On what amount did a direct-sales company collect Texas sales tax when it sold through independent consultants and charged shipping?

Plain-English summary

A direct-sales company sold an item to an independent consultant for $10 plus 50 cents for shipping, and the consultant resold the item for $20. The company collected tax based on the retail price.

The Comptroller said the company should collect tax on $20 because, under the facts in the latest letter, that retail price included the 50-cent shipping fee. If documentation showed that the consultant sold the item for a different amount, the company could use the actual documented sales price.

The preserved earlier correspondence explains the broader rule: the direct-sales organization was treated as the seller, and shipping and handling formed part of its taxable receipts. An earlier example used $20.50 where the shipping charge was added on top of the retail price; the March 1989 clarification instead treated the stated $20 price as already including shipping.

Common questions

Did the company use its $10 wholesale charge as the tax base? No.

What amount applied in the latest example? $20, because that documented retail price included shipping.

Could another retail price be used? Yes, when documentation showed the actual item was sold for another amount.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8903L0928F12

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller March 8, 1989

Dear ***:

Mr. Washington asked me to review your letter concerning a direct
sales company and their tax base.

I understand the direct sales company sells goods to independent
sales consultants for $10.00 plus 0.50 for shipping. The indepen-
dent sales representative then sells the item for $20.00. The
direct sale company is collecting tax from their sales representa-
tives based on the retail price. The Retail sales price of $20.00
includes the $0.50 shipping fee. Your client should collect tax
on $20.00, or the actual sales price when there is documentation
that the item was sold for another amount.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change.

If you have any questions or need more information, please call
our toll-free number 1-800-531-5441. The regular number is
512/463-4614. You may write me at the Taxability Section, Legal
Services Division. (FAX (512)475-0900)

Sincerely,
Adina Whittemore
Taxability Section
Legal Services Division

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller November 9, 1988

Dear ***:

Thank you for your letter of October 21, 1988, requesting clarifi-
cation of my October 10, 1988 letter.

The statutory cites referenced in my letter require the direct
sales company to remit sales tax on the sales price of the taxable
items being sold and include the shipping and handling charges as
part of the sales price. Thus, the direct sales company would be
required to remit sales tax on $20.50, not $10.50 as you suggest.

This opinion is based on the facts presented. If there are addi-
tional or different facts the opinion may change.

If you have any questions or need more information, you may call
toll-free 1-800-252-5555, ext. 3-4683. The regular number is
512/463-4600. You may write me at Tax Correspondence, Comptroller
of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Correspondence

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller October 10, 1988

Dear ***:

This letter is to correct the opinion given in my August 9, 1988
letter in which I concluded that the direct sales organization
would not be required to collect sales tax on the separately stated
shipping and handling charges.

The direct sales organization is required to collect sales tax on
the separately stated shipping and handling charges even if the
organization's consultants do not charge their customers for ship-
ping and handling.

The direct sales organization is the seller of the taxable items
under Section 151.024 of the Texas Tax Code. The seller is re-
quired to collect sales tax on the sales price of the taxable item
sold. The "sales price" or "receipts" of a taxable item is defin-
ed in Section 151.007 (a) of the Texas Tax Code as "the total
amount for which a taxable item is sold...without a deduction for
the cost...of labor or service employed...or...the transportation
of tangible personal property...' sold.

Section 151.054 of the tax code states that the gross receipts of
the seller are presumed taxable unless the seller accepts in good
faith from the purchaser either a resale or an exemption certifi-
cate.

The shipping and handling charges are part of the seller's
receipts that are taxable. The amount the direct sales organiza-
tion is required to collect sales tax on includes the separately
separately stated shipping and handling charges.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change.

If you have any questions or need more information, you may call
our toll-free number 1-800-252-5555, ext. 3-4783. The regular
number is 512/463-4600. You may write me at Tax Correspondence,
Comptroller of Public Accounts.

Sincerely,
Eddie C. Washington
Tax Correspondence