When were third-party freight charges excluded from Texas sales tax?

Plain-English summary

Under Rule 3.303, a third-party carrier's freight charge was not subject to sales tax when the carrier only transported the taxable item and did not sell it.

The result changed when the retailer billed or accounted for the carrier's charge. That included a carrier invoicing the seller, who then invoiced the buyer, and a seller prepaying the carrier even if the carrier later collected the amount from the buyer on the seller's behalf. Those charges were taxable.

The letter also said a written refund request for tax paid on a direct-payment return could reach only the four years before the request was filed.

Common questions

Was every independent-carrier delivery charge nontaxable? No. The retailer could not bill, account for, or prepay the charge.

What if the seller prepaid the carrier? The freight charge was taxable.

What refund period applied? Four years before the written request.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8908L0951D03

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TX 78774

August 3, 1989

Dear *:

Thank you for your letter postmarked July 26, 1989, regarding the
taxability
of third party transportation and delivery charges.

Rule 3.303 does state that no sales tax is due when the freight charges
are
from a third party carrier as long as the carrier only provides
transporta-
tion and does not sell the taxable item.

If the retailer of the items bills or accounts for the third party
freight
charges, then these freight charges are taxable. For example, the third
party freight company may issue an invoice to the seller who in turn
invoices
the purchaser for the transportation. In this case, the retailer is
accounting for the freight charge and it is taxable.

Another example is when the seller prepays the third party freight
company.
The carrier may even collect the freight charge from you on the seller's
behalf. This constitutes the seller accounting for the freight charges
and
is taxable.

As to your second question, refunds for tax paid to the state, i.e., on a
direct payment return, may be requested only for the four-year period
prior
to the date a written request is filed. For example, if your company
requests a refund from the Comptroller before August 21, 1989, it will
cover
the four-year period July 1, 1985 through June 30, 1989.

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 our
toll-free
number 1-800-252-5555. The regular number is 512/463-4600. You may
write me
at Tax Correspondence, Comptroller of Public Accounts.

Sincerely,
Sandi Skaggs
Tax Correspondence