Who owed Texas state and local use tax when a contractor bought taxable items out of state and had them shipped to Texas for use?

Plain-English summary

A contractor bought taxable items from out-of-state suppliers and had them shipped to Texas for use on jobs.

The contractor owed state and local use tax on the purchase price. If a supplier with a Texas permit billed the proper taxes, the contractor paid the supplier. If the supplier collected only state tax, the contractor had to accrue and remit the appropriate local tax directly to Texas.

If an unpermitted supplier collected no Texas tax, the contractor had to report the purchase in the period when the item was first stored, used, or otherwise consumed in Texas. Local tax followed that first Texas location. Rule 3.340(b) allowed credit for a similar sales or use tax legally due and paid to another state.

What this means for you

An out-of-state seller's failure to collect did not eliminate the Texas liability. The buyer had to identify both the first Texas use location and any legally paid tax eligible for multistate credit.

Common questions

Did Texas use tax apply to items shipped into Texas for the contractor's use? Yes.

What if the supplier collected only state tax? The contractor accrued and remitted the appropriate local tax.

When did the buyer report tax if the supplier collected nothing? In the period of first storage, use, or consumption in Texas.

Was credit available for tax paid to another state? Yes, for a similar tax legally due and paid.

Citations and references

• Comptroller Rule 3.346(b) — use tax
• Comptroller Rule 3.340(b) — multistate tax credits

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9009L1043F13

Original ruling text

September 5, 1990

Dear **:

We received your letter requesting an explanation of the law on "Interstate
Sales Tax". In our telephone conversation you stated that you buy taxable
items from suppliers out of state and have them sent to Texas for use on your
jobs.

When you purchase taxable items out of state and have them shipped to Texas for
your use, you owe state and local use taxes on the purchase price of the items.
If the supplier has a Texas tax permit and bills you for the appropriate Texas
taxes, then you should pay the supplier the taxes due. If the supplier only
bills the State tax due, then you are required to accrue the appropriate local
taxes due and submit the tax directly to the State. See section (b) of the
enclosed Rule 3.346 relating to use tax.

If your supplier is not permitted to collect Texas use taxes and does not bill
you for them, then you must report tax on the purchase price of the taxable
item in the period the taxable item is first stored, used, or otherwise
consumed in Texas. Local taxes are due based on the location of the first
storage, use or other consumption in this State.

Credit is allowed against the use tax liability for a similar sales or use tax
legally due and paid to another state. See section (b) of the enclosed Rule
3.340 relating to multistate tax credits.

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

If you have any questions you may call or write Tax Correspondence. You may
call toll free 1-800-252-5555, or our regular number is 512/463-4600. My
extension is 3-4658.

Sincerely,

Sherry Buckley
Tax Correspondence