When a multinational company routes goods through a chain of intercompany sales inside a Texas bonded warehouse before a U.S. customer imports them, are those in-bond sales taxable, and does merely taking title to the goods there create Texas nexus for the out-of-state entities involved?

Plain-English summary

An industrial-automation company with U.S., European, and Mexican subsidiaries set up a complex drop-ship arrangement: a European customer orders from the European subsidiary, which routes the order through the U.S. parent to the Mexican subsidiary, which builds and ships the goods. The goods enter a bonded warehouse in Texas (a customs-controlled storage area) and, while sitting there, change hands through a chain of intercompany invoices — U.S. parent to European subsidiary, European subsidiary to the European customer, European customer to the U.S. customer — before the U.S. customer's broker finally clears customs and physically removes the goods as the "importer of record." The company asked two things: are those in-bond sales taxable, and does taking title to goods sitting in that Texas warehouse create Texas nexus for the entities involved?

On taxability, the sales are exempt. The U.S. Constitution's Imports and Exports Clause bars states from taxing imports, and Texas law tracks that by exempting property "this state is prohibited from taxing" by federal constitutional law. Goods sitting in a bonded area keep their legal character as an "import" the whole time they're there, so every sale that happens while the goods are still in bond is untaxed — the goods haven't yet entered the stream of Texas commerce. Texas use tax only kicks in once the goods are pulled out of bond for actual use, and that liability falls on the U.S. customer as the importer of record who removes them — not on the manufacturer that never took physical possession outside the bonded area.

On nexus, though, the answer flips. Simply taking legal title to goods sitting inside a Texas warehouse — even a bonded one, even if the sale itself is tax-exempt — counts as "maintaining, occupying, or using" a warehouse in Texas and deriving sales receipts from property situated in Texas. That's enough to make every entity in the title chain (not just the original manufacturer) a "retailer engaged in business" in Texas under the state's nexus statute. The tax exemption for the sale itself doesn't excuse these entities from registering for a Texas sales and use tax permit and filing the required reports — registration and reporting duties are separate from tax liability.

What this means for you

Multinational companies using bonded warehouses or in-bond drop-ship structures

Don't assume that because your in-bond sales are constitutionally tax-exempt, your company has no Texas footprint. Merely taking title to goods physically located in a Texas bonded warehouse — even briefly, even as part of a paper-only intercompany transaction — creates Texas nexus requiring permit registration, separate and apart from whether any tax is actually owed on that transaction.

Import/export and customs-adjacent businesses

This ruling is a clean two-step framework: (1) ask whether the goods still have "import character" (tax-exempt while true) and (2) separately ask whether any entity took title or otherwise used/occupied Texas property in the chain (creates nexus regardless of the tax answer in step 1). The two questions have genuinely different answers here, and that split is the whole point of the ruling.

Accountants and tax professionals

Flag every entity in a multi-party in-bond title chain for potential Texas registration obligations, not just the ultimate seller or the importer of record. The exemption under § 151.307(a) protects against tax liability on the transaction, but Rule 3.286(b)(1)'s permit requirement for "sellers operating temporarily in this state" reaches even brief, paper-only presence tied to title transfer.

Common questions

Q: If the sales are tax-exempt, why would a company still need a Texas sales tax permit?
A: Because permit registration under § 151.106 is triggered by being "engaged in business" in Texas (via warehouse use or Texas-situated property sales), which is a separate legal question from whether tax is actually due on a given transaction. A business can owe zero tax and still owe a permit and reporting obligation.

Q: Who actually owes Texas use tax once the goods leave the bonded area?
A: The importer of record — here, the U.S. customer that physically removes the goods from bond — not the manufacturer or intermediate sellers who only ever held title while the goods were still in bond.

Q: Does this ruling apply to my company's bonded-warehouse or drop-ship structure?
A: Not automatically. This is a private letter ruling binding only on the Comptroller as to this taxpayer's specific facts. Other in-bond or drop-ship arrangements should confirm their own nexus and exemption analysis with a Texas tax professional.

Citations and references

Statutes and rules:

• Tex. Tax Code § 151.051, § 151.010 (sales tax imposition; taxable item)
• Tex. Tax Code § 151.101, § 151.011(a) (use tax imposition; use and storage)
• Tex. Tax Code § 151.307(a) (exemptions required by prevailing law); U.S. Const. art. I, § 10, cl. 2 (Imports and Exports Clause)
• Tex. Tax Code § 151.008, § 151.107(a)(1), (3), § 151.004, § 151.106 (retailer definition; nexus; "in this state"; registration)
• 34 Tex. Admin. Code § 3.323(d) (Imports and Exports); § 3.286(a)(4)(A), (a)(4)(E), (a)(13), (b)(1) (seller responsibilities)
• STAR Accession No. 8509L0663B11 (Sept. 9, 1985); No. 8811L0918E05 (Nov. 15, 1988)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/202408014L

Original ruling text

August 29, 2024

RE: Private Letter Ruling No. 20230119151006

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE 1] We are responding to your request dated Jan. 19, 2023, and additional information discussed during conference calls conducted on March 10 and May 25, 2023. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the sales and use tax responsibilities of sellers engaged in the sale of imported tangible personal property within a bonded warehouse.

Facts Presented

The relevant facts are based on the documentation provided in your request by ** (Taxpayer).

Taxpayer provides industrial automation products and services. Taxpayer has subsidiaries in the United States, Europe, and Mexico. Taxpayer and its subsidiaries sell products that will be imported into the United States after a series of transactions that occur in a bonded warehouse in Texas.

A customer in Europe (EU customer) places an order with Taxpayer’s European subsidiary (Subsidiary Europe) and requests the products to be drop-shipped directly to its customer in the United States (U.S. customer). Subsidiary Europe places an intercompany purchase order with Taxpayer, who then places an order with Taxpayer’s Mexican subsidiary (Subsidiary Mexico).

