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The Top 5 Sales Tax Resale & Exemption Certificate Mistakes

Updated: Nov 6, 2023


We wanted to discuss the top five resale certificate and exemption certificate mistakes that business owners make.

While certain concepts are similar across jurisdictions, it is important that you know the requirements in the jurisdiction where you conduct business.




Key Takeaways on Sales Tax and Tax-Free Sales


When you make tax-free or exempt sales, you must be able to prove why the sale was not taxable. There are several reasons why sales may not be taxable. The customer maybe exempt from taxation or may resale the item. The product or service being sold may not be taxable per the Tax Code. The sale may be to an out of state customer, etc.


Whatever the reason why a sale was not taxed, you should always (1) research what documentation is needed to substantiate a tax-free sale in the jurisdiction where you conduct business; (2) obtain the appropriate documentation; (3) review the documentation to confirm it is properly completed; (4) contact the customer and obtain the correct documentation (when possible), if the documentation is not properly completed ; and (5) retain the documentation for the applicable statute of limitations.


Avoid the common mistakes we mentioned in the video. Your certificates, invoices, reports, etc. are the first things that auditors review in sales and use tax audits. That is why it is very important that you know what documentation you should obtain from your customers and if it is properly completed, when you may tax-free sales.


For more information on resale and exemption certificates, visit Tabasco is NOT Hot Sauce! Resale vs. Exemption Certificates


If you need a lesson on how to complete your Texas sales and use tax return, visit Understanding your Texas Sales and Use Tax Return


 

Our mission to provide a resource so business owners, accountants and bookkeepers can understand sales & use tax compliance. We know that sales and use tax laws are not the easiest to understand. Our focus is on empowering you with a framework and general understanding, so you know what questions to ask and where to go to get the information you need to stay on the right side of sales and use tax compliance.



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