What Texas sales and use tax applied when a cruise-ship retailer sold goods outside U.S. territorial waters and passengers brought them back to Texas?

Plain-English summary

The retailer sold taxable gift items aboard a cruise ship after it left Texas and U.S. territorial waters, and the goods returned to Texas with the ship and passengers.

The resale definition cited in the letter covered resale within the United States, its possessions, or territories—not outside those territorial limits. The retailer therefore had to accrue and pay tax when it withdrew tax-free inventory for offshore resale.

That inventory tax did not eliminate the passengers' Texas use-tax liability when they brought the purchased goods back. The Comptroller encouraged the retailer to collect and remit the use tax for passenger convenience and said it could otherwise seek receipts and tax from passengers as they left the ship.

Common questions

Could the retailer buy offshore-resale inventory tax-free? Not under the resale provision described for sales outside U.S. territorial waters.

Did passengers owe use tax when the items returned to Texas? Yes.

Could the retailer collect that tax for passengers? The Comptroller encouraged it to do so.

Citations and references

• Tex. Tax Code § 151.024
• Tex. Tax Code § 151.006(1)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9001L1130C01

Original ruling text

January 19, 1990

Dear **:

Thank you for your letter of December 21, 1989, concerning your
Texas sales and use tax liability on sales of taxable items made
aboard a cruise ship outside the Texas territorial waters.

The taxable items are brought back into Texas when the ship
returns to Galveston.

While it may appear to you that we cannot require you to collect
and remit Texas sales and use tax on these sales, the sales tax
law (Sec. 151.024) gives the us the authority to determine who
may be regarded as retailers for the efficient administration of
the tax law. The owner or operator of the cruise ship may be
considered the seller and your company the seller's agent. Thus,
the seller will bring the taxable items sold outside Texas back
into the state.

We hope that you, as the seller, will collect and remit the use
tax on these sales. This would be a convenience for your customers
and the ship's passengers; otherwise, they would be required
to file a sales and use tax return and pay the tax directly to us.
Your collecting the tax would follow a trend of out-of-state mail
order companies that are voluntarily collecting and paying tax on
taxable items sold and delivered into Texas.

In addition, your collection of the tax may prevent us from
utilizing alternative methods provided under the sales tax law to
assure payment of the taxes by the passengers. For example, we may
examine your daily sales journals and request receipts and tax
payments from passengers as they leave the ship.

As a seller, Sec. 151.006 (1) of the Texas Tax Code allows you to
buy taxable items tax free under a resale certificate for resale
within the geographical limits of the United States, its possessions
or territories. You clearly state in your letter that the
"cruise ship will be taking passengers outside the territorial
waters of Texas and the United States..... and we will be selling
gift items ....... outside of such territorial limits." (Emphasis
added.)

This means that you must pay Texas sales and use tax on items purchased
for resale outside U.S. territorial waters. You are required
to accrue and pay tax on taxable items taken from a tax-free inventory
if the taxable items were purchased under a resale certificate.

The requirement that you pay sales tax on the taxable items purchased
for resale outside the United States does not absolve your customers
of their use tax liability upon bringing the taxable items back into
Texas.

I have enclosed a sales and use tax application for you to apply for
a tax permit for the cruise ship outlet. We encourage you to collect
the sales and use tax on these sales for the convenience of all parties
concerned.

If you have any questions or need more information, you may call toll
free 1-800-252-5555, ext. 3-4683. The regular number is 512/463-4600.
You may write me at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Eddie C. Washington
Tax Correspondence