Subsidiary Mexico receives the order and builds the products. Subsidiary Mexico arranges transportation of the products and invoices Taxpayer. Taxpayer receives title to the products when they are provided to the carrier for export. The products are then exported from Mexico to Taxpayer’s customs broker to enter the bonded area of the warehouse in Texas.

A series of sales transactions occur while the products are stored within the bonded area. Taxpayer invoices and transfers title to the goods to Subsidiary Europe. Subsidiary Europe invoices and transfers title to EU customer. Finally, EU customer invoices and transfers title to U.S. customer.

U.S. customer’s customs broker performs customs import clearance and arranges physical transfer and removal of goods from the bonded area and onto U.S. customer’s mode of transportation. U.S. customer is listed as the importer of record.

U.S. customer’s customs broker provides Taxpayer’s customs broker proof of exportation out of bonded area. This includes a copy of the bill of lading showing U.S. customer as consignee and U.S. customer’s customs broker as shipper/consignor with Taxpayer’s sales order as reference.

Taxpayer holds a Texas sales and use tax permit. Subsidiary Europe does not hold a permit.

Questions, Rulings, and Analyses

Our restatements of your questions are shown below, followed by our responses and analyses.

Question One: Are the transactions that occur within the bonded area, prior to importation into Texas by the importer of record, subject to Texas sales and use tax?

Ruling One: No, the transactions that occur within the bonded area are not subject to Texas sales and use tax.

Analysis: Texas imposes a sales tax on each sale of a taxable item in this state. Section 151.051 (Sales Tax Imposed). The term taxable item includes tangible personal property and taxable services. Section 151.010 (Taxable Item). Taxpayer’s products are tangible personal property.

Texas also imposes a use tax on the storage, use or other consumption in this state of a taxable item purchased from a retailer for storage, use, or other consumption in this state. Section 151.101 (Use Tax Imposed). Use means the exercise of a right or power incidental to the ownership of tangible personal property over tangible personal property. See Section 151.011(a) (Use and Storage).

The Imports and Exports clause of the United States Constitution, Article 1, Section 10, Clause 2, states, in part, “No State shall, without the Consent of Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws…” Section 151.307(a) (Exemptions Required by Prevailing Law) further states that, “Tangible personal property or service that this state is prohibited from taxing by the law of the United States, the United States Constitution, or the Constitution of Texas is exempted from the taxes imposed by this chapter.”

Imported property retains its character as an import while it is in the bonded area. See STAR Accession No. 8509L0663B11 (Sept. 9, 1985). The sales transactions and any use of the goods that occur while the goods are in the bonded area are therefore exempt from Texas sales and use tax under Section 151.307(a).

Property imported into Texas from another country is exempt from Texas use tax as long as the property retains its character as an import. Once transit of an import ceases in Texas, it becomes subject to Texas use tax. See Rule 3.323(d) (Imports and Exports). Texas use tax is due when the items are removed from the bonded area for use. See STAR Accession No. 8811L0918E05 (Nov. 15, 1988).

The goods imported from Mexico retain their character as an import while in the bonded area. Taxable use would occur after the goods are removed by the importer of record. U.S. customer is the importer of record that removes the goods from the bonded area. U.S. customer, and not Taxpayer, would therefore be liable for any Texas use tax due after the items are removed from the bonded area of the warehouse in Texas.

Question Two: Does ownership of goods within the bonded warehouse create physical presence in Texas?

Ruling Two: Yes, the entities that take title to the goods in the bonded area of the warehouse in Texas have physical presence in this state.

Analysis: Section 151.008 (Seller or Retailer) defines a seller or retailer as a person engaged in the business of making sales of taxable items. See also Rule 3.286(a)(13) (Seller's and Purchaser's Responsibilities).

Section 151.107(a)(1) (Retailer Engaged in Business in This State) provides that a retailer is engaged in business in this state if the retailer maintains, occupies, or uses an office, distribution center, warehouse, or storage place in this state. See also Rule 3.286(a)(4)(A). A retailer that derives receipts from the sale, lease, or rental of tangible personal property situated in this state is also engaged in business under Section 151.107(a)(3). See also Rule 3.286(a)(4)(E).

“‘In this state’ means within the exterior limits of Texas and includes all territory within these limits ceded to or owned by the United States.” Section 151.004 (In This State).

Section 151.106 (Registration of Retailers) requires retailers who sell a taxable item for storage, use, or consumption in Texas to register with the comptroller. Rule 3.286(b)(1) states, “Each seller who is engaged in business in this state, including itinerant vendors, persons who own or operate a kiosk, and sellers operating temporarily in this state, must apply to the comptroller and obtain a sales and use tax permit for each place of business of the seller operated in this state and a single permit for its out-of-state places of business.”

The entities that sell the goods after they have been received by Taxpayer in the bonded warehouse take title to tangible personal property. The warehouse and the goods are located within the territorial limits of Texas as described by Section 151.004. These entities are making use of the warehouse in Texas and are deriving receipts from the sale of tangible personal property in this state. They are therefore engaged in business in this state under Section 151.107(a)(1), (3) and Rule 3.286(a)(4)(A), (E).

The entities also make sales of the goods in this state. The Imports and Exports clause and Section 151.307 exempt those sales from the imposition of tax. However, those provisions do not exempt sellers from the registration and reporting requirements under Chapter 151. The entities are engaged in business and making sales of tangible personal property in Texas. They are therefore required to obtain a Texas sales and use tax permit under Section

151.106 and Rule 3.286(b)(1) and file reports as required by Chapter 151, Subchapter I.

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. 20230119151006.

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.