For local sales tax purposes, where is an online marketplace sale "consummated" when the order is placed through out-of-state servers but fulfilled from a Texas warehouse that isn't open to the public?

Plain-English summary

Three related retailers sell products through a shared online marketplace website/apps operated by an affiliated company. Customer orders are placed and processed on out-of-state servers (the marketplace company has no Texas office), then routed to whichever retailer's fulfillment center will ship the order. The retailers asked, across four slightly different fulfillment scenarios, exactly where their sales are "consummated" for Texas local sales and use tax purposes — because local tax (unlike state tax) is sourced to a specific location, and getting that location wrong means remitting to the wrong city/county.

The Comptroller's answer hinged on one statutory phrase: whether the fulfillment center counts as a "place of business of the retailer" — defined as a location that receives orders for taxable items, including any location receiving three or more orders a year. In three of the four scenarios (fulfillment centers that are simply warehouses, not open to the public, where customers can't place orders, pick up, or return goods), the online order is never "received" at a Texas place of business — it's received on out-of-state servers — and the fulfillment center itself doesn't receive orders either, it just executes shipping. So those sales are sourced to the delivery address, wherever in Texas the customer's order ships. The twist is the second scenario: one retailer also holds an annual clearance sale with at least three walk-up, in-person sales in the fulfillment center's parking lot. That handful of sales creates a temporary place of business at that specific location (even though it's on the same physical address as the otherwise-non-public warehouse) — so those specific walk-up sales source to the clearance-sale location, while the retailer's regular online orders processed through that same fulfillment center still source to the delivery address as in the other scenarios.

What this means for you

Online marketplace sellers with Texas fulfillment centers

A warehouse that's closed to the public and doesn't take orders, pickups, or returns generally does NOT create local-tax sourcing at the warehouse's location — your online sales source to wherever the customer's order is delivered, city by city, even though your inventory physically sits in one Texas location. This can matter a lot for local tax rate differences between where your warehouse sits and where your customers are.

Retailers occasionally holding pop-up or clearance sales at a warehouse

Watch the "three or more orders" trigger carefully. Even a handful of walk-up in-person sales at the same physical address as an otherwise-non-public fulfillment center can create a temporary place of business — meaning those specific sales, and only those, source to that location instead of to the delivery address. Track which sales happen at the pop-up event versus which are routed through the normal online channel.

Accountants and tax professionals

The controlling framework is § 321.002(a)(3)(A)'s "place of business of the retailer" definition layered against Rule 3.334(h)(3)(D) (order received and fulfilled at non-place-of-business locations sources to delivery) and Rule 3.334(h)(6)(C) (temporary place of business sources to that location). Also note the 2% local use tax rate cap mentioned in Rule 3.334(i) — relevant when stacking multiple local jurisdictions' rates.

Common questions

Q: Does having a fulfillment center in Texas automatically make it a "place of business" for local tax sourcing?
A: No. If the center isn't open to the public and doesn't accept orders, pickups, or returns, it doesn't meet the statutory definition — sales route through it are sourced to the delivery address instead.

Q: What changes if the retailer holds an occasional in-person sale at the fulfillment center's address?
A: If there are three or more in-person sales in a calendar year at that location (even in a parking lot, not inside the warehouse), that location becomes a temporary place of business, and those specific sales source there — separate from the retailer's regular online-order sales, which still source to the delivery address.

Q: Does it matter that the marketplace processes orders on servers located outside Texas?
A: Yes — since the order is never received at a Texas location in that scenario, and the fulfillment center itself doesn't "receive" orders (it only executes shipping), the sale isn't consummated at either the server location or the warehouse; it's sourced to the delivery address under the fallback rule.

Q: Can another online retailer rely on this ruling for its own fulfillment structure?
A: No. It binds the Comptroller only for the named taxpayers and facts presented; a fulfillment center that does accept walk-in orders, pickups, or returns would likely be analyzed differently.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.010 (taxable item); § 151.009 (tangible personal property)
• Tex. Tax Code § 321.203 (consummation of sale); § 321.002(a)(3)(A) (place of business of the retailer definition)
• 34 Tex. Admin. Code § 3.334(a)(19) (temporary place of business definition); (h) (local sales and use tax sourcing rules); (h)(3)(D) (order not received/fulfilled at a place of business sources to delivery address); (h)(6)(C) (temporary place of business sourcing); (i) (2% local use tax cap)

Source

• Landing page (STAR search): https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201906015L

Original ruling text

June 13, 2019

RE: Private Letter Ruling No. 20181221110103

**, Taxpayer No. **

**, Taxpayer No. **

**, Taxpayer No. **

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[1] We are responding to your request dated Dec. 20, 2018. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights to the Taxpayers listed above.

You requested guidance on how **, **, and ** (individually Taxpayer Retailer or collectively Taxpayer Retailers) should source sales to Texas customers for Texas local sales and use taxes.

Facts Presented

COMPANY operates **’s online marketplace (Website) and various apps used by Texas customers to make online orders. Taxpayer Retailers list products for sale on the Website pursuant to an intercompany Listing Agreement with COMPANY, and COMPANY provides all of the services and functionalities necessary to facilitate sales on the Website, including search engine, notification to the seller of orders, payment processing, credits and returns. COMPANY does not maintain an office or other physical location in Texas. The Website and apps are hosted on servers at a location outside Texas and owned by an affiliated entity.

When a customer visits the Website and initiates a purchase, COMPANY processes the sales transaction by electronically sending confirmation of the order to the appropriate Taxpayer Retailer. Taxpayer Retailer accepts the order on servers outside Texas, and then electronically notifies the appropriate fulfillment center(s) that it requires fulfillment of the goods to the customer. Once the fulfillment center receives the necessary information to fulfill the order, it picks and packs the goods and delivers them to third party carriers or independent contractors for delivery to customers. Items purchased by Texas customers may be fulfilled by fulfillment centers located inside or outside of Texas.

