If I bring goods into Texas only temporarily before shipping them out of state for use elsewhere, do I owe Texas use tax?

Subject

Oos Retailer/Seller — Ships Goods Into Texas For Subsequent Export — Exemption Certificate Claiming Temporary Storage Exclusion Allowed

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9402L1426A01

Plain-English Summary

The Comptroller addressed the tax treatment of purchases made outside Texas that are brought into Texas before being sent on for use out of state. Under Tax Code Section 151.011(f), neither "use" nor "storage" — the triggers for Texas use tax — includes exercising a right or power over, or keeping or retaining, tangible personal property for the purpose of (1) transporting the property outside the state for use solely outside the state, or (2) processing, fabricating, or manufacturing the property into other property (or attaching/incorporating it into other property) that will be transported outside the state for use solely outside the state. In other words, goods that merely pass through Texas — including goods that are worked on or incorporated into other products while in Texas — before being shipped out for use elsewhere do not trigger Texas use tax.

The ruling draws a distinction with goods purchased from a Texas retailer: those purchases are subject to Texas sales tax and require documentation under Rule 3.323 to prove the goods were exported, in order to avoid or refund that tax. The letter also notes that the Comptroller's export policy was, at the time, in harmony with NAFTA, and suggests that if NAFTA encouraged Texas common carriers to run directly into Mexico, a Texas supplier's direct shipment into Mexico (retaining a copy of the bill of lading) could help satisfy Rule 3.323's documentation requirements.

What This Means For You

If you buy goods outside Texas and route them through Texas only to send them on for use outside Texas: Those purchases are not subject to Texas use tax under Section 151.011(f), because bringing them into Texas for that limited transit/processing purpose does not count as taxable "use" or "storage."

If you buy goods from a Texas retailer intending to export them: Sales tax applies at the point of purchase, and you need proper export documentation that satisfies Rule 3.323 to support any exemption or refund claim — the 151.011(f) exclusion for use tax does not itself relieve a Texas retail sale from sales tax.

If a Texas common carrier ships your goods directly into Mexico: Keeping a copy of the bill of lading for that direct shipment can help meet the Rule 3.323 documentation requirement referenced in this ruling.

Q&A

Q: I purchased goods outside Texas and had them shipped into Texas, but only so they could be sent out of state for use elsewhere. Do I owe Texas use tax?
A: No. Tax Code Section 151.011(f) excludes this kind of temporary transportation-through-Texas from the definitions of "use" and "storage," so no use tax is triggered.

Q: Does the same exclusion apply if I buy the goods directly from a Texas retailer?
A: No — that is a separate situation. Purchases from Texas retailers are subject to sales tax, and you need documentation meeting Rule 3.323 to prove export in order to avoid or recover that tax.

Q: Does incorporating the out-of-state goods into another product while they are in Texas change the answer?
A: No. Section 151.011(f) also excludes processing, fabricating, or manufacturing the property into other property, or attaching/incorporating it into other property, as long as the resulting property is transported outside the state for use solely outside the state.

Citations

• Tex. Tax Code § 151.011(f) (excluding certain temporary transportation, processing, and incorporation activity from the definitions of "use" and "storage" for use tax purposes)

Original ruling text

February 14, 1994

Dear **:

Thank you for your recent letter regarding the tax treatment of purchases
from outside Texas that are brought into Texas for use out of state. Tax
Code Section 151.011(f) exempts such purchases from use tax with the
following language:

(f) Neither "use" nor "storage" includes the exercise of a right or power
over or the keeping or retaining of tangible personal property for the
purpose of:

(1) transporting the property outside the state for use solely outside the
state; or

(2) processing, fabricating, or manufacturing the property into other
property or attaching the property to or incorporating the property into
other property to be transported outside the state for use solely outside
the state.

Purchases of goods from Texas retailers are subject to sales tax and
require documentation in keeping with Rule 3.323 to prove export. Our
current policy on exports is in harmony with NAFTA. However, NAFTA will
benefit your documentation problem if it encourages Texas common carriers
to run directly into Mexico. Your Texas suppliers could then ship
directly into Mexico, keep a copy of the bill of lading, and satisfy the
documentation requirements of Rule 3.323.

This opinion is rendered based on the facts you submitted. Other facts,
though similar, may yield different results.

If you have questions or need more information, please call or write.
You may reach me by calling toll free, (800) 531-5441 (ext.34680). My
direct line number is (512) 463-4680. The number for FAX transmissions
is (512) 475-0900. You may write to me in care of Tax Administration
Division.

Sincerely,

Al Van Allen
Tax Administration Division