Did a Texas parachute broker collect tax on parachute sales and periodic airing, inspection, and repacking?

Plain-English summary

The taxpayer qualified as a broker between out-of-state parachute manufacturers and Texas customers. It did not have to collect Texas use tax on the parachute purchases, but the tax remained due; if the out-of-state seller did not collect it, the Texas purchaser had to pay the Comptroller directly.

The broker's entire charge for packing parachutes was taxable. The parachutes had to be aired, inspected, and repacked every 120 days to prevent mildew, so the Comptroller classified that recurring work as taxable maintenance of tangible personal property.

Common questions

Did the broker collect use tax on the parachute sale? No.

Did that make the parachute purchase tax-free? No. The purchaser still owed the tax if the seller did not collect it.

Was the packing charge taxable? Yes, in full.

Why? The periodic airing, inspection, and repacking was maintenance.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8908L0948E11

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

August 8, 1989

Dear ***:

Thank you for your letter dated August 3, 1989, concerning the
taxability of sales of parachutes to customers located in Texas
and the charges for packing parachutes.

You indicated in your letter that you act as a broker between
parachute manufacturers located outside of Texas and customers
located in Texas. Based on the information given in your letter
and my telephone conversation with your wife, you do meet the
definition of "broker" given in Rule 3.352 (copy enclosed). You
will not be required to collect Texas use tax from purchasers in
Texas, although the tax is due.

Every out-of-state seller doing business in Texas is required to
collect Texas sales or use tax from customers located in Texas.
If the seller is not required to collect the tax, then the
purchaser must remit the tax directly to the Comptroller's office.
I have enclosed a copy of Rule 3.286 Seller's and Purchaser's
Responsibilities for your review.

You will need to collect sales tax on the total charge to your
customers for packing parachutes. Maintenance of tangible
personal property is taxable. You stated that parachutes must be
aired, inspected and repacked every 120 days. According to your
wife, parachute material will mildew if this service is not done
on a regular basis. Please review sections (a) (10) and (c) of
Rule 3.292.

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 me if you have any additional questions.
You may write me, call toll-free 1-800-531-5441 from anywhere in the
United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence