I read that TX is an origin-based state, but what if we register in other states?

Response by Diane Yetter    February 8, 2012

Full Question: We are located in Texas and employ 47 people in Texas. The majority of business is for commercial buildings; both repairs and new construction. We sell service and installations, as well as product, in the United States and Canada. If the customer/job site is based outside of Texas the service or installation is outsourced/dispatched to a vendor. We pay the vendor and then charge the customer. I have read that Texas is an origin-based state, but what about if we are registered in other states for sales and use tax? We registered because we were having problems with issuing a Texas resale certificate to out of state vendors. Specifically because the vendors are providing product, service and installs to our customers in a state where the vendor is located or has nexus. We do not have a computer system that is currently able to handle sales tax tracking for multiple jurisdictions and rates. We want to make sure we are compliant with applicable laws for taxable sales.

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Answer:

Diane YetterAlthough Texas is an origin state, that applies to sales that occur wholly within Texas. If you make a sale to a customer outside of Texas and ship the goods and perform services at the customer location, it is the state where the customer is located that has the right to subject the transaction to tax. If however, the customer picks up goods from your location in TX, then the transaction is deemed a TX transaction.

If you are providing installation and repair services to property located in other states, you have likely established nexus in those states. The use of "vendors" to provide these services may create nexus for you in the other states since the vendors are invoicing you and you are invoicing your customer. In this case you are making the sale of the service. If you have registered with other states to enable you to issue resale certificates to your "vendors" (who likely would be considered subcontractors by the states), you are required to collect sales tax or remit use tax on items you use in providing your service. If you have not been collecting tax on these transactions in states where you are registered you likely have a liability. If you are performing services in states where you are not registered, you also likely have liability.

We can assist you in evaluating your nexus and tax obligations.

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