Could an out-of-state printer accept an exemption certificate for direct mail sent into Texas for a customer with no Texas presence, and what if the customer was in Texas?

Plain-English summary

An out-of-state printer with a Texas branch and sales-tax permit could accept an exemption certificate from an out-of-state customer that had no store or other Texas representation. The certificate needed to state the customer's lack of Texas nexus and that the printed materials entered interstate commerce through the U.S. mail in Mississippi.

When the customer was located in Texas, the printer had to collect Texas use tax on the portion of the bill attributable to materials mailed to Texas destinations. It also collected local use tax for jurisdictions where the printer had representation.

The printer would not be assessed in audit for transactions covered by appropriate exemption certificates.

The letter also discussed Hearing No. 2,529 and a U.S. Supreme Court nexus decision. It said Texas intended to take a broader use-tax position on retailer-directed direct mail but would not make assessments until the applicable rulings were amended.

Common questions

Could a customer with no Texas presence give the printer a certificate? Yes.

What did the certificate need to say? That the customer lacked Texas representation and that the materials entered interstate commerce in Mississippi.

What if the customer was in Texas? State use tax applied to the Texas-destination portion, plus local use tax where the printer had representation.

Citations and references

• Comptroller Hearing No. 2,529.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9005L1044F04

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

May 31, 1990

Dear **:

Your letter concerning an out-of-state printer mailing materials into
Texas has been forwarded to me.

In the first situation you mentioned, an out-of-state printer received
an order from an out- of- state customer. This printer has a "branch-
facility" in **** and is permitted for Texas sales and use tax.
The customer has no stores or any other representation in Texas. The
customer supplied the out-of-state printer with mailing labels, which
the printer affixed to the printed materials and delivered them to the
U.S. Postal Service. The materials were sent to addresses in Texas
and outside Texas.

The out- of- state printer can accept an exemption certificate from a
purchaser that has no nexus or any type of representation in Texas.
The exemption certificate should state this fact and that the materials
were placed in the course of interstate commerce (U.S. mail) in Missis-
sippi.

In your second situation, the facts are the same, except that the custo-
mer is located in Texas. In this case, the printer should collect Texas
use tax on the portion of the billing attributable to materials mailed
to Texas destinations. Local use tax should be collected for jurisdic-
tions in which the printer has representation.

Tax will not be assessed on the out-of-state printer in an audit if the
printer has obtained exemption certificates to cover transactions of
this type.

In reference to your question concerning Hearing, 2,529, that decision
concerned a purchaser of catalogs. The out-of-state printer that mailed
the catalogs into Texas did not have representation in Texas. Use tax
was assesses on the purchaser on those catalogs sent to the purchaser's
stores and was not assessed on those sent to Texas residents' homes.

The administrative law judge's statement that at the present time (but
not in the time period covered by the audit) the direct shipments to
Texas residents would also be subject to use tax refers to the U. S.
Supreme Court decision that upheld use tax assessed by Louisiana.

In that decision, the Court upheld Louisiana's contention that a chain
of retail stores in Louisiana had sufficient nexus in the state to be
liable for use tax on catalogs that were mailed to Louisiana residents
at its direction by an out-of-state printer.

Texas willl also take this position, but assessments will not be made
until the applicable rulings are amended.

This opinion is based on the facts presented. If there are additional
facts, or if the circumstances change, the opinion may change.

Please write or call if you have any questions. You can call toll-free
at 1-800-531-5441. Our regular number is 512-463-3830 and our FAX number
is 512-475-0900.

Sincerely,
Larry Koenig
Taxability Section
Legal Services Division