Ezel / Tax Rulings / TX
TX 8601L0704E13 Sales and/or Use Tax (State,Local,MTA) 1986-01-15

When were a retailer's inbound and outbound equipment freight charges taxable under Texas's 1986 delivery rule?

Short answer: Inbound factory-to-retailer freight was taxable. Retailer-to-customer freight escaped tax only if separately stated, common-carrier delivered, and FOB retailer.

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This page answers the general question as of 1986. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1986
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official 1986 Texas Comptroller taxpayer-response letter applying then-current Rule 3.303 to specific inbound and outbound freight arrangements. STAR adds a 2015 alert giving a later definition of a seller's place of business; the reproduced body does not establish the October 1, 1987 endpoint named in STAR's caption. Current freight, sourcing, place-of-business, FOB, carrier, and sales-tax rules may differ, and STAR documents may no longer represent current policy even when not marked superseded. Letters on STAR can support detrimental reliance only for the taxpayer to whom the letter was directly issued under 34 Tex. Admin. Code Rules 3.1 and 3.10. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Equipment was ordered through the retailer, shipped from the factory to the retailer by common carrier under FOB-factory terms, and then shipped from the retailer to the customer. The Comptroller said the factory-to-retailer freight was incurred before the retailer's sale to the customer and was taxable.

Freight from the retailer to the customer was also taxable unless all three conditions were satisfied: the charge was separately stated, a common carrier made the delivery, and the terms were “FOB retailer's place of business.”

STAR adds a later alert stating that, as of January 15, 2015, a place of business meant an established seller-operated outlet, office, or location used to sell taxable items to people other than employees, independent contractors, and affiliated individuals.

Common questions

Was freight from the factory to the retailer taxable? Yes.

Was separately stating customer delivery enough by itself? No. Common-carrier delivery and the specified FOB term were also required.

Did the reproduced body explain the caption's October 1, 1987 endpoint? No.

Citations and references

  • Texas Comptroller Rule 3.303 — transportation and delivery charges.

Source

Original ruling text

Alert: As of 01/15/2015, a place of business is defined as "an established outlet, office, or location operated by a seller for the purpose of selling taxable items to those other than employees, independent contractors, and individual persons affiliated with the seller."

January 15, 1986

Dear ***:

Thank you for your letter of January 6, 1986, concerning tax on transportation charges.

I am enclosing a copy of Limited Sales and Use Tax Rule 3.303, Transportation and Delivery Charges.

I understand that equipment is ordered through CORP A and shipped to CORP A via common carrier FOB factory. CORP A then ships the equipment via common carrier to the customer.

Freight charges from the factory to CORP A are charges incurred prior to the sale of the equipment to the customer and are subject to tax.

Charges for transportation from the retailer to the customer are taxable unless:

  1. the charges are separately stated, and

  2. delivery is made by a common carrier, and

  3. the FOB terms are "FOB retailer's place of business."

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

If you have any questions or need more information, please call us at 1-800-252-5555 toll free from anywhere in Texas. You may write us at the Tax Administration Division.

Sincerely,

Tax Policy Section

Tax Administration Division

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