Texas Franchise Tax: Treatment of commercial printing activities
The Texas Comptroller of Public Accounts has clarified its policy on the Texas franchise tax treatment of commercial printing activities. Printers own and produce goods when they custom manufacture and sell tangible personal property to their customers. Cost of goods sold (COGS) includes handling costs such as assembling products for sale (e.g., kitting, folding, inserting, addressing, affixing postage, sorting, and delivering to a third-party carrier; and storage of the raw materials, work-in process inventory, and goods waiting for shipment). Handling costs for delivery of printed material to customers or third parties without delay, and handling costs before delivery of printed material to the printer’s storage facility may be included in COGS. Storage costs for more than a necessary delay in transit, and handling costs after this storage, are post-production costs and should be excluded from COGS. Handling costs for printed material not produced and sold to the customer should be excluded from COGS. Regarding apportionment, gross receipts from the sale of the printed material for delivery without delay, including sales-related handling fees, are sourced to the location the purchaser takes possession. Gross receipts from the sale of the printed material that is stored for more than a necessary delay in transit, including delivery-related storage and subsequent handling fees, are sourced to the storage location. Finally, gross receipts from handling of printed material not sold by the printer are receipts from the sale of a service and are sourced to where the service is performed (i.e., the location where the handling activities take place). (Texas Policy Letter Ruling No. 202204004L, 04/21/2022.)
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