Is sales tax due on merchandise (like employee-discounted logo shirts, or safety training videos/workbooks sold to dealers) even when it's sold below the seller's actual cost?

Plain-English summary

A company asked two related questions about taxability of below-market and dealer-channel sales:

1. It offers employees company-logo golf shirts at 15% below the regular price, with the company itself absorbing that 15% discount. Does it need to charge (use) tax on all these employee sales?
2. It's producing Safe Crane Operation training videos and workbooks that it plans to sell to its dealers and distributors. Are either of these items taxable?

The Comptroller's answer: yes, taxable in all cases. Sales receipts from the golf shirts, the videos, and the workbooks are all subject to sales tax. Selling merchandise below cost — sometimes called a "loss leader" — doesn't exempt the sale; tax applies to whatever price is actually charged to the buyer, regardless of what the item cost the seller. Separately, the letter notes the company can purchase these items tax-free for resale using a resale certificate, since it's reselling them (to employees or to dealers) rather than consuming them itself.

What this means for you

Employers selling discounted or subsidized merchandise to employees

Absorbing part of the cost to offer employees a discount doesn't change your sales tax obligation — you still owe tax on the actual discounted price you charge. There's no "below cost = exempt" rule in Texas.

Manufacturers selling training materials, manuals, or videos to dealers/distributors

These items are ordinary taxable tangible personal property sales, just like any other merchandise sold to a dealer channel — no special exemption applies just because the content is instructional/safety-related.

Accountants and tax professionals

This letter is a clean, general confirmation that Texas taxes the actual transaction price, not a seller's cost basis — useful whenever a client asks about tax treatment of promotional, employee-discount, or below-cost sales programs. Remember the resale certificate angle too: a seller reselling items (even to its own employees at a discount) can buy its inventory tax-free upstream.

Common questions

Q: Do I owe sales tax on merchandise sold below my cost?
A: Yes, per this letter — tax applies to the actual price charged, regardless of whether that price is below what the item cost the seller.

Q: Is training material (videos, workbooks) sold to dealers taxable?
A: Yes, per this letter — ordinary taxable tangible personal property sales rules apply.

Q: Can the seller buy the merchandise tax-free before reselling it at a discount?
A: Yes, per this letter — a resale certificate can be used to purchase items tax-free when the seller is reselling them, even at a discounted price.

Citations and references

No specific Tax Code section or Comptroller rule number is cited in this letter; the Comptroller applied its general actual-sales-price tax base policy and standard resale certificate mechanics to these facts.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9809797L

Original ruling text

September 8, 1998

Dear Ms. **:

Thank you for your recent letter which is restated in part with response below.

We are offering golf shirts, to our employees, with our Company logo
embroidered on the shirt. They are being offered to employees at 15% less than
the actual price. The Company will pay the additional 15%. Should we assess use
tax for all sales of golf shirts which we sold to our employees in your State
or Province?

We are in the process of making Safe Crane Operation videos and workbooks. We
will sell the safety videos and workbooks to our dealers and distributors.
Would either of the items be a taxable sale to our customer? If yes, which one
or both?

Response: Receipts from sales of the golf shirts, videos, and workbooks are
subject to sales tax. You may purchase these items tax free for resale.

This opinion is rendered 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. 3-4680. The direct line is
512/463-4680. You may also write to Tax Policy, Comptroller of Public
Accounts. The email address is .

Sincerely,

Al Van Allen
Tax Policy Division