Texas Comptroller of Public Accounts    STAR System


200704372L




April 12, 2007

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RE: 07095088

Dear **************: 

Thank you for your inquiry, forwarded to Robin Corrigan, regarding whether your 
client’s location constitutes a place of business, vis-a-vis Section 
321.002(a)(3), Texas Tax Code (TTC). I have been asked to respond to your 
inquiry. 

BACKGROUND 

You proffer the following information with regard to your client’s situation:

‘Company A, a statewide contractor, will create a wholly owned subsidiary 
(Client). Client will sell building materials and will purchase tangible 
personal property from Suppliers for resale. Client will issue Suppliers a 
Texas resale certificate to alleviate Suppliers from collecting and remitting 
sales tax on items sold to Client.

‘Client will maintain a single place of business in CITY A, Texas, where it 
will receive substantially more than three orders for building materials per 
year. The place of business will be open during regular business days/hours and 
Client will maintain separate books and records.

‘The place of business will have local phone/fax service, and personal 
computers/printers to print purchase orders received. Client’s sales tax permit 
will be displayed at the place of business. In addition, Company A will have 
other operations housed in the same location.

‘Company A and Client will execute an Administrative Agreement, where Company A 
employees will perform, among other items, purchasing activities on behalf of 
Client as well as Company A, in return for compensation from Client. Client and 
Company A will recognize revenue and expenses related to services 
rendered/purchased on their separate books and records. Company A’s personnel 
will remain employees of Company A. Client will maintain an office, staffed by 
employees of Company A in CITY A, Texas. Client will compensate Company A for 
office space/rent and use of miscellaneous office supplies/equipment as well as 
pay for a portion of the salary and benefits of Company A’s employees, all of 
whom are located in CITY A, Texas.

‘In previous letter rulings, the State has indicated that an entity in 
similar situations to Client must have employees and a separate bank account to 
be considered a place of business in Texas and source local sales taxes based 
on where orders are received. In this situation, Company A’s employees (who 
will provide specific purchasing services for Client) will purchase items for 
resale in a single location within the CITY A where personnel will receive 
substantially more than three orders for tangible personal property per year. 
The property will be subsequently sold to Company A. Client will issue invoices 
to Company A to reflect all sales activity, and will bill Company A for these 
materials at or above Client’s cost.

‘Client will collect and remit state and local sales and use taxes on it sales 
of tangible personal property to Company A. Client does not anticipate selling 
any services. Client will collect the 1% CITY A City sales tax that is due 
based on its single place of business in CITY A, Texas. Client will also 
collect Texas use tax, including any county, special purpose district or mass 
transit authority tax due at a delivery point, which will be legally due under 
the State’s 2% cap on local taxes.

‘Company A and Client will maintain a single bank account (of Company A) with a 
“dba” used for remittance of payment for all purchases by both entities. There 
is an intercompany charge to reimburse Company A so that payments are 
accurately reflected on each entity’s books and records.’

PROPOSAL

You state the following:

‘We believe that Client will satisfy the “employee and bank account 
requirements” of a Texas place of business by contracting with Company A 
through an Administrative Services Agreement for purchasing and other 
administrative services and maintain “Corporate dba” bank accounts that are 
separately reflected on Company A and Client’s separate books and records. 
Based on current Texas rules and statutes, we believe that Client should 
collect and remit City sales taxes on their transactions based on their single 
place of business in CITY A, Texas as well as any non-city sales/use taxes 
legally due (up to the 2% local tax cap) where items are shipped.’

RULING REQUEST

You state the following:

‘We request a ruling confirming whether Client will be considered to have a 
single place of business in CITY A, Texas, based on the facts, law, and 
conclusions contained above; and that the local sales/use tax sourcing of 
Client transactions will be in accordance with Texas state and local tax 
statutes.’

RESPONSE

Your client’s location will not constitute a place of business under the 
circumstances you present. 

As you note, Section 321.002(a)(3), TTC, defines a “place of business of the 
retailer,” for city tax purposes. That language follows:

“(3)  "Place of business of the retailer" means an established outlet, office, 
or location operated by the retailer or the retailer's agent or employee for 
the purpose of receiving orders for taxable items and includes any location at 
which three or more orders are received by the retailer during a calendar year. 
A warehouse, storage yard, or manufacturing plant is not a "place of business 
of the retailer" unless at least three orders are received by the retailer 
during the calendar year at the warehouse, storage yard, or manufacturing 
plant.  An outlet, office, facility, or location that contracts with a retail 
or commercial business engaged in activities to which this chapter applies to 
process for that business invoices or bills of lading onto which sales tax is 
added is not a "place of business of the retailer" if the comptroller 
determines that the outlet, office, facility, or location functions or exists 
to avoid the tax imposed by this chapter or to rebate a portion of the tax 
imposed by this chapter to the contracting business.”

In addition to the statutory characteristics that describe a “place of business 
of the retailer,” our office has established the following guidelines, based 
upon the language of Section 321.002(a)(3), TTC, to determine whether a 
location constitutes a bona fide place of business:

- Employees
- Separate books and records
- An operating office (phone lines, office area, signage)
- All products are sold for an amount equal to or greater than cost
- The office orders the products, pays for the products, tracks the orders and 
deals directly with vendors when shipments are late, lost or substandard
- The office is not relocating from one city to another in order to obtain a 
local tax rebate.

