Who had to collect and remit Texas sales tax in a direct-sales organization using independent salespersons?

Plain-English summary

The Comptroller treated the direct-sales organization as the seller responsible for collecting and remitting tax collected by its independent salespersons. The distributors and salespersons therefore did not have to obtain sales-tax permits, post security, or file returns.

The organization had to collect tax based on the product's suggested retail price. The salesperson then collected that tax from the final consumer as reimbursement.

For city and metropolitan-transit-authority tax, the letter suggested using customer orders or periodic salesperson reports to identify where sales occurred, including sales in places with no applicable local tax and sales to exempt buyers. The organization's return combined those reports with sales from regular locations. Tax collected from salespersons but not actually due had to be refunded or credited back to them.

Common questions

Who was responsible for filing and remitting? The direct-sales organization.

Did each salesperson need a permit? No, under the procedure described.

What price determined tax? The suggested retail price.

How were local taxes reconciled? Through order information or salesperson reports showing the areas and exemptions applicable to the actual sales.

Citations and references

• 34 Tex. Admin. Code Rule 3.286(1)(d) — direct-sales organization engaged in business.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8603L0719E07

Original ruling text

March 17, 1986

Gentlemen:

Information has been received which indicates your company is engaged in direct
sales within the State of Texas.

A direct sales organization engaged in business as defined in paragraph (1)(d)
of Sales Tax Rule 3.286 is a seller and is responsible for the collection and
remittance of the sales tax collected by the independent salespersons selling
the organization's product.

In following this procedure, the distributors and salespersons would not be
required to obtain sales tax permits, post bond or security or file returns.

You are required to collect the tax based on the suggested retail price of the
product. The salesperson would, in turn, collect the tax from the final
consumer and thereby be reimbursed for the tax previously paid to you.

We suggest the following method of accounting for city sales tax or MTA tax
which is due the city or MTA area in which the product is sold. If the product
is sold in a city or MTA area which does not have the city tax or MTA tax, the
city or MTA tax would not be due.

If the salespersons take orders before they purchase the products, they should
indicate on the order blank the tax due and you should accrue tax from the
copies of the orders.

If the salespersons purchase the goods before they have a sale, you should
collect a full tax, as applicable, on the retail selling price. Periodically,
the salespersons should submit resorts indicating the amount of sales in such
city or MTA area and their district that has the city sales tax or MTA tax, the
amount of sales in the area having no city or MTA tax and any sales to exempt
purchasers.

Your return should reflect the compilation of these reports and the sales from
the regular locations. The amount of tax that you collect from the salespersons
which is not due should be returned to them or credited against their
purchases. A sales tax application packet is being sent under separate cover.

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

Please feel free to contact me if you have additional questions. You may write
me or call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,

Dot Burchard
Tax Policy
Tax Administration Division