Did a natural-gas marketer have to collect Texas tax when pipeline title and possession passed outside Texas, and what changed when both passed in Texas?

Plain-English summary

A Delaware natural-gas marketer bought gas at a delivering pipeline, briefly held title, and transferred title to customers at the same point. It also had employees and rented office space in Texas.

When title and possession both passed outside Texas, the marketer did not collect Texas sales or use tax because the sale occurred outside the state. If the customer later brought the gas into Texas, any use-tax obligation was the customer's responsibility.

When title and possession passed in Texas, the sale was taxable and the marketer had to collect Texas sales tax because it was engaged in business here. It could accept valid resale or exemption certificates and needed a sales-and-use-tax permit.

What this means for you

For these pipeline transactions, the transfer point for both title and possession controlled the seller's collection duty. Texas operations also created a permit obligation for taxable Texas sales.

Common questions

Did the seller collect Texas tax when transfer occurred outside Texas? No.

Who handled possible Texas use tax after an out-of-state transfer? The customer.

What if transfer occurred in Texas? The marketer collected Texas sales tax.

Citations and references

The letter did not identify a numbered statute or administrative rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9108L1129D01

Original ruling text

August 20, 1991

Dear **:

Thank you for your recent letter. As I understand it, your client,
COMPANY ABC, is a natural gas marketer. It buys natural gas from its
suppliers, taking title to the gas at the first delivering pipeline
(primarily outside Texas). COMPANY ABC holds title only momentarily,
and then transfers title to its customers at the same point in the
pipeline. The gas is then delivered through the pipelines to the
customer's location. COMPANY ABC is a Delaware corporation. Sales
contracts are executed at the home office in New Jersey. COMPANY ABC has
employees and rents office space in Texas.

Question: Must COMPANY ABC collect Texas sales or use tax from its
customers when:

(1) Title to and possession of the gas pass to the customer outside of
Texas?

Answer: COMPANY ABC is not required to collect Texas sales or use tax
because the "sale" occurred outside of Texas. Whether or not another
state's tax is due on such a transaction depends on the law of the
other state. Whether or not Texas use tax is due from the customer when
and if he or she brings such gas into Texas is also a separate question.

But even if the customer does owe Texas use tax, COMPANY ABC is not
responsible for collecting it because COMPANY ABC delivered possession
and title to the gas entirely outside Texas; COMPANY ABC has no knowledge
of or legal responsibility for finding out what use the customer will
make of the gas or where it will be used, in this type of situation.
This remains the responsibility of the customer.

(2) Title to and possession of the gas pass to the customer inside of
Texas?

Answer: This is a Texas sale. Because COMPANY ABC is engaged in business
in Texas, COMPANY ABC must collect Texas sales tax on such sales.

Of course, COMPANY ABC may accept, in good faith, a properly completed
resale or exemption certificate instead of tax from a Texas customer
who is entitled to any applicable exemption.

According to my records, COMPANY ABC does not presently have a sales
and use tax permit, which is required based on the facts you provided.
Under separate cover, I have transmitted a sales tax permit application
and information. Once permitted, COMPANY ABC may issue a resale certificate
instead of paying Texas tax on gas to which it takes title and/
or possession in Texas for resale in the United States.

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