Did an out-of-state supplier need a Texas sales-tax permit when its food broker took grocery-store orders in Texas?

Plain-English summary

The Comptroller said neither the food broker nor its out-of-state suppliers needed a Texas sales-and-use-tax permit when the broker took orders only for exempt food products.

The answer changed if the broker took orders for taxable food or other taxable tangible personal property. In that case, the broker gave the out-of-state supplier representation in Texas. The supplier had to obtain a Texas permit and collect tax on nonexempt Texas sales, or obtain the proper resale or exemption certificates for exempt transactions.

The letter also addressed property tax. It quoted Texas jurisdiction over tangible personal property used continually in the state, noted that the broker's only Texas property was employee vehicles, and then said no Texas real property or inventory meant no property-tax liability. The letter did not reconcile the vehicle facts with the quoted jurisdiction rule, so the page does not extend that conclusion beyond the exact text.

What this means for you

Out-of-state food suppliers

Track what the Texas broker actually solicits. Exempt-food-only orders received one result, while orders for taxable products created Texas representation and collection duties for the supplier.

Food brokers

The broker did not own the grocery-store products and earned commissions from suppliers. Those facts did not prevent the broker's Texas order-taking activity from creating representation for suppliers of taxable goods.

Property-tax professionals

The no-liability statement was tied to the stated lack of Texas real property and inventory. Because the same letter quotes jurisdiction over tangible property continually used in Texas and notes employee vehicles, verify vehicle treatment independently rather than assuming the statement resolves it.

Common questions

Was a permit required for exempt-food-only orders? No, according to the letter.

What if the broker took orders for taxable products? The out-of-state supplier had to obtain a Texas permit and collect tax or document an exemption.

Did the broker's employee vehicles create property-tax liability? The letter did not clearly resolve that point. It quoted jurisdiction over continually used tangible property but then stated no liability based on the absence of real property and inventory.

Did the letter decide franchise tax or employment obligations? No. It said the request was forwarded to the Franchise Tax Division and Texas Employment Commission for general information.

Citations and references

• 34 Tex. Admin. Code Rule 3.293 (food and food products)
• Texas Property Tax Code § 11.01(a)-(c) (taxable property and Texas jurisdiction)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9201L1152G09

Original ruling text

January 29, 1992

Dear **:

Thank you for your letter concerning the taxability of your
client's activities within Texas.

As I understand, your client is a food broker representing
various suppliers to grocery stores. Your client does not
own the items sold to the grocery stores. It receives a
commission from the various suppliers on the products the stores
purchase. Your client does not have property within Texas
other than the vehicles provided to employees.

If you client is taking orders only for exempt food products
(please see Rule 3.293 regarding food and food products),
neither your client nor the food supplier is required to hold
a Texas sales or use tax permit. If your client is taking orders
for taxable food products or other taxable tangible personal
property, then the out-of-state supplier has representation
in Texas. The supplier is required to obtain a Texas
permit and to collect the tax on non-exempt sales into Texas,
or obtain the appropriate resale or exemption certificates to
document exempt sales.

I am enclosing various rules and brochures about the sales and
use tax and an application for permit for your information.

As discussed in our telephone conversation, I sent copies of
your letter to our Franchise Tax Division and to the Texas
Employment Commission for general information. I received the
following information from Mr. Mike Estes in our Property Tax
Division:

Section 11.01(a), Property Tax Code, states that all real and
tangible personal property that this state has jurisdiction
to tax is taxable unless exempt by law.

Subsection (b) states that this state has jurisdiction to tax
real property if located in this state.

Subsection (c) states that this state has jurisdiction to tax
tangible personal property if the property is:

(1) located in this state for longer than a temporary period;

(2) temporarily located outside this state and the owner
resides in this state; or

(3) used continually, whether regularly or irregularly,
in this state.

If your client owns no real property or maintains no inventory
in Texas, your client would have no property tax liability in
Texas.

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

If you have any questions concerning the sales and use tax or
other taxes administered by the Comptroller's Department, you
may call our toll-free number 1-800-252-5555, or the regular
Austin number 512/463-4600, or write to Tax Administration
Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division

Date: October 30, 1991

Re: Attached Letter, **

From: Jo Ann Dieck, Tax Administration Division

Per telephone call to ** :

Client represents various suppliers to grocery stores. Client's
employees will come into set up a store with products they
represent and will then visit the stores to promote sales of those
products.

Client does not own the items sold to the grocery stores. It
receives a commission from the various suppliers on the products
that the stores purchase.

Client will visit a store and may actually take an order or the
store may order direct. The orders are received at client's
location out of state and the products are shipped from the
suppliers to the grocery stores.

At this time, the only property that client has in Texas are motor
vehicles.

** wants info on all taxes that the client may be
subject to. I told * that I would forward copies of
his letter to the appropriate Department/Division for response.
He realizes the info may be general and will write if he needs
more specific info. Copies of *** 's letter and this
additional information are being sent to the following:

Sales and Use Tax

Franchise Tax (also send info about registering corp with
Secretary or send copy of letter to SOS)

State/Local Property Tax

Texas Employment Commission