Who bore the Texas sales-tax risk when a Mexican customer refused to provide proof that goods were exported?

Plain-English summary

A Texas seller supplied industrial goods to companies operating in Mexico. Its principal customer often took the goods at a Texas warehouse and refused to provide the export documentation required by Rule 3.323, asserting that eventual use in Mexico made the purchases nontaxable.

The Comptroller rejected that position. The customer was not exempt from providing the required export documentation, and the seller bore responsibility for collecting and remitting Texas tax when it did not obtain appropriate proof.

Common questions

Was expected use in Mexico enough? No.

Did the customer's status as Mexico's national oil company waive the documentation rule? No.

Who bore the tax risk without the records? The Texas seller.

Citations and references

• 34 Tex. Admin. Code Rule 3.323 — proof of export.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8603L0706G13

Original ruling text

March 10, 1986

Dear ***:

Thank you for your recent letter which is restated with response below.

"Company A is a Texas corporation engaged in the business of selling
industrial pipe, valves, fittings, and electrical supplies to companies
operating in Mexico. Often the customer or his agent takes possession of the
goods inside Texas and subsequently transports them into Mexico. In such
situations we are aware of the requirements of Rule 3.323 concerning proof of
export.

Company B, the national oil company of Mexico, is the primary customer of
Company A. Goods sold to Company B are usually delivered to one of their
warehouses in Texas from which the goods are later transported into Mexico.
Company B will not provide proof of export, as required by Rule 3.323, stating
only that their purchases are not taxable since the material will be used in
Mexico. On sales where sale tax was billed, payment was refused.

Since Company B is the national oil company of Mexico, it appears
reasonable that materials purchased in Texas will ultimately be shipped to
Mexico. For that reason, Company A requests a ruling which determines the
applicability of Rule 3.323 on sales made to Company B for all open audit
periods.

In preparing your response, please consider that Company A and companies
like it cannot be expected to bear the total cost of enforcement against
Company B. The State must take a position that will facilitate the
continuance of business with Company B in the future, either through
issuance of a new ruling, assistance in enforcement of Rule 3.323 or a
waiver of Rule 3.323."

Response: Our policy committee has ruled that Company B is not exempt
from providing export documentation as described in rule 3.323. The
onus for tax collection and remittance is on your firm if appropriate
documentation is not obtained.

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