Did a seller making only exempt natural-gas sales need a Texas sales-tax permit, and what certificate proof could suppliers require?

Plain-English summary

Texas did not then require a person making only exempt natural-gas sales to hold a sales-tax permit solely to report those sales.

The seller still had to issue a resale certificate when a supplier requested one. A natural-gas resale certificate without a permit number could be accepted when the buyer represented that all sales were for resale or to exempt customers and the supplier had no actual knowledge the statement was invalid.

Natural gas was subject to limited sales tax, and properly executed resale or exemption certificates were the only offered proof that a particular transaction qualified for exemption. Suppliers were entitled to demand a certificate before making a tax-free sale.

Auditors could use judgment about when to request proof. The letter warned that if unpermitted sellers were found making taxable sales without collecting and remitting tax, the Comptroller could require all sellers to obtain permits.

Common questions

Did an exempt-only natural-gas seller need a permit solely to report exempt sales? No.

Could a supplier demand a certificate? Yes.

Could a resale certificate omit a permit number? Yes, under the conditions stated in the letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8909L0957A03

Original ruling text

September 29, 1989

Dear *:

Thank you for waiting so patiently for a reply and a copy of the letter to
the Gas marketer regarding our position on resale and exemption certificates
concerning natural gas sales.

We currently do not require persons who make only exempt sales of natural
gas to hold a sales tax permit solely to report those exempt sales. However,
these sellers must issue a resale certificate to a supplier who asks for one.
A resale certificate for natural gas without a permit number may be accepted if
the buyer claims all sales are for resale or are to exempt customers and the
seller does not have actual knowledge that the claim is invalid.

Natural gas is subject to limited sales tax and properly executed resale or
exemption certificates are the only proof that may be offered to show that a
particular transaction qualifies for exemption. Sellers of natural gas who
demand a resale or exemption certificate before making a tax free sale are
completely within their rights.

Our tax auditors use independent judgement in asking for proof on different
sales categories of tangible personal property. It is unlikely that an
experienced auditor will insist on seeing a certificate for an obvious sale for
resale of natural gas from ****
to a gas utility company. On the other hand, an experienced auditor who
suspects that a particular purchaser is not qualified to issue an exemption or
resale certificate, or who is aware of abuses of an exemption for a particular
category of items, will probably insist on the certificate.

If we determine that sellers without permits are making taxable sales and
are not collecting and remitting tax, it will become necessary to require all
sellers to obtain permits.

If you have any questions or need more information please call our toll-free
number 1-800-531-5441; the regular number is (512) 463-4861. You may write me
at the Taxability Section of Legal Services division.

Sincerely,
Tom Soto
Taxability Section
Legal Services Division