Who had to collect Texas tax on sales made through a direct-sales company's local distributors, and how did churches and schools document exemption?

Plain-English summary

The Comptroller said a direct-sales company that manufactured window draperies and stage curtains and sold them through local distributors was responsible for collecting and reporting Texas sales and use tax on the distributors' Texas sales.

The letter also addressed church and school purchases. Those organizations were generally exempt on items bought for their own use, but they had to provide appropriate documentation. Churches and other schools needed a properly completed exemption certificate, while a governmental purchase order from a public school was sufficient evidence of exemption.

What this means for you

Using local distributors did not move the Texas collection duty away from the direct-sales organization. On exempt-organization sales, the seller still needed the documentation described in the letter before treating a purchase as exempt.

Common questions

Who collected tax on distributor sales? The direct-sales company itself.

Were church and school purchases automatically tax free? The letter says they were generally exempt for organizational use, but documentation was required.

What documentation was sufficient for a public school? A purchase order from the governmental entity.

Citations and references

• 34 Tex. Admin. Code Rule 3.286(a)(3) — seller and purchaser responsibilities
• 34 Tex. Admin. Code Rule 3.322 — exempt organizations
• 34 Tex. Admin. Code Rule 3.287 — exemption certificates

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9110L1136A04

Original ruling text

OCTOBER 8, 1991

Dear **:

Thank you for your letter dated September 3, 1991 regarding the
tax responsibilities of COMPANY ABC on sales made to purchasers
in Texas.

Information provided in your letter indicates that COMPANY ABC
is a direct sales organization. You stated in your letter that
your firm is the manufacturer of window draperies and stage curtains,
which you sell nationwide through a network of local distributors.
COMPANY ABC, as a direct sales organization, is responsible for
collecting and reporting sales and use tax on Texas sales made by
its distributors. Please see section (a)(3) of the enclosed Rule
3.286 on Seller's and Purchaser's Responsibilities.

You asked if churches and schools pay tax in Texas. Generally,
churches and schools are exempt from paying sales/use tax on
items purchased for use by the organization; however, each must
provide a properly completed exemption certificate to the seller
of taxable items. A purchase order from a governmental entity
such as a public school, is sufficient evidence of exemption.
See the enclosed Rule 3.322 on Exempt Organizations and Rule
3.287 on Exemption Certificates.

I am enclosing an application for a sales tax permit and a separate
sheet with general information and guidelines for direct sales
organizations.

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

If you have any questions or need more information, you may call
me toll free at 1-800- 531- 5441, extension 5-0330. The regular
number is 512/463-4600, or write Tax Administration Division.

Sincerely,

Bettie U. Peterson
Tax Administration Division