Is an out-of-state (Arkansas) government agency exempt from Texas sales tax?

Subject

Oos Schools — Purchases

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9407453L

Plain-English Summary

The Texas Comptroller ruled that Arkansas state and local government agencies are not exempt from Texas sales tax. Texas law (Tex. Tax Code § 151.309(6)) allows the Comptroller to reciprocate sales tax exemptions with agencies of bordering states, but at the time of this ruling no such reciprocation agreement existed between Texas and Arkansas. As a result, if an Arkansas state, county, city, or other government agency takes possession of taxable items in Texas, Texas sales tax is due on that purchase.

There is one important carve-out: Arkansas schools and volunteer fire departments can qualify for exempt status in Texas on their own, separate from the general government-reciprocity rule. To do so, they must apply directly to the Comptroller's Exempt Organizations section. Once an Arkansas school or volunteer fire department has obtained that exempt status, a Texas vendor may accept a valid, properly completed exemption certificate from it in lieu of collecting tax.

What This Means For You

If you are a Texas vendor selling to an Arkansas government agency: Collect Texas sales tax on taxable items unless the buyer is a school or volunteer fire department that has separately applied for and received exempt-organization status from the Comptroller. A general claim of "we're a government agency" is not enough — Arkansas agencies as a class are not exempt absent a reciprocity agreement.

If you are an Arkansas school or volunteer fire department: You are not automatically exempt just because you are located in a bordering state. You must apply to the Comptroller's Exempt Organizations section to obtain Texas exempt status, after which you can furnish a valid exemption certificate to Texas vendors.

If you are an Arkansas state or local government agency (other than a school or volunteer fire department): Expect to pay Texas sales tax on taxable purchases where you take possession of the goods in Texas, unless and until Texas and Arkansas enter into a reciprocal exemption agreement under Tex. Tax Code § 151.309(6).

Q&A

Q: Are Arkansas government agencies exempt from Texas sales tax because Arkansas borders Texas?
A: No. Texas law permits reciprocal exemptions with bordering states under Tex. Tax Code § 151.309(6), but as of this ruling no reciprocation agreement existed between Texas and Arkansas, so Arkansas state and local government agencies remain subject to Texas sales tax.

Q: Can an Arkansas school or volunteer fire department ever be exempt from Texas sales tax?
A: Yes. Unlike general government agencies, Arkansas schools and volunteer fire departments can apply directly to the Comptroller's Exempt Organizations section for exempt status. Once granted, a Texas vendor may accept a valid exemption certificate from them instead of collecting tax.

Q: When is Texas tax actually due on a purchase by an out-of-state government agency?
A: Tax is due if the agency takes possession of the taxable item in Texas. This ruling addresses that specific fact pattern for Arkansas agencies.

Citations

• Tex. Tax Code § 151.309(6) (authorizing reciprocation of sales tax exemptions with bordering states)

Original ruling text

July 15, 1994

Dear **:

Thank you for your July 6, 1994, letter concerning whether Arkansas
governmental entities are exempt from Texas sales tax.

Currently, state, county, city, and other government agencies (state and local)
of Arkansas are not exempt from Texas tax. If these government agencies take
possession of taxable items in Texas, Texas tax is due. There is a recent
provision in the enclosed Texas Tax Code Sec. 151.309(6) allowing the
reciprocation of exemptions with states that border Texas. At this time, there
are no reciprocation agreements. Arkansas state and local governments are
subject to Texas sales tax.

Please be aware that schools and volunteer fire departments can qualify for
exempt status in Texas. If an Arkansas school or volunteer fire department
wishes to apply for exempt status, they must write to our Exempt Organizations
section. A bulletin on how exempt organizations apply for exempt status in
Texas has been sent to you. You may accept a valid and properly completed
exemption certificate in lieu of tax from schools and volunteer fire
departments that have gotten exempt status.

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

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct line is
512/475-0030. You may also write to Tax Administration, Comptroller of Public
Accounts.

Sincerely,

David Somerville
Tax Administration Division