Tabasco is Not the Same as Hot Sauce! Neither are Exemption and Resale Certificates.

Posted by Stephanie Thomas, CPA on Mar 22, 2018 1:45:00 PM

tabasco-not-the-same-as-hot-sauce.jpgThere 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.  While these things (and twin TV host brothers) may look the same, they are different.   They are as different as 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.  But the two certificates are very different.  Please note that this blog only references Texas Sales and Use Tax Resale 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. 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.  Here is an example of a properly completed Resale Certificate.

Exemption Certificates.  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 and schools.  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. Click for an example of a properly completed Exemption Certificate.

So what is the big difference? The big difference between the resale and exemption certificate is that the 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”.

Texas exemption and resale certificates 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.

Topics: Sales Tax, Use Tax, Exemption Certificates, Resale Certificates

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