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Texas Resale Certificates are not enough in an Audit

By August 11, 2021April 28th, 2022Tax Law

Texas Resale Certificates are not enough in an Audit

In an effort to keep up to speed with the latest changes in Texas sales tax rules and regulations, I wanted to brief you on the topic of resale certificates.

Resale certificates are given to those vendors that purchase at wholesale prices and then, turn around and resell those items/products to the end user. Note, I did not say the general public, because a business entity can also be an end user. At the very least, the holders of resale certificates are not in and of themselves the end user or consumer. However, the Comptroller has been issuing varying guidance on the subject matter.

Here are a few stories:

Case A- Shipping company
Client A was audited for sales tax. They are a shipping company that sells goods to overseas companies. Their goods are all sent with a bill of lading showing that they are being exported from the Gulf of Mexico to various countries abroad. However, the Comptroller is asserting that since some of the products that are supposed to be sent out of the country are being consumed by the ship crew on board of the ship, that they should be taxable.

Case B- Our Seller of gloves
Client B was audited for sales tax. They supply gloves and similar equipment to car dealerships among other vendors. The State’s position is that since the dealership uses the gloves for the mechanics to repair vehicles, the dealership is the end user. Even though the dealership provided a reseller’s certificate, their position is that our client is responsible for collecting the sales tax on that particular transaction involving gloves.

Case C – Expired certificates
Client C was audited for sales tax and had expired sales tax certificates. Our client’s buyers were either out of business for a number of years, or did not renew their sales tax certificates. In either case, the State’s position is that our client should be responsible for not providing adequate resale certificates. The onus simply falls on the entity being audited.

Case D – Sales tax certificates of a sister-concern company
Client D was audited for sales tax and submitted a sales tax exemption certificate for a sister-concern company (an affiliate company of the customer). The State found this to also be inadequate. If business D is doing business with business M, it has to have a resale certificate from business M. Business D cannot provide the resale certificate from Business N even if Business N has a relationship with Business M.

In summary, Texas Resale certificates are at the core of every sales tax audit. You will normally see that that auditor will ask for these certificates at the beginning of an audit. They are that important! If any of these cases apply to you, call us to discuss our sales tax structure and/or your audit.

Texas Resale Certificates are not enough in an Audit

Mansoor Ansari

Author Mansoor Ansari

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