A non-Texas food broker with no Texas offices, employees, or agents obtains bids to supply food products (not ready-to-eat meals) to tax-exempt entities like school districts, using common carriers for delivery and sometimes a short-term rented storage facility in Texas. Does this company need a Texas sales tax permit?

Plain-English summary

A tax professional wrote in on behalf of a client: a non-Texas corporation with no facilities, real estate, offices, employees, or agents in Texas, conducting all its sales over the telephone from its home state. The client obtains bids to supply food products (not meals or food ready for immediate consumption) exclusively to tax-exempt entities, such as school districts, in Texas and other states — buying from out-of-state manufacturers/wholesalers and delivering either directly to the exempt entity via common carrier, or through a short-term rented Texas storage facility before final delivery by another common carrier.

The Comptroller held that the short-term rental of the Texas storage facility does make the company "engaged in business" in Texas, under Tex. Tax Code § 151.107(a)(1) (which covers maintaining, occupying, or using a place of business in Texas — including a storage place — even temporarily or indirectly). But — because the company sells only food products not ready for immediate consumption, or sells exclusively to tax-exempt entities, the Comptroller confirmed it would NOT require the company to get a Texas sales tax permit solely to file returns reporting nontaxable sales; food products (other than ready-to-eat meals) aren't taxable in Texas regardless. If the company later expands into other, taxable items, or needs to purchase items in Texas using a resale certificate, it would then need to apply for a permit.

Separately, the letter flags that a Government Code provision (§ 2155.004(b)) requires out-of-state persons to either obtain a tax permit or provide a specific certification before being awarded a bid or contract to sell taxable items to certain state agencies — which includes public institutions of higher education. So even though this company doesn't need a sales tax permit for its nontaxable food sales, it may still need to provide that certification to be eligible for certain state agency bids.

What this means for you

Out-of-state sellers of tax-exempt food products to schools and other exempt entities

Even a brief Texas physical presence (like renting short-term storage) can create "engaged in business" nexus under § 151.107(a)(1) — but if your sales are genuinely nontaxable (non-ready-to-eat food, or sales exclusively to exempt entities), the Comptroller won't make you get a sales tax permit just to file zero-tax returns. Keep monitoring whether your product mix or purchasing needs change, since either can trigger a permit requirement.

Out-of-state businesses bidding on Texas state agency contracts

Don't assume "no sales tax permit needed" means no paperwork at all — Government Code § 2155.004(b) can separately require a certification before you're eligible for certain state agency bids, including at public colleges and universities, regardless of your sales tax permit status.

Accountants and tax professionals

This is a useful example of the Comptroller distinguishing "engaged in business" nexus (a factual/statutory question under § 151.107) from the PRACTICAL need for a sales tax permit (which the Comptroller can decline to require when all sales are nontaxable) — worth flagging for any out-of-state client whose Texas footprint is limited to logistics/storage rather than taxable sales activity.

Common questions

Q: Does renting short-term storage space in Texas create sales tax nexus?
A: Yes — per this letter, that alone is enough to make the company "engaged in business" in Texas under § 151.107(a)(1).

Q: Does having nexus always mean a company needs a Texas sales tax permit?
A: Not necessarily — the Comptroller here declined to require a permit because all the company's sales were nontaxable (non-ready-to-eat food sold to tax-exempt entities).

Q: What would change this outcome?
A: If the company expands to selling other, taxable items, or needs to buy items in Texas using a resale certificate, it would then need to obtain a sales tax permit.

Q: Is a sales tax permit the only paperwork an out-of-state seller might need for Texas state agency bids?
A: No — Gov't Code § 2155.004(b) can require a separate certification before an out-of-state person is awarded certain state agency bids/contracts, including at public higher-education institutions.

Q: Can I rely on this letter for my own out-of-state food-supply business?
A: No. This opinion is based on the facts presented, and additional or different facts could change the opinion; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.107(a)(1) (retailer engaged in business in Texas — maintains/occupies/uses a place of business, including a storage place)
• Tex. Gov't Code § 2155.004(b) (out-of-state persons must obtain a tax permit or provide certification before being awarded certain state agency bids/contracts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9912940L

Original ruling text

December 15, 1999

Dear **:

Thank you for your letter to Ms. Adina Christian asking about the applicability
of sales and franchise taxes to your client. Mr. Bobbitt is responding to the
franchise tax issues under separate cover. In our earlier telephone
conversation on the sales tax issue I had suggested that your client would not
need a sales tax permit.

You provide us with the following facts regarding your client. The client is a
non-Texas corporation in good standing with the state in which it is
incorporated. The client has no facilities, real estate, offices, employees or
agents in Texas, and all of its sales transactions are conducted over the
telephone in the state in which it is incorporated.

Your client is in the business of obtaining bids for the provision of food
products (not meals or food ready for immediate consumption) to sales tax
exempt entities, such as school districts, in Texas and other states. All of
its sales are of exempted items and made to tax exempt entities.

Your client purchases food products from manufacturers and wholesalers located
outside of Texas. Then it either (1) has the product delivered by common
carrier directly to the sales tax exempt entity in Texas; or, (2) has a common
carrier deliver the products to a storage facility, which the client rents for
a short time, and then another common carrier will pick-up the products from
the storage facility for final delivery to the sales tax exempt entity in
Texas. When we talked on the telephone, the details regarding the short term
storage facility were unclear.

Response: The short term rental of the storage facilities by your client
causes it to be "engaged in business" in Texas

Sec. 151.107. Retailer Engaged in Business in This State.

(a) For the purpose of this subchapter and in relation to the use tax, a
retailer is engaged in business in this state if the retailer:

(1) maintains, occupies, or uses in this state permanently, temporarily,
directly, or indirectly or through a subsidiary or agent by whatever name, an
office, place of distribution, sales or sample room or place, warehouse,
storage place, or any other place of business;...

However, provided your client sells only food products not ready for immediate
consumption or sells food products exclusively to exempt entities, we will not
require your client to obtain a sales tax permit solely for the purpose of
filing sales tax returns to report non taxable sales. Food products, other
than meals sold ready for immediate consumption, are not taxable. If your
client expands its service to include other items or if it makes purchases in
Texas of items for which a resale certificate should be issued in lieu of tax,
it will need to apply and get a sales tax permit.

A provision of the Government Code requires that out of state persons must
either get a tax permit or provide a certification before the person may be
awarded a bid or contract to sell taxable items to certain state agencies.
Your client may be required to provide the certification specified under Sec.
2155.004(b) Government Code before it may be awarded a bid or contract. .
Institutions of higher education are included within the state agencies

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

If you have any questions, please do not hesitate to call me toll free at
1-800-531-5441, extension 34675. The direct number is 512/463-4675. The
e-mail address is .

Sincerely,

Tom Soto
Tax Policy Administration