billed to his invoice to the end user as a separate item.

4. The distributor purchases merchandise for resale, FOB shipping point,
   and takes title to the merchandise. The distributor adds freight costs
   together with merchandise cost to determine his cost of merchandise for
   subsequent sales from stock. Distributor has a local common carrier/
   delivery service deliver product as sold to his customer and adds local
   delivery charges as a separate item to his invoice to the end user.

5. Forms are shipped FOB shipping point from manufacturing plant to dis-
   tributor's warehouse with title vested with the end user. The manufac-
   turing plant prepays freight and adds it to his invoice to the distribu-
   tor. The distributor adds the same freight charge as a separate item
   on his invoice to the end user. When the end user's merchandise is
   shipped to him from the distributor's warehouse, the distributor adds
   the local common carrier/delivery services charges as a separate item
   to end users invoice.

6. Same as number 5 above except common carrier bills the distributor
   direct for freight to distributor's warehouse.