There are some things in this world that appear to be interchangeable, but really aren’t: diamonds and cubic zirconia, tabasco and hot sauce, Drew and Jonathan Scott and Texas Sales and Use Tax Resale certificates and Texas Sales and Use Tax Exemption certificates. While all of these things (and twin TV host brothers) may look the same, they are different. That is especially true for Texas Sales and Use Tax Exemption certificates and Texas Sales and Use Tax Resale certificates.
There are several types of certificates in Texas, but I am going to focus on the two certificates that confuse many business owners: the resale and the exemption certificate. The two certificates are very different.
Please note that this blog only references Texas Sales and Use Tax Resale certificates and Texas Sales and Use Tax Exemption certificates.There are other certificates that can be issued in order to purchase items tax free, under certain circumstances.
Resale certificates are issued to purchase items for resale, items that you plan to rent or lease, taxable services performed on the items to be resold, etc. Purchasers issue this certificate to purchase otherwise taxable items tax free. The certificate must be properly completed to be valid and all fields of the form must be complete including:
The purchaser’s name, address and phone number
The 11-digit Texas Sales and Use Taxpayer Permit number
The seller’s name and address
A description of the items purchased
Out of state retailer’s registration number or Federal Taxpayers Registry number for retailers based in Mexico, if applicable
The certificate must be signed with an actual signature – not a printed name or a pretty script font from the computer.
The certificate must be dated and should be issued at the time of the transaction.The date on the certificate should never be more than four years from the time of the transaction.
Exemption certificates are issued to purchase items tax free due to statutory reasons or if the purchaser is a tax-exempt entity. Tax exempt entities include governmental entities. Churches, charities, schools who are approved by the Texas Comptroller of Public Accounts for exempt status may also be Texas exempt entities. Businesses with statutory exemptions on certain items can also issue exemption certificates. Examples include manufacturers purchasing exempt manufacturing equipment, contractors performing projects for tax exempt entities, etc. Like resale certificates, exemption certificates must be properly completed to be valid. Properly completed exemption certificates must have all fields completed (name of purchaser, address, name of the seller, etc.) and must be signed.
So what is the big difference?
In addition to the reason why each certificate is issued, one big difference between the resale and exemption certificate is what is required on the resale certificate. The Texas Sales and Use Tax Exemption certificate does not require a 11-digit taxpayer identification number. Exemption certificates also require the purchaser to list the reason why the item is exempt from sales and use tax.
IMPORTANT: Don’t think that an exemption certificate can be issued for an item that is being resold. The Comptroller will not accept an exemption certificate where the reason for the exemption is "resale". Also, those that issue resale certificates should have an active taxpayer account in a place that is accepted by the Comptroller.
When comparing a Texas Sales and Use Tax Exemption certificate to a Texas Sales and Use Tax Resale certificate, it is hard not to notice they are almost identical in appearance. That is one reason why so many people get them confused. But just like hot sauce and Tabasco, they cannot be used interchangeably. If you are the purchaser, know which certificate you can issue. If you are a seller, know what a properly completed certificate looks like and what you can accept.
For more information, visit Top Five Resale and Exemption Certificate Mistakes.
For access to an online class explaining how to compile a Texas sales and use tax return, visit Understanding Your Texas Sales and Use Tax Return.
For private consultation, schedule a call us.