Does wearing an item of tangible personal property (like a watch) in Texas before it is exported disqualify it from the sales tax export exemption, and does a particular bill of lading form satisfy the proof-of-export rule?

Plain-English summary

A tax practitioner wrote to the Comptroller asking about a proposed export documentation procedure: an airline employee would verify that they saw an item, its destination, flight number, and airline, and the client would refund sales tax once a "Certification of Export" form came back stamped by the foreign destination country's postal service. The letter addresses two separate problems with this plan.

First, the Comptroller flagged that the proposed bill of lading likely did not satisfy Rule 3.323(c)(1)(A), which requires proof of export to show the seller as consignor, the buyer as consignee, and a delivery point outside the United States. The submitted document did not specify that the property was delivered to the consignee at a point outside the United States, so it fell short of the rule even though the airline itself was properly licensed and certificated by the FAA under FAR Part 129.

Second, and more fundamentally, the letter states that if the item was used in Texas before being exported -- and it specifically gives "wearing a watch" as an example of what counts as a use -- the item does not qualify for the export exemption at all, even if it is later shipped out of the country. Use in the state defeats the exemption regardless of whether export documentation is otherwise in order.

The Comptroller suggested that the client might instead deliver the property to a customs broker and obtain a Licensed Customs Broker's Certification form, which is a more reliable way to document exports than the airline-employee-verification approach described in the facts.

What this means for you

Retailers selling to customers who plan to export goods

If a customer buys tangible personal property intending to claim the export exemption, be aware that using the item in Texas first -- wearing clothing or a watch, for example -- disqualifies it from the exemption even if it's genuinely exported afterward. The exemption is about export without prior use, not just eventual departure from the country.

Businesses documenting export sales

A bill of lading alone isn't automatically sufficient proof of export. Under Rule 3.323(c)(1)(A), it must show the seller as consignor, the buyer as consignee, and a delivery point outside the United States. If your documentation doesn't clearly establish delivery to a foreign point, consider using a Licensed Customs Broker's Certification instead, which the Comptroller identified as a more advantageous route.

Accountants and tax professionals advising exporters

When structuring refund procedures tied to proof of export, verify the specific paperwork against Rule 3.323's requirements before promising a client a refund. An airline employee's informal verification of having "seen" an item is not the same as a compliant bill of lading or customs broker certification.

Common questions

Q: Does wearing a watch or clothing before shipping it overseas disqualify the export exemption?
A: Yes. The letter specifically states that wearing a watch would constitute a "use" in Texas, and any use of the item in the state means it won't qualify for a sales tax refund even if it's exported afterward.

Q: Is a bill of lading always sufficient proof of export?
A: Not automatically. Rule 3.323(c)(1)(A) requires the bill of lading to show the seller as consignor, the buyer as consignee, and a delivery point outside the United States. The bill of lading described in this letter didn't specify a foreign delivery point, so the Comptroller questioned whether it qualified.

Q: What alternative did the Comptroller suggest for documenting export?
A: Delivering the property to a customs broker and obtaining a completed Licensed Customs Broker's Certification form.

Q: Does it matter that the airline was FAA-licensed and certificated?
A: No, not by itself. Even though the airline was properly licensed and certificated under FAR Part 129, that alone didn't cure the bill of lading's failure to specify delivery to the consignee at a point outside the United States.

Citations and references

Statutes:

• 34 Tex. Admin. Code § 3.323(c)(1)(A) (proof of export required for export exemption -- bill of lading naming seller as consignor, buyer as consignee, and a foreign delivery point)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9206L1178E04

Original ruling text

June 5, 1992

Dear **:

Thank you for your recent letter regarding export documents used as proof that
goods have left this country. Your facts are restated in part with response
below.

Facts: The form we are submitting will have an airline employee verify that
they saw the item, acknowledge the destination, flight number, airline and
date. My client would refund the sales tax when the Certification of Export
form was returned to them bearing a postage stamp of the foreign country that
was the final destination of the merchandise

Response: Rule 3.323(c)(1)(A) states:

When an exemption is claimed because tangible personal property is exported
beyond the territorial limits of the United States, proof of export may be
shown only by:

(A) a copy of a bill of lading issued by a licensed and certificated carrier of
persons or property as defined by subsection (a)(3) of this rule which shows
the seller as consignor, the buyer as consignee, and a delivery point outside
the territorial limits of the United States;

** has been licensed and certified by the Federal Aviation
Administration under FAR Part 129. However, I question that the bill of lading,
as presented, qualifies under the rule since it does not specify that the
property was delivered to consignee at a point outside the United States. In
addition, if the item was used in this state (wearing a watch would constitute
a use), the item would not qualify for a sales tax refund even if it was
exported after use in Texas.

As we discussed, your client may find it more advantageous to deliver the
property to a customs broker and obtain a completed Licensed Custom Broker's
Certification form to document exports. I am enclosing a current copy of Rule
3.323 for your review.

This opinion is based on the facts you presented. Other facts, though similar,
may yield different results.

If you have questions or need more information, please call or write. You may
reach me by calling toll free, (800) 531-5441. My direct line number is (512)
463-4680. The number for FAX transmissions is (512) 475-0900. You may write to
me in care of Tax Administration Division.

Sincerely,

Al Van Allen
Tax Administration Division