Is the freight a printer/distributor charges to ship stored business forms to a customer's offices taxable, even when billed separately later?

Plain-English summary

A business-forms distributor described a common arrangement: a large customer orders a big quantity of forms at once, and the distributor stores them in a commercial warehouse and later ships portions to the customer's various offices as they are requested. When the forms were first sold, the distributor charged sales tax on the forms and on the freight to the warehouse — no question there. The distributor asked only about the later freight charged (for reimbursement) when stored stock is shipped out to the customer's offices, including offices outside Texas.

The Comptroller answered that transportation charges billed by the seller to the customer are taxable under the revised Rule 3.303. Because the forms are taxable items and the transportation from the storage warehouse to the customer's location is billed by the seller (the distributor) to the customer, those freight charges are taxable. There is no difference based on the ultimate destination — shipping the forms out of state does not make the seller-billed freight nontaxable.

The letter noted that similar situations are common in the industry and enclosed related correspondence, inviting the distributor to write back if its facts differ.

What this means for you

Distributors who store and later ship customers' goods

If you bill your customer for freight to deliver taxable goods — even later, even labeled "reimbursement," and even from a storage warehouse — that seller-billed transportation charge is taxable. Do not treat the later shipment's freight as exempt just because the sale happened earlier.

Out-of-state delivery is not an exception

Shipping the customer's forms to an office in another state does not exempt the freight when you, the seller, bill it. Rule 3.303 taxes seller-billed transportation regardless of destination.

Contrast: who bills the freight

The key is that the seller is billing the transportation. Freight billed directly to the buyer by an independent third-party carrier that only transports (and does not sell) the goods is treated differently and is not part of the taxable sales price.

Common questions

Q: Is freight to ship stored forms to the customer's offices taxable?
A: Yes. Transportation billed by the seller to the customer for delivering taxable items is taxable under Rule 3.303.

Q: Does it matter that I bill the freight later, just for reimbursement?
A: No. It is still the seller billing the customer for delivery of taxable goods, so it is taxable.

Q: Is freight to an out-of-state office taxable?
A: Yes. There is no exception based on the ultimate destination when the seller bills the freight.

Q: When would the freight not be taxable?
A: Generally when an independent third-party carrier bills the buyer directly for transportation only and does not sell the goods — that is a different situation from seller-billed freight.

Q: Can I rely on this 1988 letter today?
A: Treat it as guidance only. It is based on the facts presented and can change with different facts; on the STAR system it binds the Comptroller only as to the taxpayer it was issued to and may no longer reflect current policy.

Citations and references

Rule cited: 34 Tex. Admin. Code § 3.303 (revised version enclosed) — transportation and delivery charges billed by the seller to the customer are taxable when a taxable item is sold.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8808L0895G09

Original ruling text

August 16, 1988

Dear **:

Thank you for your recent letter regarding the taxability of freight charges on
items stored and then delivered to your customers.

I am enclosing a copy of the revised version of Rule 3.303 which explains the
taxability of freight (transportation and delivery) charges. As you can see,
charges for transportation that are billed by the seller to the customer are
taxable charges.

In reference to your specific question, "Is the cost of freight going out of
state taxable?" There are no differences made for the ultimate destination. The
items you sold are taxable items. The transportation charges from the storage
warehouse to the customer's location are billed by you, the seller, to the
customer. These charges are taxable.

I am also enclosing copies of correspondence relating to similar situations
which are apparently common to your industry. Please read these materials. If
your situation is different from those described, please write pointing out
those differences, and the differences can be reviewed and a written response
will be provided for you.

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, You may write to Tax
Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Divison

July 18, 1988

State Comptrollers Office
Capitol Station
Austin, Texas

Re: Sales tax charges on freight

To whom it may concern:

I am a business forms distributor, and I have a question concerning sales tax
for freight charges. One particular customer of mine in ** Texas is
the corporate purchasing headquarters for their international operations. They
order large quantities of forms at one time and distribute to their various
offices over a period of 6 months or longer. As a service I offer storage of
these large quantities of forms in a commercial warehouse. Periodically, my
customer will call and request that a portion of their stock be distributed to
one of their offices in the United States. When the forms are originally
purchased I charge sales tax on the forms and the freight to the warehouse,
where they are stored, and I have no question about the sales tax on this
transaction.

My question concerns only the freight charge when at a later date, some of
their stock that is being stored at the warehouse is shipped to one of their
offices around the nation. They will call and release a number of cartons of
their forms. We have them shipped by UPS, or by common carrier, such as Yellow
Freight. We invoice our customer at that time for the cost of the freight only
for reimbursement purposes. There is no charge for any service or forms.

Is the cost of freight going out of state taxable? There is no sale being
transacted on these occasions. We have called for clarification on this matter
on the "800" number you publicize, and have been told two different answers.
Another business forms distributor I know was recently audited by your offices
and they were told that in these instances, there was no sales tax on this
freight. We request a written ruling so that we can be clear on the state's
policy and have documentation for future references.

If there are any questions concerning these transactions described herein,
please feel free to contact me at your convenience. Thank you for your
assistance in this matter.

Sincerely,

Administrative Asst.