Is Texas sales tax due on printed book covers that a business buys and then donates to public schools?

Subject

Donation/Gift Of Printed Book Covers/Brochures/Posters To Schools

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9403L1288G12

Plain-English Summary

This letter (dated March 15, 1994) settles a dispute over whether printed book covers bought by a business and then donated to public schools are subject to Texas sales tax. The letter reproduces three earlier letters showing how the Comptroller's position changed over time:

• 1987: Comptroller Bob Bullock told the taxpayer that textbook covers used for promotional purposes were taxable, and would remain taxable even if later donated to a third party.
• February 15, 1994: Eddie Washington of the Tax Administration Division reversed that position, citing Tex. Tax Code § 151.155(b), which lets a buyer issue an exemption certificate when purchasing a taxable item that will be donated to an organization exempt under § 151.309 or § 151.310(a)(1) or (2) — as long as the buyer makes no use of the item. Since "taxable item" (defined in § 151.010) covers tangible personal property and taxable services, and the book covers were donated straight to school districts, the purchase was held not subject to sales tax.
• March 15, 1994 (this letter): The Comptroller's Tax Policy Committee confirmed that a 1993 administrative hearing decision (Hearing No. 23,130) — which exempted a taxpayer's purchase of sales brochures that were donated to schools for fundraising, because the schools (not the taxpayer) used the brochures — effectively overturned the 1987 Bullock letter. The committee agreed the February 15, 1994 letter was correct.

As a result, the taxpayer's audit was to be amended to remove the tax assessed on sales of book covers to this particular customer. For tax already collected from other customers on similar sales, the taxpayer had the choice of either remitting that collected tax to the state or refunding it to each customer.

What This Means For You

If you print or sell items (like book covers, brochures, or posters) that a customer intends to donate to a public school: The sale to your customer can qualify for exemption if your customer issues a proper exemption certificate stating the items will be donated to the school and that your customer will not use the items first. The key facts are that the item is a "taxable item" under § 151.010, it goes to an organization exempt under § 151.309 or § 151.310(a)(1) or (2) (such as a public school), and the buyer does not use it before donating it.

If you already collected tax on this type of transaction: As illustrated in this letter, you may have the option to either remit the tax you already collected to the state, or refund it to your customers, rather than being stuck with an assessment.

If your item is used for promotional purposes rather than purely donated: Be careful — the 1987 letter shows that items used for promotion (not simply donated with no use by the buyer) were treated as taxable. The exemption in this letter turns on the buyer making no use of the item before it goes to the school.

Q&A

Q: Are printed book covers that a business donates to public schools subject to Texas sales tax?
A: No. Under Tex. Tax Code § 151.155(b), a buyer may issue an exemption certificate when purchasing a taxable item that will be donated to a school (an organization exempt under § 151.309 or § 151.310(a)(1) or (2)), provided the buyer makes no use of the item first.

Q: Did the Comptroller always take this position?
A: No. A 1987 letter from Comptroller Bob Bullock said textbook covers used for promotional purposes were taxable and remained taxable even if later donated. That position was overturned by a later administrative hearing decision (Hearing No. 23,130) and formally reversed in the February 15, 1994 letter reproduced here, which this March 15, 1994 letter confirms is correct.

Q: What happens to sales tax that was already collected on similar donated-item sales before this ruling?
A: The taxpayer in this letter had its audit amended to remove the tax assessed on book covers sold to the specific customer at issue. For tax already collected from other customers on similar sales, the taxpayer could choose either to remit that tax to the state or to refund it to each customer.

Citations

• Tex. Tax Code § 151.155(b) (exemption certificate for taxable items purchased for donation to an exempt organization, if not used by the buyer)
• Tex. Tax Code § 151.010 (defining "taxable item" as tangible personal property and taxable services)
• Tex. Tax Code § 151.309 (exempt organizations, including public schools)
• Tex. Tax Code § 151.310(a)(1) (exempt organizations)
• Tex. Tax Code § 151.310(a)(2) (exempt organizations)

Original ruling text

March 15, 1994

Dear *:

I am writing you in response to your letter of March 7, 1994, concerning
the taxability of book covers printed for a customer who donates them to
public schools.

On February 15, 1994, Eddie Washington wrote a letter to your client's
customer stating the sales tax law exempts purchases of taxable items that
are donated to public schools. Eddie's response was based on Hearing No.
23,130 signed by Mr. Bob Bullock. In Hearing No. 23,130, the
administrative law judge exempted petitioner's purchase of sales brochures
which showed its petitioner's products which public schools sold for
fundraising. The petitioner donated the brochures to the schools. The
administrative law judge found that the schools, not the petitioner, used
the brochures in fundraising activities.

This issue was presented to our Tax Policy Committee last week. The
committee determined that Hearing No. 23,130 overturned Mr. Bullock's
February 13, 1987, letter to your client and that Eddie's letter is correct.

Your client's audit will be amended to delete the tax assessed on sales
of book covers to this particular customer. With respect to the tax
collected from other customers, your client has the option of either
remitting the tax collected to the state or of refunding the tax collected
to each customer.

I apologize for any inconvenience this caused either your client or its
customers.

You may call toll free 1-800-531-5441, extension 3-4091 if you have any
questions or need more information.

Sincerely,

Chuck Johnstone, Manager
Tax Administration Division

February 15, 1994

Dear *:

Thank you for your letter of January 27, 1994, concerning the taxability
of book covers bought and donated to school districts.

Texas Tax Code Section 151.155(b) allows a person to issue an exemption
certificate when buying a taxable item that will be donated to an
organization exempted under Section 151.309 or 151.310(a)(1) or (2) of the
tax code as long as the person does not make any use of the taxable item.
"Taxable item" is defined in Section 151.010 to mean tangible personal
property and taxable services.

The television station's phase of the printed book covers that are
donated to school districts is not subject to sales tax.

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

You may call toll free 1-800-531-5441, extension 3-4683 if you have any
questions or need more information. You may write to Tax Administration
Division, Comptroller of Public Accounts.

Sincerely,

Eddie Washington
Tax Administration Division

February 13, 1987

Dear *:

I understand there is some confusion surrounding the taxable status of
textbook covers manufactured by your firm.

Since the textbook covers are used for Promotional purposes, and not for
resale, they are taxable. They would also be taxable if they were later
donated to a third party, regardless of their exempt status.

I hope this explanation is satisfactory; and if I can be of further
service to you, please let me know.

Sincerely,

BOB BULLOCK
Comptroller of Public Accounts

NOTE: Previous Accession Number 9403102L