Does a funeral home need to collect sales tax on additional prayer cards, crucifixes, flowers, or motor escorts that get added to and separately invoiced under an existing itemized funeral service contract?

Plain-English summary

A funeral home was being audited, and the auditor and the taxpayer disagreed on one issue: when a family later requests additional prayer cards, crucifixes, flowers, or an extra motor escort beyond what was originally estimated -- items and services already listed and priced in the itemized funeral contract required by the Texas Funeral Service Commission and the FTC -- does the funeral home need to collect and report sales tax on those extra items, or does the mortician-as-consumer rule still apply?

The Comptroller sided with the taxpayer. Rule 3.304(a)(1) treats the mortician as the consumer of tangible personal property furnished in rendering funeral services, meaning the mortician pays tax at the time of purchase rather than collecting it from the family -- regardless of whether a separate charge is stated for any item. The auditor had instead pointed to Rule 3.304(a)(2), which makes the mortician a retailer (who must collect tax from the customer) when items are sold separately from an agreement to render funeral services. The Comptroller found that these additional items were still furnished under, and priced according to, the original funeral service contract -- not sold as a separate transaction -- so Rule 3.304(a)(1) controlled. Issuing a separate invoice for the added items, or not knowing the exact billable quantities until after the service, doesn't change that conclusion.

What this means for you

Funeral home operators

As long as additional items requested by a family (extra prayer cards, flowers, an added motor escort, etc.) are covered by the type and pricing terms already stipulated in your original itemized contract, you remain the consumer under Rule 3.304(a)(1) and should keep paying tax on your own purchase of those items rather than collecting sales tax from the family -- even if you invoice the addition separately.

Businesses undergoing a sales/use tax audit over itemized-contract goods

This letter is a useful precedent for the specific question of "does issuing a follow-up invoice for contract-covered items convert them into a separate retail sale?" -- the answer here was no, because the items and pricing were already part of the original agreement.

Accountants and tax professionals

The dispositive fact was that the additional items' provision and pricing were stipulated in the original contract -- if a funeral home instead sold caskets or other items with no connection to an existing funeral-services agreement, Rule 3.304(a)(2)'s retailer treatment would apply instead.

Common questions

Q: Does a funeral home have to collect sales tax on extra prayer cards or flowers added mid-service?
A: No, per this letter, as long as those items and their pricing were already part of the original itemized funeral service contract.

Q: Does issuing a separate invoice for the added items change the tax treatment?
A: No -- per this letter, a separate invoice doesn't convert contract-covered items into a separate retail sale.

Q: When would a mortician instead be treated as a retailer required to collect tax?
A: Per Rule 3.304(a)(2), when caskets or other items are sold separately from an agreement to render funeral services.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.304(a)(1) (mortician as consumer of items furnished in funeral services)
• 34 Tex. Admin. Code Rule 3.304(a)(2) (mortician as retailer for items sold separately from a funeral services agreement)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9708666L

Original ruling text

August 19, 1997

Dear***:

Thank you for your letter of August 4, 1997, concerning the taxability of
additional charges billed in connection with funeral services.

Your client is currently involved in a sales and use tax audit conducted by the
Texas State Comptroller's El Paso office. During the course of this audit the
auditor raised an issue which was discussed with both the auditor and the
*** Office Manager. Both were of the opinion that the appropriate course
of action is to request a ruling from the Texas State Comptroller.

Your client performs funeral services pursuant to an itemized contract
(Contract) for such
services. An itemized contract is required by both the Texas Funeral Service
Commission and the Federal Trade Commission, which exercise regulatory
authority over funeral homes. Such contract details the service to be
performed and the cost of each item. This contract is signed by the party
responsible for the funeral service, usually a surviving family member
(Family), the client.

The Contract, in addition to detailing arrangements regarding the type of
service, the casket and the time and date, also lists such items and quantities
as prayer cards, crucifixes, flowers and motor escorts which are to be
furnished in rendering the funeral service. At the time the Contract is
signed the client advises the Family that additional quantities may be
purchased at the Contract price. In addition the Family usually requests such
consideration due to higher attendance than expected and will require more
prayer cards or crucifixes and possibly an additional motor escort. The
client, as noted earlier, charges the Family at the rate provided in the
Contract and furnishes the additional items or provides the additional service.

The client is under the opinion that all services to be performed or items to
be furnished, whether determined at the time the Contract is signed, or
modified subsequently, are part of a single contract for a funeral service.
Accordingly, the client is not required to collect and report tax on the value
of the item furnished or the service performed; the auditor disagrees. The
client pays the tax due on all tangible personal property at the time of
purchase.

You reference Tex. Admin. Code Section 3.304(a)(1) which states; "(T)he
mortician is the consumer of all tangible personal property used, consumed or
furnished to the customer in rendering funeral services, regardless of whether
or not a separate charge is stated for any such item. As the consumer, the
mortician is required to pay the appropriate amount of tax at the time of
purchase of all such tangible personal property used, consumed, or furnished in
the performance of services." as the basis for exemption.

Response. The auditor appears to be relying on Tex Admin. Code Section
3.304(a)(2) which states; " (I)f a mortician sells caskets, boxes, vaults, or
other individual items of tangible personal property separately from an
agreement to render funeral services, the mortician becomes a retailer.."

The question becomes whether the additional items of tangible personal property
are used in rendering the funeral services under the original contract or are
purchased separately from an agreement to render funeral services.

These items appear to be sold in connection with the performance of a funeral
service and the provision and pricing of additional items are stipulated in the
original funeral service contract or agreement. The client was correct in
relying on Section 3.304(a)(1) and paying taxes at the time of purchase of
these materials. The fact that a separate invoice is issued or that exact
billable quantities of items are not known until after the service is performed
will not change this opinion.

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

You may call me toll free at 1-800-531-5441, ext. 5-0613. The direct line is
512/475-0613. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Kevin Koller
Tax Policy Division