How did Texas treat pager setup and insurance charges, invoice wording for freight, and handwritten sales-tax corrections?

Plain-English summary

The Texas Comptroller answered three unrelated invoice questions.

For a rented pager, the activation setup fee was taxable. Insurance covering replacement of a lost or stolen pager was nontaxable, while insurance covering repair of a damaged pager was taxable. If one fee covered both loss and damage, the entire charge was taxable.

For freight, an invoice statement that merchandise became the purchaser's property upon delivery to the carrier did not by itself establish the title-transfer result. The contract determined title transfer, and the carrier's bill of lading—not the invoice—documented any FOB terms. A seller's failure to charge tax did not prove none was due.

For handwritten sales-tax corrections, the auditor had to decide whether to accept the altered invoice or request more information. The law required a tax-paid receipt but prescribed no particular correction form beyond reflecting tax collection. The safest course was a corrected invoice; if the vendor altered the existing invoice, the vendor should initial the change.

What this means for you

Coverage scope controlled pager-insurance taxability, while documentary hierarchy controlled freight: the contract and carrier records mattered more than invoice wording. Handwritten tax corrections were not automatically invalid, but stronger vendor documentation reduced audit risk.

Common questions

Was the pager setup fee taxable? Yes.

Was loss-or-theft pager insurance taxable? No.

Was damage-repair insurance taxable? Yes.

What if one fee covered both loss and damage? The total fee was taxable.

Did invoice wording prove FOB shipping-point treatment? No. The letter looked to the contract and carrier bill of lading.

Were handwritten tax corrections forbidden? No specific form rule prohibited them, but acceptance depended on auditor judgment; the vendor should initial an alteration if no corrected invoice was available.

Citations and references

• No statute or administrative rule is cited by number.
• The letter states that the law requires a tax-paid receipt from the vendor.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8704L0809D09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller April 27, 1987

Dear ***:

Thank you for your recent correspondence. As we discussed, I received
three
letters from you in one envelope postmarked April 20th. One of the
letters
was dated April 3 and the other two were dated April 6. Copies are
enclosed
for your reference and each is restated with response below:

Letter 1
Attached is a copy of an invoice from COMPANY A for pager rental, pager
insurance and set-up fee for pager service. My questions concern the
taxability of the pager insurance and the set-up fee.

The set-up fee is the expense incurred for activating the pager
telephone number. Does tax apply? When is the insurance on
pagers taxable? When is the insurance on pagers not taxable?

Response: The set-up fee is taxable. Charges for insurance which covers
replacement of lost or stolen papers are not taxable while charges for
insurance to repair damaged pagers is taxable. If a policy covers both
loss and damage for a single fee, the total charge is taxable.

Letter 2
Attached is a copy of an invoice (front and back) from COMPANY Z, in
which the seller billed TELEPHONE CO. for a freight charge. The
freight charge is not taxed and there are no specific "FOB Terms" on
the front or back of the invoice. The back of the invoice does contain
the following statement: "All merchandise becomes the property of the
purchaser upon delivery to the carrier. Claims should be made with the
carrier." May this statement accurately be interpreted as "FOB/Shipping
Point", since FOB is legal terminology used to specify where title
passes?

Would a statement similar to this, which could be reasonably interpreted
to mean that title passes at the time goods are delivered to the carrier,
suffice as "FOB Shipping Point", thus exempting the shipping charge from
tax?

Response: Your contract with COMPANY Z rather than their invoice would
determine title transfer. The carrier's bill of lading and not the
invoice would document F.O.B. terms if any. The seller did not charge
tax on their freight charge but that does not mean that tax is not due.

Letter 3
Recently a question has arisen concerning longhand tax corrections. For
example: the attached invoice was returned to the seller because he neg-
lected to add any sales tax. The invoice is typed. The seller added
the sales tax in longhand. Is this unacceptable based on the State of
Texas Sales Tax Laws?

If the sales tax has been added to the original invoice, and the seller
used the incorrect tax rate (on a typed invoice) would it be mandatory
that the seller correct his invoice in typing, or provide a new corrected
invoice? If the corrections were made in longhand, would this be unac-
ceptable?

Response: When invoices are changed, the auditor has to make a judgment
call
as to acceptance outright or requiring more information. The law
requires
that you obtain a tax-paid receipt from the vendor. We have no rule
dictating the form of the receipt or correction other than that the
collection of tax has to be reflected. However, to be absolutely safe
you
should obtain a corrected invoice from your vendor. If you cannot obtain
a
corrected invoice and the vendor simply alters the existing invoice, you
should have him initial the alteration.

As we discussed earlier, the invoice you intended to include with the
third
letter was not enclosed.

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 me at
1-800-252-5555 toll free from anywhere in Texas. The regular number is
512/463-4600. You may write me at the Tax Administration Division.

Sincerely,
Al Van Allen
Tax Policy Section
Tax Administration Division