When should sales tax be included in freight or insurance claims for damaged goods?

Plain-English summary

Freight-claim treatment depended on who filed and whether the carrier would salvage the item. Seller and resale-buyer claims generally excluded tax; a carrier repairing and selling salvage could use a resale certificate and collected tax on the later sale unless exempt or for resale. Consumer claims included tax already paid because it was part of the item's value. Insurance claims included tax unless the property was held for resale or owned by an exempt entity.

Common questions

Did a consumer's claim include tax? Yes. Did a seller's claim include tax when no sale occurred? No. Who taxed a later salvage sale? The freight company, unless exempt or for resale.

Citations and references

The reproduced guidance cites no numbered statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8507L0646E05

Original ruling text

FREIGHT CLAIMS.

When a taxable item is lost or damaged in transit, and the owner of the
item submits a claim for damages to a freight company, should sales tax be
included as a part of the claim? What are a freight company's responsibilities
for the payment and collection of sales tax?

A freight company's sales tax responsibilities are determined by two things:

1. Who is submitting the claim for damages?

2. Will an item be salvaged and sold by the freight company?

When a seller submits a claim for damages and:

1. An item has been lost, totally destroyed or has no salvage value. A
   sale has not occurred. Sales tax should not be a part of a claim. If sales
   tax has been collected by a seller from a customer, sales tax should be
   refunded to a customer.

2. An item will be repaired and sold by a freight company. Sales should not
   be a part of a claim. A freight company may issue a seller a resale certificate
   in lieu of sales tax. Unless sold for resale or sold to an exempt entity, sales
   tax must be collected by a freight company on the sales price when the item is sold.

When a user or consumer submits a claim for damages and:

1. An item has been lost, totally destroyed or has no salvage value. A sale
   has occurred between a buyer and a seller. Sales tax has been paid by a buyer to
   a seller when the item was purchased. Sales tax is a part of the total value of the
   item. Sales tax should be a part of the claim. There is no provision in the sales
   tax law for recovering sales tax from the state.

2. An item will be repaired and sold by a freight company. Sales tax should be a
   part of the claim. Sales tax is a part of the total value of the item and a buyer
   must be reimbursed for the total value. The total that the value included sales tax
   does not affect the transaction.

A resale certificate issued by a freight company would cover the total claim. There
is no provision in the sales tax law for a credit allowance for the "claim sale."
Sales tax was due when the item was purchased by a purchaser initially and must be
collected by a freight company when the item is sold.

When a buyer purchasing for resale submits a claim for damages and:

1. An item has been lost, totally destroyed or has no salvage value. A sale
   has not occurred. Sales tax should not be a part of the claim.

2. An item will be repaired and sold by a freight company. Sales tax should not be
   a part of a claim. A freight company may issue the seller a resale certificate in
   lieu of sales tax. Unless sold for resale or sold to an exempt entity, sales tax
   must be collected by the freight company on the sales price when the item is sold.

3. An item will be repaired by the buyer and sold. The buyer bills the freight
   company for the repairs. The charges are itemized. Sales tax should not be a part
   of the claim. The buyer may issue a resale certificate in lieu of tax when purchasing
   the parts. Unless sold for resale or sold to an exempt entity, sales tax must be
   collected on the sales price when the repaired item is sold.

INSURANCE CLAIMS

When an insured item is lost, destroyed or damaged, a claim is submitted
by the owner to the insurance company. Whether the item is replaced by the
owner or an insurance company, sales tax is a part of the claim unless the item
was being held for resale or was owned by an exempt entity.