We want to split our sales company into a separate delivery-truck company (owned by the same family, run as a limited partnership) so that the delivery charge isn't part of our taxable sales price. Does spinning off a related delivery entity — and using either of two proposed joint-invoice formats — keep the delivery charge out of Texas sales tax?

Plain-English summary

A company ("ABC, Inc.") sells taxable tangible personal property and currently charges sales tax on it, including delivery. For tax-planning and liability reasons, its two owners proposed restructuring: they'd form a new limited partnership ("XYZ") — 49% owned by each of them individually, with ABC holding a 1% general-partner interest — and move the delivery trucks and drivers into XYZ. Under the plan, the delivery charge would become XYZ's income rather than ABC's (except for ABC's 1% cut). ABC and XYZ would sign a formal agency agreement letting ABC collect XYZ's delivery charge from customers and pass it through, and proposed two different joint-invoice formats to bill the customer for the sale and delivery together.

The Comptroller rejected the plan on all counts. The controlling rule is Tax Code Section 151.107(b)(3): when a single seller (ABC) bills a customer for both a taxable item and a related transportation charge — even if that transportation is actually performed by a separate, related entity (XYZ) — the whole bill, including the delivery charge, is taxable. That held true regardless of which of the two proposed joint-invoice formats (Exhibit A or Exhibit B) was used; the Comptroller viewed both as ABC still billing and arranging the transportation of what it sold.

The only way described to get delivery charges outside Texas sales tax: the transportation company (XYZ) would have to bill the customer directly, independent of ABC's invoice, so the delivery charge is genuinely an unrelated third-party charge rather than something ABC bills and collects (even via an agency pass-through).

What this means for you

Sellers looking to separate delivery charges from a taxable sale for tax purposes

Simply moving your delivery trucks and drivers into a separate, related legal entity — while still billing the customer jointly or through an agency arrangement — does not remove the delivery charge from the taxable sales price. Tax Code Section 151.107(b)(3) looks at who is billing the customer, not just which entity legally owns the trucks.

Businesses genuinely restructuring for legal-liability reasons

If a real, independent delivery relationship is the goal (not just a tax-avoidance billing trick), the delivery company needs to bill the customer directly and separately from the seller — a joint invoice, even one with clearly broken-out line items, isn't enough.

Accountants and tax professionals structuring related-entity delivery arrangements

This letter is a clean illustration that Section 151.107(b)(3)'s "related transportation charge" rule follows the billing relationship, not entity ownership — an agency-collection arrangement where the seller still bills and remits the delivery charge keeps that charge inside the taxable total no matter how the invoice is formatted.

Common questions

Q: Can a seller avoid tax on delivery charges by having a related company own the delivery trucks?
A: Not by itself — if the seller still bills the customer for the delivery (even via an agency pass-through to the related trucking entity), the delivery charge stays taxable as part of the total sale.

Q: Does the format of the joint invoice matter?
A: No — the Comptroller rejected both proposed invoice formats (combined and two-part) because in both, the seller was still billing and arranging for the transportation of the item it sold.

Q: How can a delivery charge actually avoid Texas sales tax in this kind of structure?
A: The transportation company would have to bill the customer directly, independent of the seller's invoice, so the charge is a genuinely unrelated third-party charge.

Q: Can I rely on this letter for my own related-entity delivery restructuring?
A: No. This opinion is based on the facts presented, and other facts, though similar, may provide a different result; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.107(b)(3) (taxability of transportation/delivery charges billed with a taxable sale)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9903272L

Original ruling text

March 12, 1999

Dear Mr. **:

This is in response to your request for a ruling concerning the issue of
whether the charges for the delivery of taxable items by a separate entity that
does not sell the delivered product are subject to the Texas sales and use tax.
This taxability inquiry also concerns the form of the invoices that the seller
of the delivered items and the hauler of the delivered items propose to use in
invoicing their joint customers. Your fact situation and questions are restated
as follows:

1. ABC, Inc., sells tangible personal property ("materials") that is subject to
   Texas sales tax. Currently ABC, Inc., charges sales tax on the materials.

2. ABC, Inc., desires to restructure its operations to accomplish federal and
   state tax planning and to minimize legal liability to its owners. The owners of
   ABC, Inc., are John Doe and Jane Doe. They propose to form XYZ, a limited
   partnership, with each of them owning a 49 % ownership interest in XYZ. ABC,
   Inc., will be a 1% general partner.

3. The delivery trucks will be owned by XYZ, and the truck drivers will be
   employees of XYZ. The delivery charge will be income of XYZ and not ABC, Inc.,
   except to the extent of its 1% interest in XYZ.

4. For the convenience of the customer and to facilitate record and bookkeeping
   by ABC, Inc., and XYZ, these entities propose to use one of two forms of
   invoicing to the joint customer. These forms are attached as Exhibits A and B,
   respectively.

5. ABC, Inc., and XYZ will sign a formal agency agreement whereby ABC, Inc.,
   will act as agent of XYZ for the sole purpose of collecting XYZ's delivery
   charge and reimbursing XYZ for its delivery revenue once collected from the
   customer. ABC, Inc., will not seek any fee from XYZ for performing the agency
   service of collecting and disbursing XYZ's funds.

6. ABC, Inc., will deposit the proceeds into an agency account and will
   disburse at month end out to XYZ the portion that XYZ earned.

Questions:

1. Is the separate entity arrangement of ABC, Inc., and XYZ limited partnership
   as described herein acceptable for sales tax purposes so that the charge for
   delivery by XYZ will not be subject to sales tax?

Response: No, a billing to a customer by ABC for both the sale of taxable item
and a related charge for transportation provided by XYZ is taxable in total
under Texas Tax Code 151.107 (b)(3).

2. If the answer to question no. 1 is "no," what joint invoicing procedures may
   the parties use in order to insure the separated delivery charges are not
   subject to Texas sales tax?

Response: The customer would have to be billed directly by the transportation
company in order to qualify as an unrelated third-party charge.

3. If the joint invoice form, Exhibit A attached, is used by ABC and XYZ, will
   the format be sufficient to avoid the liability for Texas sales tax on the
   delivery charge? If "no," would you please explain why it will not be
   acceptable?

Response: No. See response to #1 above.

4. If Exhibit A is not acceptable and if the two-part invoice form, Exhibit B
   attached, is used instead, will the format be sufficient to avoid the liability
   for Texas sales tax on the delivery charge. Again, if the answer is no, would
   you please explain why it will not be?

Response: No. This office (and the purchaser) would still view this method as
ABC billing and arranging for the transportation of the taxable item sold.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please call me toll-free at 1-800-531-5441, extension 3-4502. The
direct line is 512/463-4502. You may also write to Tax Policy Division,
Comptroller of Public Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division