Does a Texas company owe use tax when it transfers goods between its own divisions, including goods shipped from a Mexico City headquarters or from an out-of-state office?

Plain-English summary

A company headquartered in Mexico City, with divisions in Houston and New York, asked the Comptroller how Texas use tax applies when "widgets" are transferred between its own divisions with no money changing hands. The letter addresses three scenarios:

• Event 1: Mexico City headquarters ships surplus widgets (purchased in Mexico) to the Houston division, at no charge. The Comptroller ruled the Houston division owes Texas use tax on the widgets, based on the original purchase price, under Rule 3.346. The letter notes one possible exception: if the widgets had been purchased for use (not resale) outside Texas for more than a year before the transfer, the purchase would not be presumed to be for use in Texas, and no use tax would need to be accrued.
• Event 2: The New York division, which had purchased widgets in New York and paid New York sales tax, ships surplus widgets to Houston at no charge. The Comptroller reached the same conclusion as Event 1 — Houston owes use tax on the original purchase price — but added that a credit is allowed for the New York tax that was legally imposed and paid, citing Rule 3.340.
• Event 3: Same as Event 1, but the Mexico City office purchases the widgets specifically for immediate shipment to Houston. The result is the same: Houston owes use tax based on the original purchase price.

The letter emphasizes that its answers are based on the facts presented and could change if the facts were different.

What this means for you

Businesses with multi-location or cross-border operations

If your company moves inventory or supplies between its own divisions or locations — even as an internal, no-cost transfer — bringing that property into Texas can trigger Texas use tax on the division that receives and uses it. The tax is measured by the item's original purchase price, not its current book value.

Companies that already paid sales tax elsewhere

If goods were purchased in another state (here, New York) and sales tax was paid there before the goods were shipped into Texas, this letter indicates the Texas division can get credit against its Texas use tax liability for the tax that was legally imposed and paid in the other state.

Companies importing goods from outside the U.S.

If goods are purchased abroad (here, in Mexico) and then shipped into Texas for use, the Texas-based recipient is generally liable for use tax on the original purchase price. The letter notes a possible exception where the goods were bought for out-of-state use more than a year before being brought into Texas — in that case, Texas use is not automatically presumed.

Accountants and tax professionals

This letter is a useful illustration of how the Comptroller applied Rule 3.346 (use tax basis and presumption rules) and Rule 3.340 (credit for tax paid to another state) to internal, no-consideration transfers of inventory between divisions of the same company, including a cross-border (Mexico) fact pattern. It does not cite any Texas Tax Code section by number — only Comptroller rules — so it should be read as a narrow application to the specific facts presented.

Common questions

Q: Does a company owe Texas use tax when it moves goods between its own divisions, with no sale or payment involved?
A: Under this letter, yes — the Houston division receiving the widgets was held liable for Texas use tax in each of the three scenarios described, even though no money changed hands.

Q: What is the use tax based on — what the company originally paid, or the goods' current book value?
A: The original purchase price, according to the Comptroller's response, which cites Rule 3.346, Section (b)(2).

Q: If sales tax was already paid to another state, do you still owe the full use tax in Texas?
A: This letter says a credit is allowed for tax that was legally imposed and paid to another state (New York, in this case), citing Rule 3.340.

Q: Is there any way imported goods might avoid the Texas use tax presumption?
A: The letter notes one possible exception: if the goods were purchased for use (not resale) outside Texas for more than one year before being shipped to Texas, the purchase would not be presumed to be for use in Texas, per Rule 3.346, Subsection (c)(5).

Q: Is this ruling still current?
A: This letter is from 1994 and is based on the specific facts presented by that taxpayer; STAR letters may no longer reflect current policy even if not marked superseded, and only the original requester may rely on it. Confirm current rules with a Texas tax professional.

Citations and references

The letter does not cite the Texas Tax Code by section number. It refers to Comptroller Rule 3.346 (use tax — basis of tax, and the presumption regarding goods held out of state for more than a year before use in Texas) and Rule 3.340 (credit for tax paid to another state).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9404L1297F12

Original ruling text

April 13, 1994

Dear **:

Thank you for your letter of March 16, 1994, regarding the
taxability of transferring "widgets" between divisions. The
company has headquarters in Mexico City and divisions in
Houston and New York. You asked that we address the
following possibilities.

Event 1

The division in Houston is in need of widgets. The
headquarters in Mexico City has a surplus of widgets
purchased in Mexico. The decision is made to ship
widgets from Mexico to Houston. There is no monetary
exchange for the transfer of widgets between divisions.

Question: Is the Houston division liable for Texas use tax?
If so, what is the tax base, the purchase price or book
value?

Response: The Houston division is liable for use tax on the
widgets. Please refer to Section (b)(1) of Rule 3.346. The
basis of the use tax is the original purchase price. Please
refer to Section (b)(2) of Rule 3.346. There may be one
exception whereby the widgets would not be subject to the
use tax. If the widgets were purchased for use (not resale)
out of state for more than one year, the purchase would not
be presumed to have been for use in Texas and the Houston
division would not be required to accrue use tax. Please
refer to Subsection (c)(5) of Rule 3.346.

Event 2

The division located in Houston is in need of widgets. The
New York office has a surplus of widgets that it purchased
in New York and paid the New York state sales tax. The
decision is made to ship the widgets from New York to
Houston. There is no monetary exchange for the transfer
between divisions.

Question: Is the Houston division liable for Texas use tax?
If so, what is the tax base, the purchase price or book
value? Is consideration given for New York tax paid.

Response: Same as Answer 1. A credit will be allowed for the
New York tax that is legally imposed and paid. Please refer
to Rule 3.340.

Event 3

Same situation as Event 1, however, the widgets are
purchased by the Mexico City office for immediate shipment
to Houston.

Question: What is the Houston division's tax liability?

Response: The Houston division is liable for use tax on the
widgets. Please refer to Section (b)(1) of Rule 3.346. The
basis of the use tax is the original purchase price. Please
refer to Section (b)(2) of Rule 3.346.

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

If you have any questions or need additional information,
you may call toll free 1-800-531-5441, ext. 50037. The
regular Austin number is 512-475-0037. You also may write to
Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division

NOTE: Previous Accession Number 9404276L