Texas Comptroller of Public Accounts    STAR System


DATE: August 2, 2011

TO: Tony Luna
Manager, Audit Division

FROM: Bryant Lomax
Manager, Tax Policy Division 

RE: Purchasing Offices and Sourcing of Local Sales and use Taxes

House Bill 590, passed during the 2011 Regular Legislative Session, amends Tax 
Code Section 321.002(3), regarding the definition of “place of business of the 
retailer” for local sales and use tax purposes. The changes to Section 
321.002(3) resulting from the passage of HB 590 take effect Sept. 1, 2011.

The statute as amended by HB 590 reads:

“(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 any location that contracts with a 
retail or commercial business to process for that business invoices, purchase 
orders, bills of lading, or other equivalent records onto which sales tax is 
added, including an office operated for the purpose of buying and selling 
taxable goods to be used or consumed by the retail or commercial business, 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…”

Beginning Sept. 1, 2011, the Comptroller will not recognize a purchasing office 
as a place of business of the retailer for the purposes of sourcing local sales 
tax if either:

(1) the office receives a rebate of local sales and use taxes; or 

(2) a related entity (parent, subsidiary or affiliate) is able to avoid or 
reduce its local sales and use tax liabilities by establishing or operating the 
purchasing office, through either creation of a new entity or movement of an 
existing entity, in a location with a lower sales tax rate than the location 
where the purchasing office or related entity formerly performed purchasing 

If a location is disregarded for the purpose of determining what local sales 
and use taxes are due, then the following sourcing rules apply: 

*  When a purchase of taxable items is made from a Texas supplier, local sales 
taxes are due to the applicable taxing jurisdictions at the supplier’s 
location, with additional applicable local use taxes due to the local jurisdictions 
where the items are first used by the contracting business. 

*  When taxable items are purchased from an out-of- state supplier, local use 
taxes are due based on the location where the items are first used by the 
contracting business. 

HB 590 now applies regardless of whether the purchasing office has its own 
employees, signage, phone lines, separate books and records, or similar 
features that are intended to distinguish the purchasing office from a related 
entity. Previously issued letter rulings that are inconsistent with this policy 
are considered superseded as of Sept. 1, 2011. 

Bryant Lomax 
Tax Policy Division
Texas Comptroller of Public Accounts

DATE: 08/02/2011