Was freight on a special-order item taxable when a supplier drop-shipped the item to the seller's customer?

Plain-English summary

Effective October 1, 1987, transportation and delivery charges connected with the sale, lease, or rental of a taxable item were included in the taxable sales price, even if separately stated.

For a special order drop-shipped by the supplier, freight charged to the seller and then rebilled to the customer was taxable. But freight was not taxable when the customer paid the carrier directly, the payment was for freight only, and the charge never passed through the seller's books. The result did not depend on which party contacted the carrier.

What this means for you

The historical letter focused on the payment and billing path, not merely on who arranged shipment or whether the supplier shipped directly to the customer.

Common questions

Was freight rebilled by the seller taxable? Yes, including freight on a drop-shipped special order.

Was freight paid directly to the carrier taxable? Not under the stated facts, when the customer paid the carrier for freight only and the charge never entered the seller's books.

Did it matter who contacted the carrier? No.

Citations and references

• 34 Tex. Admin. Code Rule 3.303 (transportation and delivery charges)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8711L0845F01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 9, 1987

Dear ***:

Thank you for your recent letter requesting clarification on the
taxability
of transportation charges.

Effective October 1, 1987, transportation and delivery charges connected
with
the sale, lease or rental of a taxable item is included in the sales
price of
the taxable item sold, leased or rented and is subject to the tax whether
or
not separately stated. Therefore, any transportation that you bill your
customer in connection with taxable items sold will be taxable as a part
of
the sales price.

During our telephone conversation of November 5, you stated that on some
of
your special orders your supplier will drop ship specialty items to your
customer. You also stated that in all special order situations the
customer
pre-pays all charges except freight. Freight collect to the seller for
which
the seller re-bills the customer will be taxable even though the taxable
item
has been dropped shipped. However, freight collect to the customer for
which
the customer pays the carrier directly for freight only, and the freight
charge never goes through the sellers books is not taxable. In either
case
it does not matter which party contacts the carrier to order delivery.

The above clarification is effective October 1, 1987. I am enclosing a
copy
of Rule 3.303 which explains the taxability of transportation and
delivery
from October 2, 1984 through September 30, 1987. Also enclosed is a copy
of
proposed Rule 3.303 which explains the taxability of transportation and
delivery October 1, 1987 and after.

I apologize for any incorrect or misleading information you may have
received
in the past and hope these rules and explanations will help clarify this
issue for you.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Policy Division.

Sincerely,
(Mrs. ) Jo Ann Dieck
Tax Policy Division