In addition to the foregoing guidelines, our office may also consider any or 
all of several other aspects of the business to make the determination, 
including:

- whether all, or substantially all, sales of a business are made to a related 
entity, such as a parent (i.e., there are no or only nominal sales to other 
entities)
- whether a related entity has other operations at the business location 
- whether the business utilizes employees of a related entity under a service 
agreement, as opposed to hiring its own employees, to conduct all or 
substantially all of its operations [refer to the enclosed letter, STAR (State 
Tax Automated Research system) Accession No. 200312286L, particularly 
paragraphs 1 under the “FACTS” section and 7 under the “RULING” section].
- whether the business has been opened solely for the purpose of reducing or 
eliminating local tax liabilities under Chapter 321 [opening the business 
solely to reduce or eliminate the local tax  burden would constitute an action 
“to avoid the tax imposed by this chapter,” under the ambit of Section 
321.002(a)(3)]. 

You indicate that you are aware of previous letter rulings in which our 
office has indicated that an entity must “have employees and a separate bank 
account” to be considered a place of business in Texas and thus to source local 
sales taxes based upon where the orders are received. While I am unaware of any 
letter rulings discussing the bank account issue, such a criterion would be in 
alignment with spirit of the aforementioned guideline requiring separate books 
and records. You note in this light, by the way, that Company A and the Client 
will maintain a single bank account (of Company A) with a “dba” used for 
remittance of payment, and that this account will be used for “all purchases” 
of both entities. The fact that the account is in the name of a “dba” (doing 
business as) does not mean that Company A and the Client have separate bank 
accounts. 

You also broach what you refer to as a potentially relevant bill (House Bill 
2912). You state the following:

‘In Section 12 of the bill, new provisions were added to the law that prohibit 
a city’s 4A and/or 4B corporation from providing certain business enterprise 
incentives in some circumstances. According to Section 15 of the bill, the law 
took effect immediately on the day the bill was signed by the Governor, which 
was June 20, 2003.

‘A recent opinion from the Attorney General of Texas addresses the recent 
legislation. AG Opinion No. GA-0 137 states:

‘House Bill 3534, which amended sections 321.002(a)(3) and 321.203 of the Tax 
Code, prevents certain outlets, offices, facilities, or locations from 
qualifying as a “place of business of the retailer” for municipal sales tax 
purposes. House Bill 3534 does not invalidate existing municipal sales tax 
rebate contracts nor prohibit municipalities and businesses from executing new 
contracts.’

In this regard, our office does not have oversight with respect to the 
referenced contracts. Note, however, the following section of the same AG 
opinion, which I provide, without comment, strictly for your interest and 
consideration:

“House Bill 3534 operates only to establish the tax situs of certain 
consummated sales and prescribe a schedule for its implementation. Under House 
Bill 3534, the comptroller may determine that an "outlet, office, facility, or 
location," does not qualify as a "place of business of the retailer." Tex. Tax 
Code Ann. Section  321.002(a)(3) (Vernon Supp. 2004). For an outlet, office, 
facility, or location in existence on May 27, 2003, House Bill 3534 does not 
apply until September 1, 2005, and until that date they are governed by the 
statutes as they read prior to amendment. For an outlet, office, facility, or 
location established after May 27, 2003, House Bill 3534 applies to all sales 
that occur on or after September 1, 2003. Consequently, after the applicable 
effective date, an "outlet, office, facility, or location" may no longer 
qualify as a "place of business" for tax purposes if the comptroller so 
determines, in which case there may not be significant sales taxes for the 
municipality to rebate. 

“House Bill 3534 does not make particular contracts void. Compare with Tex. 
Nat. Res. Code Ann. Section 161.227 (Vernon Supp. 2004) (providing that certain 
agreements are "expressly declared to be void"). Of course, it may make some 
contracts less attractive and may impact their enforceability. Compare Centex 
Corp. v. Dalton, 840 S.W.2d 952, 954 (Tex. 1992) (a change in the law may be 
the basis for discharging a contractual duty due to impossibility of 
performance), with Huffines v. Swor Sand & Gravel Co., Inc., 750 S.W.2d 38, 40 
(Tex. App.-Fort Worth 1988, no writ) (a change in the law that merely makes 
performance more burdensome or less profitable may not excuse performance). 
However, House Bill 3534 does not invalidate existing tax rebate contracts, nor 
does it prohibit municipalities from executing new ones.”

As noted, your Client’s location does not constitute a place of business of the 
retailer, vis-a-vis Section 321.002(a)(3), TTC; therefore, the scenario falls 
under the ambit of Section 321.203(m), TTC. That language follows:

“Section 321.203. CONSUMMATION OF SALE.  (a) A sale of a taxable item occurs 
within the municipality in which the sale is consummated.  A sale is 
consummated as provided by this section regardless of the place where transfer 
of title or possession occurs. . . .

 . . . (m)  If there is no place of business of the retailer because the 
comptroller determines that an outlet, office, facility, or location contracts 
with a retail or commercial business to process for that business invoices or 
bills of lading and that the outlet, office, facility, or location functions or 
exists to avoid the tax imposed by this chapter or to rebate a portion of the 
tax imposed by this chapter to the contracting business, a sale is consummated 
at the place of business of the retailer from whom the outlet, office, 
facility, or location purchased the taxable item for resale to the contracting 
business.”

This opinion is based on the information presented.  Other information, though 
similar, may provide a different result.  

I hope this information is helpful. If you have any questions or need more 
information, you may email us at tax.help@cpa.state.tx.us, call me at 
1-800-531-5441 (x50647), or write to: Tax Policy Division, P.O. Box 13528, 
Austin, TX  78711-3528.

Sincerely,


Timothy Pingree
Tax Policy Division
Texas Comptroller of Public Accounts




ACCESSION NUMBER: 200704372L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 04/12/2007
TAX TYPE: SALES