Should sales tax have been included in a freight claim when shipped equipment was totally destroyed?

Plain-English summary

A seller shipped air-conditioning equipment to a Texas motel and charged sales tax. The carrier totally destroyed the unit in transit and planned to sell it for salvage, but the claim payment excluded the sales-tax amount.

The Comptroller said the tax had become part of the selling price by law and therefore should have been included in the freight claim. The carrier's statement was not a sufficient resale certificate, so the seller could not use it to credit the tax from the customer's account.

The letter distinguished a different situation: if the carrier merely damaged the unit, restored it to its original condition, and resold it, the carrier could issue a resale certificate.

Common questions

Should the destroyed-equipment claim have included sales tax? Yes.

Could the seller use the carrier's statement as a resale certificate? No.

When could the carrier issue a resale certificate? If it only damaged the unit, restored it, and resold it.

Citations and references

• 34 Tex. Admin. Code Rule 3.285

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8609L0761G04

Original ruling text

September 22, 1986

Dear ***:

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

We shipped a piece of air conditioning equipment to a motel in
CITY, Texas, charging 5.125% sales tax. This piece of equipment
was damaged during shipment by the freight lines, CORP A. Merchants
reimbursed the client for the equipment, but did not pay the sales
tax amount of $***, instead sending us the enclosed sales
tax information which was also sent to the claimant. The motel does
not wish to pay CORP B the sales tax amount, once they were not
reimbursed by the freight lines.

Is the freight line correct in deducting the sales tax from the claim
payment? May I use their sales tax number to credit the sales tax
amount from our customer's account.

Response: I called your office for more information and was told that the
motel in CITY had filed the claim with the carrier, that the unit had been
totally destroyed and would be sold by the carrier for salvage value.

Tax was added to the selling price when CORP B sold the unit. By law it
became part of the selling price. Therefore, sales tax should be part of
the claim.

If the carrier had only damaged the unit and was going to restore the
unit to its original condition and resell it, then they could issue a
resale certificate.

In addition, the statement issued by the carrier is not sufficient as a
resale certificate even if the facts had justified such issuance. I am
enclosing a copy of rule 3.285 and sample certificate for your reference.

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 us if you have additional questions. You may
write us, call toll free 1-800-252-5555 from anywhere in Texas or phone
512/463-4600.

Sincerely,

Tax Policy Section
Tax Administration Division