If I store business forms I sold to a customer in my warehouse and later ship them out one box at a time, do I owe sales tax on the freight and handling charges billed separately later?

Subject

Forms — Business Forms — Printed, Stored And Later Delivered For Customer — Delivery Is Billed Separately And At Later Date

Plain-English summary

A business forms printer had a customer ("Company A") buy 100 boxes of forms that were manufactured by the printer's vendor and shipped into the printer's own warehouse in Texas. The printer collected tax on that initial sale and the initial shipping into its warehouse. The printer then asked what happens when it later ships the boxes out one at a time to Company A's locations -- some outside Texas, some inside Texas -- with the freight (and sometimes a $1.00 handling fee) billed separately to Company A after the fact.

The Comptroller's answer: because the forms were stored in the printer's Texas warehouse rather than shipped directly to the customer under the sales contract, the sale itself was already taxable in Texas -- storing the goods for the customer is not the same as shipping them out of state under the contract of sale. Since the underlying sale was taxable, any transportation or delivery charges tied to that sale are also taxable, even though they're billed separately and at a later date, and even if the shipment goes to another state (Chicago) or elsewhere in Texas. Adding a $1.00 handling fee on top of the actual freight cost doesn't change the answer -- the whole amount, including the handling fee, is taxable.

What this means for you

Printers, form suppliers, and other sellers who warehouse goods for customers

If you store a customer's already-purchased tangible personal property in your own Texas warehouse and later ship it out in installments, expect those later transportation and handling charges to be taxable -- regardless of billing timing or ultimate destination -- because the original sale was completed (and taxable) in Texas when the goods went into your warehouse.

Accountants and tax professionals

The key distinction is between (1) property shipped directly out of Texas to the customer under the sales contract (which can be exempt from Texas sales tax) and (2) property first stored in Texas for the customer and later shipped (which is taxable, along with associated freight/handling, because storage -- not direct out-of-state shipment under the contract -- occurred).

Common questions

Q: If my customer's forms are later shipped to an out-of-state location, does that make the freight charge exempt?
A: No, per this letter. Because the forms were stored in the seller's Texas warehouse rather than shipped directly under the sales contract, the sale and the later freight charges tied to it remain taxable even when the destination is out of state.

Q: Does adding a handling fee on top of the actual freight cost change the tax treatment?
A: No. This letter confirms the total, including a $1.00 handling fee added to the freight cost, is taxable.

Q: Does it matter that the freight is billed separately and later than the original sale?
A: No. The letter states that even though the transportation charge is billed separately and at a later date, it is still part of the total taxable sales price of the business forms.

Citations and references

Rules:

• 34 Tex. Admin. Code Rule 3.303(a) (transportation and delivery charges)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9604L1407C09

Original ruling text

April 25, 1996

Dear **:

Thank you for your letter concerning the taxability of the situations you
presented.

Situation: You sell business forms to your customer (Company A) whose
corporate offices are located in CITY A, Texas. They bought 100 boxes of
business forms from you which you had manufactured at another facility by
one of your vendors and shipped into your warehouse in CITY A, Texas.
Company A wants to pay for the 100 boxes of business forms and the shipping
to get them to your warehouse. You understand that you are to charge tax
on this initial shipment of 100 boxes and shipping into your warehouse. What
happens, however; when you ship one box at a time to Company A's locations
outside of Texas?

Question: Company A wants to pay for freight to ship one box of this product
they have paid for and is sitting in your warehouse in CITY A, Texas to
Chicago, Illinois by a common carrier such as UPS. UPS will bill you the
freight and you in turn will send a bill for this same amount to Company A's
corporate office in CITY A, Texas for this shipment to Chicago. Do we tax
Company A for this second shipping?

Response: You must collect tax from your customer on all forms that you
print and store. Sales tax is imposed on each sale of a taxable item (such
as business forms) in Texas. A "sale" means a transfer of title or
possession of tangible personal property for a consideration.

Although sales of tangible personal property directly shipped into other
states under the sales contract are exempt from Texas sales tax, you are
initially storing the forms for your customer in Texas. Therefore, you are
storing the forms, not shipping the forms outside Texas under the sales
contract. The sale of the business forms is taxable even if the customer
may subsequently use some of the forms outside Texas.

Transportation charges (such as UPS charges) are taxable when you bill these
charges to your customer as explained in enclosed Rule 3.303(a) regarding
transportation and delivery charges. Although the UPS charge is billed
separately and at a later date than the billing for the forms, the UPS charge
(even if actual cost) is part of the total sales price of the business forms
subject to tax.

Question: Do you tax Company A if you add onto your bill to Company A's
corporate office, a $1.00 handling fee to the same amount that UPS has
charged you for this second shipping to Chicago, Illinois?

Response: The total is taxable including the $1.00 handling fee.

Question: Now Company A wants to pay for freight to ship one box of this
product they have paid for and is sitting in your warehouse in CITY A,
Texas to CITY B, Texas by a common carrier such as UPS. UPS will bill
you the freight and you in turn will send a bill for this same amount to
Company A's corporate office in CITY A, Texas for this shipment to CITY B.
Do you tax Company A for this second shipping?

Response: Yes. These charges are taxable as part of the total sales
price of the business forms.

Question: Do you tax Company A if you add onto your bill to Company A's
corporate office, a $1.00 handling fee to the same amount that UPS has
charged you for this second shipping to CITY B, Texas?

Response: The total is taxable including the $1.00 handling fee.

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

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 Policy, Comptroller of
Public Accounts.

Sincerely,

David Somerville
Tax Policy Division

NOTE: Previous Accession Number 9604188L