What interim Texas sales-tax methods could credit reporting companies use, and when were screening reports taxable?

Plain-English summary

Texas accepted either of two temporary methods for credit reporting companies to begin reporting tax. A company could bill tax to credit grantors with Texas billing addresses and adjust by Texas applicant addresses or the grantor's Texas franchise-tax percentage. Alternatively, it could bill based on delivery of reports in Texas and again adjust by the grantor's Texas franchise-tax percentage.

The letter also approved a customer questionnaire about Texas franchise or sales tax, savings-and-loan or credit-union status, corporate status, and doing business in Texas. Keeping the responses would protect a credit reporting company in an audit when it did not collect tax from a customer answering no, although periodic updates might be needed.

For local and M.T.A. tax, the Comptroller would look to the location of the credit reporting service handling the accounts. Screening reports delivered to a customer in Texas were taxable; deliveries outside Texas were not.

What this means for you

This was expressly an interim 1987 compliance arrangement, not a timeless sourcing rule. It shows the records and delivery facts the Comptroller considered important while Rule 3.343 was being revised.

Common questions

Were both interim reporting methods acceptable? Yes. The letter allowed either method initially.

Did customer questionnaires matter in an audit? Yes. The letter said companies with the described letters in their files would be protected when they did not collect tax from a customer answering no.

Were prospect-list screening reports taxable? They were taxable when delivered to a customer in Texas and not taxable when delivered out of state.

Was the policy final? No. Companies were told to report their progress toward Rule 3.343 compliance by December 7, 1987.

Citations and references

• 34 Tex. Admin. Code Rule 3.343 (the letter said subsection B(1)(A) would be removed)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8710L0965C10

Original ruling text

October 21, 1987

Dear *:

This is to acknowledge receipt of your letter of October 14, 1987, and to
confirm your basic understanding of the positions taken by the Tax Policy
Committee. I must add, these positions could change if new facts were
presented to us.

As you state in your letter, Rule 3.343 will be amended by removing section B
(1)(A).

We will work with industry in preparing a letter to be sent to their customers.
The letter will essentially ask if they pay franchise or sales tax in Texas.
If so, they are doing business here. Since our meeting, two additions to the
letter have come up. One is to ask if they are a savings and loan or credit
union doing business in Texas. And the second, to ask if they are a
corporation. If the answer is "no", they should be asked if they are doing
business in Texas. If the credit reporting companies have these letters in
their files, they will be protected in an audit if they have failed to collect
tax on a company answering "no" to the questions. As discussed, updates may be
necessary on some periodic basis.

The interim policy set out in your letter is acceptable. It reads as follows:

1. Tax billed to all credit grantors with a Texas billing address adjusted by
   either

a. credit applicants with Texas addresses, or,

b. franchise tax percentage paid to Texas by a credit grantor to determine
percentage of taxable reports or,

2. Tax billed based on point of delivery of reports in Texas, again adjusted by
   franchise tax percentage paid to Texas by a credit grantor to determine tax
   due.

Either of these interim methods may be used to initially report tax. By
December 7, 1987, each company should report on its progress toward complying
with the provisions of Rule 3.343.

This is also to confirm your understanding the Comptroller will look to the
location of the credit reporting service which handles the accounts in
determining local and M.T.A. taxes.

Finally, an issue we discussed but did not answer was the taxation of screening
reports. Our understanding of these is that a company may request a list of
several hundred to several thousand possible credit applicants. No credit
application has been made, and the company requesting the screening reports is
doing so in order to mail out credit application forms. Under these
circumstances, we will consider the location to which the screening reports are
delivered as controlling in determining whether Texas sales tax is due. Any
screening reports delivered to a customer in Texas will be taxable. Any
deliveries out of state will not be taxable.

I look forward to working with you on the form letter.

Sincerely,

Wade Anderson
Executive Counsel