Can a broker operate an export certification satellite office inside Mexico instead of within the United States?

Plain-English summary

A broker asked the Comptroller's office for permission to operate an export certification business out of a satellite office located inside Mexico. The Comptroller's Tax Administration Division denied the request. Even though the broker offered to give the state access to employees and written records of the Mexico operation, the Comptroller doubted it would have the freedom to perform its state regulatory functions "unhindered" once outside the United States, and worried it would lose investigative tools that are "crucial to the integrity" of its new licensing and monitoring program for export certification.

The letter explains that, as the program stood at the time, a broker must conduct its export verification business in the United States. Before issuing a signed and/or stamped export certification form, the broker must visually verify — from a location inside the United States — that the tangible personal property has actually been exported or has been irrevocably committed to the stream of export.

What this means for you

Customs brokers and export certification businesses

If you certify export of tangible personal property for Texas tax purposes (for example, to support a tax-free export sale), this letter says you cannot run that certification function from an office in Mexico or another foreign country. The physical verification that goods have been exported, or irrevocably committed to export, must happen from a location inside the United States, so the state can maintain oversight of your records and operations.

Businesses relying on export certifications

If you depend on a broker's export certification to document a tax-exempt export sale, this letter is a reminder that the certifying broker's verification function is expected to be performed from within the U.S., not from a satellite office abroad — which may be relevant to whether a given certification meets the state's expectations for its licensing and monitoring program.

Common questions

Q: Can a broker set up an export certification office in Mexico to be closer to the goods being exported?
A: No. The Comptroller's office denied exactly this request, citing its inability to freely perform state regulatory, investigative, and monitoring functions outside U.S. jurisdiction.

Q: Would giving the state access to employees and records in Mexico change the answer?
A: No. The broker offered this, but the Comptroller still concluded it would likely be "divested of investigative tools" crucial to the licensing and monitoring program if the operation were located outside the United States.

Q: Where must the physical verification of export happen?
A: From a location inside the United States. Before issuing a signed and/or stamped export certification form, the broker must visually verify that the tangible personal property has been exported or irrevocably committed to the stream of export.

Citations and references

No statutes or rules are cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1219F14

Original ruling text

February 5, 1993

Dear **:

Thanks for sending the additional information about how you propose to
operate an export certification business inside Mexico. I have discussed this
extensively with Mike Doyle, Chuck Johnstone and Jim Teaver. I'm sorry, but we
just can't approve the location of an export certification business in another
country, beyond our jurisdiction.

Even though you could promise us access to your employees and written
records of your operation, we doubt we would have the freedom to perform our
state regulatory functions, unhindered, in Mexico. Thus, we potentially would
be divested of investigative tools that are crucial to the integrity of our new
licensing and monitoring program.

The way it stands now, a broker must conduct his export verification
business in the United States. Before issuing a signed and/or stamped
export certificationform, the broker must visually verify, from a
location inside the United States, that tangible personal property has
been exported or has been irrevocablycommitted to the stream
of export.

I know this isn't the answer you wanted, but I hope you understand our
quandary. If you have further questions, please feel free to write or call me
at 1-800-531-5441, extension 3-3889.

Sincerely,

John Christian, Attorney
Tax Administration Division