When a business that provides a taxable service separately bills a client for its own travel expenses (airfare, meals, hotel), are those reimbursed expenses part of the taxable sales price?

Plain-English summary

A business asked whether it could bill a client for its own travel expenses (implied: airfare, meals, hotel) incurred while performing a taxable service, without charging Texas sales tax on that reimbursement. The Comptroller's answer was no: travel expenses billed by a provider of a taxable service are part of the taxable sales price and are subject to Texas sales tax.

The legal basis is Tex. Tax Code § 151.007(a)'s definition of "sales price"/"receipts" — the total amount charged for a taxable item, without any deduction for the cost of: (1) the taxable item itself; (2) materials, labor or service employed, interest, losses, or other expenses; (3) transportation of tangible personal property; or (4) transportation incident to performing a taxable service. Because reimbursed travel costs fall within that no-deduction list, they can't be separately carved out of the taxable sales price just because they're billed as a pass-through reimbursement.

Note: this letter's own generic STAR subject-matter heading references "insurance services," but the letter's actual text states a general rule about taxable services and doesn't identify or discuss insurance services specifically.

What this means for you

Consultants, contractors, and other taxable-service providers

If you separately itemize travel expenses (airfare, meals, hotel) on an invoice for a taxable service, those charges are still part of your taxable sales price — labeling them as a "reimbursement" or a separate line item doesn't remove them from tax.

Clients being billed for a taxable service plus expenses

Expect sales tax to apply to the full invoice total, including any reimbursed travel costs, whenever the underlying service itself is taxable in Texas.

Accountants and tax professionals

A clean, general statement of § 151.007(a)'s no-deduction rule — useful precedent whenever a client tries to bifurcate a taxable-service invoice into a "service fee" (taxed) and "expense reimbursement" (untaxed) line.

Common questions

Q: Can a service provider avoid charging sales tax on travel expenses by billing them as a separate reimbursement line item?
A: No. Under § 151.007(a), the sales price of a taxable service can't be reduced for materials, labor, or transportation costs — including travel expenses like airfare, meals, and hotel.

Q: Does this only apply to certain kinds of taxable services?
A: The rule as stated in this letter is general — it applies to travel expenses billed by any provider of a taxable service, not to one specific industry.

Q: Can I rely on this letter for my own business?
A: No. This opinion is based on the facts presented, and additional or different facts may yield different results; it can be relied on only by the taxpayer it was issued to.

Citations and references

Statutes:

• Tex. Tax Code § 151.007(a) (definition of "sales price"/"receipts" — no deduction for materials, labor, or transportation costs, including transportation incident to a taxable service)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200002066L

Original ruling text

February 17, 2000

Dear **:

Thank you for your recent letter regarding travel expenses billed by a service
provider and Texas sales tax.

Travel expenses billed by a provider of a taxable service are subject to Texas
sales tax. The sales tax law does not allow such expenses to be excluded from
the sales price of a taxable service. Texas Tax Code Section 151.007(a) states
that "sales price" or "receipts" means the total amount for which a taxable
item is sold, leased, or rented, valued in money, without a deduction for the
cost of:

(1) the taxable item sold, leased, or rented;

(2) the materials used, labor or service employed, interest, losses, or other
expenses;

(3) the transportation of tangible personal property;

(4) transportation incident to the performance of a taxable service.

This opinion is based on the facts presented. Additional or different facts
may yield different results.

You may call me toll free 1-800-531-5441, extension 5-9787, if you have any
questions or need more information. The direct line is 512/305-9787. You may
also write to Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Philip Knisely
Tax Policy Division