Did an out-of-state seller of television maintenance contracts have Texas nexus and owe tax on contracts, parts, freight, and installation?

Plain-English summary

An out-of-state corporation sold television maintenance contracts to Texas customers and hired a Texas contractor to perform repairs.

Rule 3.286(a)(1)(G) treated the company as doing business in Texas. It had to obtain a Texas tax permit and collect applicable state and local sales and use taxes. The letter also said the corporation was liable for Texas franchise tax.

Monthly maintenance contracts for tangible personal property were taxable. The seller could give the local repair contractor a resale certificate. For parts sold to Texas customers, tax applied to the total sales price including freight. Installation labor connected with a tangible-personal-property sale was also taxable, so the entire parts-and-installation charge was taxable; the installer could be paid under a resale certificate.

What this means for you

Using a Texas contractor to fulfill an out-of-state company's customer obligations created the Texas business connection stated in this letter. The seller, not merely the local contractor, had permitting and collection duties.

Common questions

Did the out-of-state company need a Texas permit? Yes.

Were the monthly maintenance fees taxable? Yes.

Did the taxable parts price include freight? Yes.

Was installation labor taxable with the parts sale? Yes.

Citations and references

• Comptroller Rule 3.286(a)(1)(G) — seller and purchaser responsibilities

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9009L1043G08

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774 September 11, 1990

Dear ****:

We received your letter questioning the tax reporting requirements
of an out-of-state company and whether they should collect tax on
maintenance contracts, parts, and installation charges. According
to your letter, the out-of-state corporation sells television main-
tenance contracts to Texas customers and hires a Texas contractor
to perform any needed repairs.

The out- of -state company is doing business in Texas according to
section (a)(1)(G) of the enclosed Rule 3.286 relating to seller' s
and purchaser' s responsibilities. The company should obtain a
Texas tax permit and collect and remit the applicable state and
local sales and use taxes on its sales of taxable items. I am send-
ing under separate cover a Texas sales and use tax permit applica-
tion.

The company is also liable for Texas franchise tax. I have en-
closed a Franchise Tax Questionnaire which should be completed and
returned to Joan Hale in the Tax Correspondence Division. She will
use the questionnaire to set the corporation up for reporting and
paying the Texas franchise tax.

Maintenance contracts to provide services to tangible personal
property are taxable for sales and use tax purposes. The company
should collect tax on the monthly maintenance contract fees to its
Texas customers. A resale certificate may be issued to the local
contractor who actually performs the repair.

When parts are sold to Texas customers, tax should be collected on
the total sales price of the parts including any freight charges.

Installation labor in connection with the sale of tangible person-
al property is taxable. The entire charge for parts and installa-
tion of tangible personal property is taxable. The company may
issue a resale certificate to the Texas contractor installing the
tangible personal property.

Several rules which may pertain to this company are enclosed for
your information.

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

If you have any questions you may call or write Tax Correspondence.
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