How should a Texas printer tax one invoice covering signs delivered to stores in both Texas and New Mexico, and what records were required for a refund?

Plain-English summary

A Texas printer shipped signs directly to a grocery chain's stores in Texas and New Mexico but sent one combined invoice to the customer's New Mexico headquarters. It had collected Texas tax on the whole invoice.

Signs shipped by UPS directly to New Mexico were not subject to Texas tax; signs delivered in Texas were taxable. But a lump-sum invoice mixing both destinations was presumptively taxable in full.

For future invoices, the printer had to separately state charges for Texas and out-of-state deliveries and retain UPS receipts identifying each destination. A refund of tax collected in error required records allowing an auditor to distinguish the two groups; an average-sales allocation formula was not the stated solution.

What this means for you

The customer's billing address did not determine tax. Delivery destination controlled, but the seller needed destination-specific invoicing and shipping evidence to avoid tax on the full mixed invoice.

Common questions

Were signs shipped directly to New Mexico taxable in Texas? No.

Were signs delivered to Texas stores taxable? Yes.

What happened to a lump-sum invoice? It was presumed fully taxable.

What supported a refund? Documentation separating in-state from out-of-state deliveries.

Citations and references

• 34 Tex. Admin. Code Rule 3.325 — refunds and credits

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9108L1127A12

Original ruling text

August 20, 1991

Dear **:

Thank you for your recent letter and phone call. As I, understand
it, your company prints signs for a grocery store chain that is
headquartered in Albuquerque, New Mexico. Via UPS, you ship signs
once a week directly to stores in Texas and New Mexico. You retain
copies of the UPS shipping receipts, which identify each store that
received a sign shipment. However, you send your invoice for all
shipments to the customer's headquarters in New Mexico. To date,
you have collected Texas tax on the entire charge, regardless of
where the signs themselves were shipped.

You ask if you may now develop with your customer a formula for
calculating tax on only a portion of your invoice, and if you may
obtain a credit for tax collected on signs shipped out-of-state. The
formula you propose is based on the average sales at each store.

As we discussed on the telephone, you are correct that no Texas tax
is due on signs that you ship directly to New Mexico via UPS. Texas
tax is due on the signs that you ship to points within Texas. But
the tax base is your local charge for signs delivered to points in
Texas. If you present your customer with a lump-sum invoice for
signs delivered both inside and outside the state, Texas tax is
presumptively due on the total bill.

As we discussed, to avoid having to collect Texas tax on signs sent
to New Mexico in the future, you must separately state on the
invoice the charges for signs delivered inside and outside Texas. Then,
you should collect tax only on the Texas portion. Your UPS receipts
should be retained to back you up in case of audit. You stated that
you would most likely be able to develop a system that would enable
you to separately identify charges for signs shipped in-state from
charges for signs shipped out-of-state.

Refunding to your customer and then recovering from us any tax
collected in error is possible if you have documentation sufficient to
enable an auditor from this office to distinguish between the charges
for signs delivered in-state and out-of-state. If it is not possible
for an auditor to make this determination based on your or your
customer's available documentation, there would be no basis for
issuing a refund. For your information, I have enclosed a copy of our
Rule 3.325 concerning refunds and credits.

This opinion is based on the facts presented. Different facts,
though similar, might lead to different answers. If you have
further questions, feel free to write or call me at 1-800-252-5555, ext.
3-3889.

Sincerely,

John Christian
Attorney
Tax Administration