How did Texas tax gifts shipped directly outside the state, prizes stored in Texas before out-of-state use, and mailer services?

Plain-English summary

Texas sales tax was not due on gifts bought from Texas suppliers when the suppliers shipped them directly to the company's sales offices outside Texas.

The result differed for modest prizes sent to the company's Texas warehouse. Items purchased in Texas were taxable when stored in Texas before being used outside the state. Items purchased outside Texas, stored in Texas only temporarily, and then taken outside the state for use solely there were not subject to Texas use tax.

The description of the mailer services was incomplete. The letter distinguished actual solicitation of potential customers outside Texas from producing multiple copies of form letters or documents. It specifically said form-letter production was taxable when the letters were mailed to Texas addresses for the company's benefit.

The company self-assessed tax on its cost rather than collecting tax from customers, which indicated it did not treat the prizes as customer sales. The Comptroller said Texas tax remained due on items purchased in Texas unless the supplier shipped them outside the state.

Common questions

Were gifts shipped directly from a Texas supplier to an out-of-state office taxable? No.

Were Texas-purchased prizes stored in a Texas warehouse taxable? Yes.

What about out-of-state purchases held only temporarily before sole out-of-state use? They were not subject to Texas use tax.

Did the letter fully classify every mailer service? No; the facts were unclear.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8910L0966F10

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller October 16, 1989

Dear **:

Thank you for your letter dated October 9, 1989, concerning the
taxability of "gifts"; "modest prizes", and "mailer services" in
the situations described in your letter.

Texas sales tax is not due on "gifts" purchased from suppliers in
Texas since, according to your letter, the suppliers ship the
gifts directly to the Company's sales offices outside Texas.

It is not clear whether the "mailers" are hired actually to
solicit potential customers outside Texas for the Company (a
nonlikable service) or whether the "Mailers are simply producing
multiple copies of form letters or documents for the Company and
mailing them out of state. If the "mailers" are producing form
letters, the service would be taxable if the letters are mailed to
addresses in Texas for the benefit of the Company.

You stated in your letter that the "modest prizes" are shipped by
suppliers to the Company's warehouse in Texas. Items purchased in
Texas are subject to Texas sales tax when stored in Texas prior to
use outside Texas. Items purchased outside Texas, stored here
temporarily, and then taken out of state for use solely outside
Texas are not subject to Texas use tax.

I can't comment on whether the Company is reporting tax on the
"modest prizes" correctly for other states. It does appear that
since the Company self-assesses tax on its cost rather than
collecting tax from the customer on the selling price, the Company
does not actually consider these as sales to customers. The
company will owe Texas sales tax on any items purchased in Texas
unless the supplier ships the item out of state.

This opinion is based upon the facts you presented. If there are
additional or different facts, this opinion may change.

Please feel free to contact me if you have any additional
questions. You may write me, call toll-free 1-800-252-5555 (ext.
3-4685) from anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Correspondence