Do I have to charge sales tax on sodium bentonite clay that I sell for different uses — animal feed, cat litter, well-plugging, pond/landfill sealant — and on delivery charges for it?

Subject

Sodium Bentonite Clay — Marketed And Sold In Different Ways (Producing Feed For Farm Animals, As Cat Litter, As Sealant To Stop Tank/Pond Leaks, Landfills Construction)

Plain-English summary

A Texas warehouse operator bought bulk sodium bentonite clay FOB from a mine, bagged it in three particle sizes, and resold it four different ways: to pellet mills for making animal feed, as cat litter to feed and grocery stores, to seismic-industry explosive companies for plugging holes, and to feed stores and construction companies as a sealant for pond/tank leaks and landfill construction, plus direct sales to walk-in customers. Some customers picked up the product themselves; others had it delivered by a third-party trucking company.

The Comptroller's answer: all forms of the bagged bentonite are taxable when sold to the end user, regardless of which of the four end uses applies. The end-use category (feed additive, cat litter, well-plugging, sealant) doesn't change the taxability -- what matters is whether the buyer is the final consumer of the product. If a customer instead resells the clay, or uses it as an ingredient in a product they manufacture and sell, that customer should give the seller a resale certificate instead of paying tax at the time of purchase (citing Rule 3.285). Separately, transportation/delivery charges billed by a third-party trucking company to the purchaser are not taxable (citing Rule 3.303).

What this means for you

Mineral/mining product sellers and distributors

If you sell a bulk mineral product that gets bagged and resold into multiple end markets (feed, pet care, industrial, construction), don't assume different tax treatment based on end use -- the deciding factor is whether your customer is the end user or is reselling/incorporating the product into something they sell. Collect resale certificates from wholesale and manufacturing customers to avoid over-collecting tax.

Retailers and pellet mills buying bentonite

If you're buying bentonite clay to resell (e.g., as bagged cat litter) or to use as an ingredient in feed you manufacture and sell, give your supplier a resale certificate rather than paying sales tax upfront.

Anyone arranging delivery

Delivery charges that a third-party trucking company bills to the purchaser are not subject to sales tax, separate from the taxability of the product itself.

Common questions

Q: Does it matter that the same clay is sold as animal feed, cat litter, a well-plugging agent, and a construction sealant?
A: No -- per this letter, all of those end uses are taxed the same way when sold to an end user. The tax result turns on whether the buyer is the final user, not on what they do with the clay.

Q: How can a buyer avoid paying tax on bentonite it plans to resell or use in a manufactured product?
A: Give the seller a resale certificate at the time of purchase instead of paying tax (Rule 3.285).

Q: Is the cost of delivery taxable?
A: Not when a third-party trucking company charges the purchaser for transportation/delivery (Rule 3.303).

Citations and references

Statutes/rules:

• 34 Tex. Admin. Code Rule 3.285 (resale certificates)
• 34 Tex. Admin. Code Rule 3.303 (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/9604L1407F01

Original ruling text

ALERT: This document may be affected by changes to the Tax Code which was amended by H.B. 268, 82nd Reg. Legislative Session, 2011. The amendment required persons claiming a sales tax exemption for certain agricultural and timber products to apply for and provide a registration number issued by the Comptroller, effective 01/01/2012.

April 8, 1996

Dear ****:

Thank you for your letter postmarked March 27, 1996, concerning the
taxability of sodium bentonite clay.

You will be marketing the bentonite in four different ways. You will
be purchasing the bulk bentonite FOB at your warehouse in ***,
Texas. The bentonite will be received from the mine in three different
particle sizes. Each size will be bagged at the warehouse and sold to
retailers.

_ Sold to pellet mills for use in producing feed for farm animals.

_ Sold as cat litter to feed stores and grocery stores.

_ Sold to explosive companies in the seismic industry for use in plugging
holes.

_ Sold to feed stores and construction companies as a sealant to stop
pond/tank leaks and in the construction of landfills.

_ Sold to walk-in customers.

Customers may pick-up the product at your warehouse and other customers
will request that the product be delivered by a third party trucking company.

All forms of the product are taxable when sold to the end user. Customers
that purchase the product for resale or for use in manufacturing a product
they sell should give you a resale certificate in lieu of the tax at the
time of purchase. Refer to Rule 3.285.

Transportation and delivery charged by a third party to the purchaser are
not taxable. Rule 3.303.

An application for a sales tax permit will be mailed to you under separate
cover.

This opinion is based on the facts you presented and current law. Different
facts although similar, may result in different answers.

Please call me if you have any questions or need more information. Our toll
free number is 1-800-531-5441, and my extension is 5-0330. The direct line
is 512/475-0330. You may also write to Tax Policy Division, Comptroller of
Public Accounts.

Sincerely,

Bettie Peterson
Tax Policy Division

NOTE: Previous Accession Number 9604182L