Was Texas tax due when a stock item held in Texas inventory for resale was shipped to an Illinois sales office and given to an Illinois prospect as a sample?

Plain-English summary

The sample was not subject to Texas tax. It was a normal stock item held in Texas inventory for resale before being shipped out of state.

An Illinois salesman ordered the part after an Illinois prospect requested a sample to test in its own product. The company shipped the item to its Illinois sales office, and the salesman hand-delivered it to the Illinois customer.

Common questions

Was the item specially produced as a sample? The ruling described it as a stock item normally sold by the corporation.

Where was it delivered to the prospect? In Illinois.

Why was Texas tax not due? The item was held for resale before it was shipped out of Texas.

Citations and references

• Tex. Tax Code § 151.011(e) and (f) (1990).

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9008L1039A04

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

BOB BULLOCK
Comptroller August 24, 1990

Dear *:

Thank you for your recent letter to Larry Craddock. I have been
asked to respond.

Facts: A corporation owns plants in California and Texas and ac-
cepts all purchase orders at its headquarters in California. We
are interested in determining whether your state's tax is due on
the samples given away when shipped from Texas under the follow-
ing circumstances.

• An Illinois salesman for this corporation contacts a prospec-
  tive customer.

• The Illinois customer requests a sample of the corporation's
  product (a particular part that is normally sold by the corpo-
  ration) to see if it can be incorporated into the customer's
  product. If it can be incorporated, it could generate sales
  of the product.

• Upon the request of the sample, the Illinois salesman places
  an order from the inventory catalog for a stock item.

• The item is shipped to the Illinois sales office and the
  salesman hand delivers the sample to the Illinois customer.

Response: The sample is not subject to Texas Tax. The item was
apparently being held for resale prior to being shipped out of
Texas. The citations you requested are Tex. Tax Code Ann. Sec.
151.011 (e) & (f) (Vernon Supp. 1990).

I hope this information proves helpful. Please feel free to call
or write me if you have further questions on this subject. You
may reach me directly by calling (512) 463- 4680. Our toll-free
number is 800-531-5441.

Sincerely,
Al Van Allen
Taxability Section
Legal Services Division