When could a seller accept resale certificates from janitorial suppliers or carpet cleaners, and which cleaning products qualified?

Plain-English summary

Chemicals sold to a janitorial supply company for resale could be sold tax-free with a valid resale certificate. Chemicals sold to a janitorial service company were taxable.

A carpet cleaner could issue a resale certificate for products transferred to the customer during the service, such as treatments remaining on the carpet or furniture pads left behind. Shampoo, cleaner, gloves, sponges, steel wool, masking tape, and other consumed supplies could not be bought for resale.

Rule 3.285 required the seller to accept a certificate in good faith and without actual knowledge that the sale was not for resale, taking account of the purchaser's stated business. Invalid or bad-faith certificates could be disallowed on audit. Work for an exempt customer did not exempt equipment and supplies that were not transferred to that customer.

Common questions

Could carpet treatment left on the customer's property be bought for resale? Yes under the stated facts.

Could consumed cleaning supplies be bought for resale? No.

Was a certificate automatically sufficient? No. The seller had to accept it in good faith and consider the purchaser's business.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8812L0917G06

Original ruling text

December 8, 1988

Dear **:

Thank you for your inquiry of November 9, 1988, concerning the taxability of
chemicals sold to janitorial and carpet cleaning business.

Following are your questions and our response:

1. Sale are made to customers who operate janitorial supply business under a
   resale certificate.

a. Must the seller collect sales tax in this situation?

Answer: Sales tax would not be due on chemicals sold to a janitorial supply
company that will resell the chemicals, provided that the purchaser provides
your client with a valid resale certificate. Sales tax would be due on
chemicals sold to a janitorial service company.

2. Sale are made to commercial carpet cleaners who charge sale tax to their
   customers on the total value of the service they provide.

a. Must the seller collect sales tax in this situation?

1. If your answer is yes why doesn't this result in a double tax on the items
   involved?

b. Must the seller collect sales tax if the purchaser provides the seller with
a resale certificate?

Answer: The seller must collect sales tax in this situation, unless he accepts,
in good faith and without knowledge that the sale is not a sale for resale, a
resale certificate from the buyer.

A commercial carpet cleaner may issue a resale certificate for products that
will be sold or transferred to the customer during the performance of the
carpet cleaning service (i.e., scotchguard, anti-static, flea killer, rust
inhibitor, etc., which remain on the carpet or furniture pads/blocks which are
left with the customer).

Shampoo, cleaner, cotton gloves, sponges, steel wool, masking tape, etc.,
purchased for use by a commercial carpet cleaner could not be purchased
tax-free, as they do not remain on the carpet or are otherwise transferred to
the customer. And the seller could not accept a resale certificate from a
carpet cleaning company on the sale of these items.

Please note, the items noted in the preceding two paragraphs are not intended
to be all-inclusive.

3. If a purchaser comes into the sellers place of business and wants to
   purchase products under a resale certificate is the seller responsible for
   determining that the purchaser is in fact purchasing the items for resale?

Answer: Yes, Rule 3.285 Resale Certificate; Sales for Resale, (b)(2) states, "A
sale is exempt if the resale certificate is accepted in good faith and the
seller lacks actual knowledge that the sale is not a sale for resale. It is the
seller's responsibility to take notice of the type business generally engaged
in by the purchaser as shown on the resale certificate". A copy of this rule is
enclosed for your benefit. [Emphasis added)

a. What happens if after having sold products to the purchaser he (purchaser)
is audited by you (Comptroller's Department) and found to be ineligible to
purchase under a resale certificate. Can the seller be held liable for the tax?

Answer: In the situation you describe, the purchaser would be held primarily
liable for the tax on items converted to taxable use. If the seller was being
audited, any invalid certificates or certificates not accepted in good faith as
prescribed by Rule 3.285 (b)(2), would be disallowed by the auditor and
additional tax, penalty and applicable interest assessed based, on those sales.
The seller is allowed to recover the tax from the purchaser who issued the
invalid certificate.

If a carpet cleaner holds an exemption certificate provided by a customer, such
as a governmental unit, can he purchase products without paying sales tax?

a. If yes, what documentation does the seller need to receive from the
purchaser?

Answer: If the carpet cleaner receives a completed exemption certificate from a
qualified exempt organization, tax would not be due on the service performed on
behalf of that entity. Products that would remain on the carpet or transferred
to the exempt entity could be purchased tax free with a resale certificate.
Equipment, materials and supplies not otherwise transferred to the exempt
customer could not be purchased tax free.

This does not result in double taxation, as tangible personal property actually
transferred to the customer is only taxed once.

This opinion is based on the facts presented. If there are different or
additional facts, the opinion could change.

If you have any questions or need more information, please call our toll-free
number 1-800-531-5441. The regular number is 512/463-4502. You may write me at
the Tax Policy Division.

Sincerely,

Gilbert Zamora
Taxability Section
Legal Division