STOP!  No Properly Completed Exemption Certificate = Charge Sales Tax

Posted by Mary Thomas on Mar 15, 2017 9:15:00 AM

tax-formIn Texas, yes, with few exceptions, sales tax should be charged on taxable products and services until the client issues the properly completed exemption, resale or direct payment exemption certificate.  (Nexus is assumed.)

A seller should obtain a properly completed exemption, resale or direct payment exemption certificate at the time of the sale with a few exceptions. If the seller is audited and the appropriate resale, exemption or direct payment exemption certificate is not obtained, the sales tax and corresponding penalty and interest can be levied against the seller.

If the certificate is not obtained at the time of the sale, some taxing authorities, including Texas, allow the seller to obtain the document after the sale.  However, certificates that are obtained during an audit are scrutinized more than certificates that were on file at the time the audit began.  There are also statutory (date) deadlines associated with the submission of exemption, resale and direct payment exemption certificates after an audit commences.

Accepting a properly completed certificate means (1) the certificate contains all the information required by the Comptroller, including the legal declarations that improper issuance is a crime and (2) the seller has no actual knowledge that any information on the certificate is incorrect.  The Comptroller does not require the seller to engage in onerous research on the client.  It does require properly completed documentation that appears to be reasonable on its face. It is good idea for sellers to verify the exempt status of those customers issuing exemption certificates.  In Texas, verification of the exempt status of a taxpayer can be performed via the Searchable Taxpayer Information Database on the Texas Comptroller of Public Accounts website.

There is an instance where a properly completed exemption certificate is not required. Sellers are not required to obtain properly completed exemption certificates from governmental entities.  A contract, invoice, purchase order, etc. is sufficient proof of the sales tax exempt nature of the sale if the party listed on this documents is a government entity, not a party doing work on their behalf if an agency relationship is not documented.

REFERENCE MATERIALS:  34 TAC §3.285(b)(1), (g) , 34 TAC §3.287(d)(1)(2)(3)(4)

Topics: Sales Tax, Use Tax

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