What did good-faith acceptance of resale or exemption certificates require from a Texas retailer?

Plain-English summary

A seller was responsible for collecting tax on taxable sales but was relieved when it accepted a properly completed resale or exemption certificate in good faith at the time of sale. Good faith meant the seller did not actually know the resale or exemption claim was invalid; the seller did not have to investigate the customer.

A buyer with a sales-tax permit purchasing an item customarily sold in its line of business could generally support good-faith acceptance. A seller that installed a tower, antenna, or cable knew the item would not be resold and should not accept a resale certificate.

The letter also protected properly documented export refunds unless the documents were obviously invalid. Interstate sales required shipment out of Texas by the seller through common carrier or the seller's own facilities.

Common questions

Did a retailer have to investigate every certificate? No.

What defeated good faith? Actual knowledge that the claimed resale or exemption was invalid.

Could installed equipment be accepted as a resale? No when the seller knew installation meant it would not be resold.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8811L0917G11

Original ruling text

Bob Bullock
Comptroller of Public Accounts
Austin, Texas 78774

November 18,1988

Dear *:

Thank you for sharing with me your concerns and problems in dealing
with customers who want to give you a resale or exemption certificate.

No one likes to pay taxes and there will always be those who try to
get by without paying their share. That is why we have a team of auditors who
recover many dollars in tax, plus penalty and interest, every year. But, we
can't catch everyone. We still depend on retailers like yourself to collect the
tax.

Although you are not expected to act as a policeman, as a seller,
you are responsible for collecting tax on all taxable sales. You are relieved of this
responsibility when you accept a properly completed resale or exemption
certificate in good faith at the time of the sale. Accepting a certificate in
"good faith" means that you don't actually know that the sale is not for resale
or that the exemption claimed is invalid. Unlike the policeman, you don't have
to perform an investigation of your customer to verify the facts stated on the
certificate.

Verifying whether an exemption claimed is valid, when you have a
doubt, is easy. All you have to do is pick up the phone, call our office and give us the
details. You do not need to get into an argument or discussion with your
customer over whether the non-profit organization is exempt. When you sell a
radio to an exempt organization such as a volunteer fire department or Civil
Air Patrol, you may accept an exemption certificate.

However, when an exemption for resale is claimed, very rarely will
you know if the item will really be resold. You may have a strong suspicion
that it will not be resold; but if the buyer has a sales tax permit and is
buying an item that is customarily sold in that line of business, you can
accept a resale certificate in good faith. Of course, if you install a tower,
antenna, or cable for your customer, then you know that it will not be resold
and should not accept a certificate.

You will not be held liable for tax you refunded to a customer who
followed the proper procedures and brought you the required and proper documentation
showing that the item purchased from you was exported out of the country. However, you
should not accept documentation if it is obvious that it is not valid. Federal law
exempts sales for export out of the country. Interstate sales are exempted
under state law only when shipped out by the seller on a common carrier or the
seller's facilities.

The state tax law was amended recently in an attempt to require
mail order houses to collect the state sales tax. Our legislature is making
every effort to eliminate the tax advantage enjoyed by the out-of-state mail
order houses and put them on an equal basis with sellers in Texas. What we
need now is the passage of federal legislation allowing those firms to come
under the jurisdiction of the state.

There is currently no exemption for radios used in emergencies such
as hurricanes unless the radios are used exclusively by exempt organizations
such as the Red Cross.

I appreciate your concerns and efforts to minimize abuse of the
sale for resale and other exemption provisions. When you have a question or problem, you
don't need to make your customer angry and lose business. Simply call our office and let
us explain the tax law to your customer. My staff is ready to help. The
toll-free number is 1-800-252-5555; the regular number is; (512) 463-4600.

Sincerely,
BOB BULLOCK
Comptroller of Public Accounts