Texas Adopts Rule Defining Locations Where Orders Are Received for Online Orders, Fulfillment Warehouses

To clarify their position on orders fulfilled from warehouses as well as automated website orders, the Comptroller of Public Accounts for the state of Texas has added a section to the state’s administrative rules defining which local tax is due on sales. The new rule defines the location where an order is “received”, or where the local tax is due, as “the physical location of a seller or third party such as an established outlet, office location, or automated order receipt system operated by or on behalf of the seller where an order is initially received by or on behalf of the seller and not where the order may be subsequently accepted, completed or fulfilled. An order is received when all of the information from the purchaser necessary to the determination whether the order can be accepted has been received by or on behalf of the seller. The location from which a product is shipped shall not be used in determining the location where the order is received by the seller.”

The Comptroller notes in the publication announcing this change that there have been previous attempts to add similar definitions to the Administrative Code, but that the Comptroller has historically used this meaning in formal rulings. The Comptroller has been in litigation with several cities in Texas over proposed changes to the state’s sales and use tax sourcing rules since 2021, which would have changed the local tax requirements for online orders to destination-based sourcing.

The added text of the amended rule may sound familiar. It is from Section 3.10.1C5 of the Streamlined Sales Tax Agreement (SSUTA). Texas is not a Streamlined Sales Tax member state but chose to adopt this language for its amended rule on local sales tax sourcing of orders. With this standard approved by the twenty-four Streamlined Sales Tax member states, this promotes uniformity with Texas and those states who have elected origin-based sourcing. (Amended Title 34 Tex. Admin. Code section 3.334, Tex. Comptroller of Public Accounts, 1/5/24)

Posted on April 30, 2024