As an independent distributor selling tablets for a direct sales/multi-level marketing company in Texas, do I owe tax on the products I buy from the company to resell?

Plain-English summary

The Texas Comptroller's Tax Administration Division responded to a distributor who wrote in asking about their distributorship arrangement selling tablets for a direct sales (multi-level marketing) company. The Comptroller held that the tablets are taxable in Texas, and because the letter's recipient is an independent distributor of a direct sales organization, they must pay tax on their purchase of the product from the company, citing subsection (a)(3) of Rule 3.286 (the Comptroller's general rule on seller and purchaser responsibilities for collecting and reporting sales and use tax).

The Comptroller also noted that it had separately sent a letter to the company itself explaining the direct sales organization's own responsibilities for collecting and remitting tax on the sales its distributors make. The opinion is expressly based on the facts presented and could change if the facts differ.

What this means for you

Independent distributors in direct sales/MLM arrangements

If you buy taxable product (here, tablets/supplements) from a direct sales or multi-level marketing company to resell in Texas, this ruling confirms you can owe tax on your own purchase from the company under Rule 3.286(a)(3), separate from whatever tax obligations the company itself has toward the state on your downstream sales.

Direct sales / MLM companies

The Comptroller treats direct sales organizations and their independent distributors as having distinct, parallel tax responsibilities — the company has collection-and-remittance duties on sales made by its distributor network, while the distributor separately owes tax on the taxable products purchased from the company.

Accountants and tax professionals

The ruling is a short, fact-specific letter that leans entirely on Rule 3.286(a)(3) for the distributor's purchase-tax obligation. It does not itself spell out the company's remittance obligations in detail — those were addressed in a companion letter to the company that is referenced but not reproduced here.

Common questions

Q: Are the tablets/supplements sold through this distributorship taxable in Texas?
A: Yes. The Comptroller stated plainly that "the tablets are taxable in Texas."

Q: Does the individual distributor owe tax, or only the parent company?
A: The distributor does. The letter tells the distributor, "you are required to pay tax on the purchase of the product from [the company]," citing Rule 3.286(a)(3).

Q: What rule governs this?
A: Section (a)(3) of 34 Tex. Admin. Code Rule 3.286, which the Comptroller directs the reader to for the seller's and purchaser's responsibilities.

Q: Could this answer change?
A: Yes — the Comptroller notes the opinion is "based on the facts presented," and if there are additional or different facts, the opinion may change.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.286(a)(3) (Seller's and Purchaser's Responsibilities)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9302L1220A03

Original ruling text

February 3, 1993

Dear **:

Thank you for your letter concerning your distributorship with
** for the sale of ** tablets.

The ** tablets are taxable in Texas. As an independent
distributor of a direct sales organization, you are required to pay tax
on the purchase of the product from ** Please
see section (a)(3) of the enclosed Rule 3.286.

I have enclosed a copy of the letter sent to ***** concerning
the responsibilities of a direct sales organization. It has
information concerning the collection and remittance of tax on sales
made by distributors.

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

You may call me toll free at 1-800-531-5441, ext. 5-0030. The direct
line is 512/475-0030. You may also write to Tax Administration,
Comptroller of Public Accounts.

Sincerely,

David Somerville
Tax Administration Division