Ezel / Tax Rulings / TX
TX 9007L1034G13 Sales and/or Use Tax (State,Local,MTA) 1990-08-07

Who owed Texas use tax when an out-of-state buyer directed a seller to drop-ship taxable property to a Texas recipient?

Short answer: The seller had to collect Texas tax or a valid resale certificate; if the buyer lacked Texas nexus and did not collect, the Texas recipient still owed the use tax.

Apply this to your situation

This page answers the general question as of 1990. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1990
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Company A sold taxable property to Company B, which directed delivery to Company C in Texas. The Comptroller said Company A should collect Texas state and applicable local use taxes from Company B or obtain a valid Texas resale certificate.

If Company B lacked Texas nexus, it could put its Missouri permit or registration number on the Texas resale certificate. The letter said a Company B with no Texas nexus or representation was not required to collect use tax from Company C, but Company C remained liable and had to submit the applicable state and local tax directly to Texas.

What this means for you

The drop shipment did not eliminate Texas use tax. It changed which party collected or directly paid it, depending on resale documentation and the out-of-state buyer's Texas nexus.

Common questions

What did Company A have to obtain? Texas use tax or a valid Texas resale certificate from Company B.

Could Company B use a Missouri number? Yes, if it lacked Texas nexus, under the certificate procedure described in the letter.

Did Company C escape tax if Company B lacked nexus? No. Company C still owed the Texas use tax directly.

Citations and references

  • Comptroller Rule 3.346(b)(1)(A), concerning Texas use tax.
  • Comptroller Rule 3.285(d), concerning resale certificates.

Source

Original ruling text

August 7, 1990

Dear ****:

We received your letter concerning Texas use tax due on drop
shipments into Texas. According to your letter, Company A
closed a sale with Company B who directed Company A to deliv-
er the property to Company C in Texas.

Texas use tax is due on all taxable items purchased out-of-
state and brought or shipped into Texas for storage, use, or
consumption. See section (b)(1)(A) of the enclosed Rule 3.346
relating to Texas use tax.

Company A should collect either Texas state and appropriate
local use taxes or a valid Texas resale certificate from Com-
pany B. If Company B does not have nexus in Texas, then they
may issue Company A a Texas resale certificate with their Mis-
souri permit or registration number printed on the certificate.
See section (d) of the enclosed Rule 3.285 relating to resale
certificates for other requirements.

If Company B does not have nexus or representation in Texas,
they will not be required to collect the Texas use tax from
Company C; however, Company C is still liable for the Texas use
tax and must submit the applicable state and local taxes direct-
ly to the State of Texas.

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

If you have any questions you may call or write Tax Correspon-
dence. You may call toll free 1-800-252-5555, or our regular
number is 512/463-4600. My extension is 3-4658.

Sincerely,
Sherry Buckley
Tax Correspondence

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