Taxpayer Retailers have different business models that are listed in the scenarios below.

Scenario One: Taxpayer Retailer operates fulfillment centers in Texas that are not open to the public. Online orders by Texas residents may be fulfilled from centers in Texas or other states and the items are delivered to the Texas residents by third party carriers or by independent contractors. Taxpayer Retailer holds title to the goods sold at the fulfillment centers.

Scenario Two: Taxpayer Retailer operates fulfillment centers in Texas that accept returns from customers. At least once each year, Taxpayer Retailer holds a clearance sale at the location of the fulfillment centers, where they make at least three in-person sales to members of the public. The sale is held in a fulfillment center’s parking lot or other space at the same physical address as the fulfillment center but not within the actual fulfillment center. Taxpayer Retailer holds title to the goods that are being sold at the fulfillment center as well as the parking lot or other space at the same physical address where the clearance sale is held.

Scenario Three: Taxpayer Retailer operates fulfillment centers that are not open to the public. Taxpayer Retailer holds title to the items in the fulfillment centers. Customers are not able to place an order, pick up an order, or return goods to the fulfillment centers.

Scenario Four. Taxpayer Retailer is the retailer and a related subsidiary operates fulfillment centers that are not open to the public. Taxpayer Retailer holds title to the items in the fulfillment centers. Customers are not able to place an order, pick up an order, or return goods to the fulfillment centers.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: At what location are sales made by Taxpayer Retailers consummated for Texas local sales and use tax purposes under each of the four scenarios?

Ruling for Scenario One: Taxpayer Retailer’s sales for Scenario One are consummated, and local sales and use tax is due, based on the location where the order is delivered.

Analysis for Scenario One: A “taxable item” means tangible personal property and taxable services. Section 151.010 (Taxable Item). Tangible personal property means personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the sense in any other manner. Section 151.009 (Tangible Personal Property).

Local sales tax is due to each jurisdiction that imposes a sales tax at the location where a sale is consummated. Rule 3.334(h) (Local Sales and Use Taxes). Local use tax may also be due as long as the combined rate of the local sales and use taxes collected does not exceed two percent. Rule 3.334(i). The location where a sale is consummated depends on whether the sale was placed in person by the consumer and if the order was taken by the retailer at a place of business. See Section 321.203 (Consummation of Sale).

Orders placed on the Website or through COMPANY’s apps and processed and routed by servers are not received at a Texas place of business. Additionally, Taxpayer Retailer does not have a Texas place of business.

“Place of business of the retailer,” is defined as “an established outlet, office, or location operated by the retailer or the retailer's agent or employee for the purpose of receiving orders for taxable items and includes any location at which three or more orders are received by the retailer during a calendar year.” Section 321.002(a)(3)(A) (Definitions). Orders placed on the Website or through COMPANY’s apps and processed and routed by servers are not received at a place of business.

When an order is received at a location that is not a place or business and is fulfilled in Texas at a location that is not a place of business, the sale is consummated at the location in Texas to which the order is shipped. See Rule 3.334(h)(3)(D). For Scenario One, local sales and use tax is due based on the location where the order is delivered.

Ruling for Scenario Two: Taxpayer Retailer operates temporary places of business when holding the clearance sales in the parking lot or other space at the physical address of the fulfillment center. Sales made at the clearance sale are consummated and local sales and use tax is due based on the physical address of the temporary place of business. Sales placed through the Website or the apps and processed within the fulfillment centers are consummated and local sales and use tax is due based on the location where the order is delivered.

Analysis for Scenario Two: A temporary place of business is “[a] location operated by a seller for a limited period of time for the purpose of selling and receiving orders for taxable items and where the seller has inventory available for immediate delivery to a purchaser.” Rule 3.334(a)(19). In the facts provided for Taxpayer Retailer, the three or more sales occur outside the physical walls of the fulfillment center warehouse. These orders are placed at a temporary place of business. Sales made at a temporary place of business where the items are transferred to the purchaser at the time of sale are consummated and local sales and use tax is due at the location of the temporary place of business. Rule 3.334(h)(6)(C).

As described in the Ruling for Scenario One, sales placed through the Website or the apps and processed within the fulfillment centers are not received or fulfilled at a Texas place of business. These sales are consummated and local sales and use tax is due based on the location where the order is delivered. See Rule 3.334(h)(3)(D).

Ruling and Analysis for Scenario Three: The analysis for Scenario One also applies to Scenario Three. Orders placed through the Website or on apps are not received at a Texas place of business. Taxpayer Retailer’s fulfillment centers do not meet the definition of “place of business of the retailer” under Section 321.002(a)(3)(A). When an order is received at a location that is not a place of business and is fulfilled in Texas at a location that is not a place of business, the sale is consummated at the location in Texas to which the order is shipped. Rule 3.334(h)(3)(D).

Ruling and Analysis for Scenario Four: The analysis for Scenario One also applies to Scenario Four. Orders placed through the Website or on apps are not received at a Texas place of business. Taxpayer Retailer’s fulfillment centers do not meet the definition of “place of business of the retailer” under Section 321.002(a)(3)(A). When an order is received at a location that is not a place of business and is fulfilled in Texas at a location that is not a place of business, the sale is consummated at the location in Texas to which the order is shipped. Rule 3.334(h)(3)(D).

The Texas Tax Code and Texas Administrative Code are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20181221110103.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

[1] Unless otherwise indicated, all references to “Section” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.