Could a seller accept a client's direct-payment certificate when taxable items were billed to the client's advertising agency?

Plain-English summary

An advertising agency bought taxable items for a client that held a direct-payment permit. Because the seller billed the agency, the agency had to pay sales tax even if it was acting as the client's agent.

A direct-pay permit holder could not authorize another person or firm to buy taxable items under its permit. The seller could accept the client's direct-payment certificate only if it billed the client directly. Even then, the certificates presented here were unacceptable because they were dated in 1984, did not substantially match Rule 3.288's form, and one was issued to the agency rather than the seller.

An agency also had to disclose its agency status in written purchasing documents and could use a resale certificate only for items actually purchased for resale.

Common questions

Could the agency use its client's direct-pay permit? No.

What if the seller billed the client directly? A proper current certificate could be accepted.

Could the agency issue a resale certificate merely because it acted as agent? No, only for purchases actually made for resale.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9003L0996D01

Original ruling text

March 30, 1990

Dear **:

In your letter of March 20, you requested information regarding the acceptance
of a direct payment exemption certificate issued by CORPORATION A.

As indicated in your letter and the enclosed correspondence, the facts are as
follows:

1. You sold various taxable items to ** (COMPANY B), an
   advertising agency and charged tax on the items.

2. COMPANY B indicated that tax wasn't due on the invoice and submitted
   CORPORATION A's direct payment exemption certificate in lieu of tax. You
   contacted Jim Dubcak of this agency who indicated that CORPORATION A couldn't
   authorize COMPANY B to issue their direct payment exemption certificate.

3. COMPANY B notified you that sales tax wasn't due on the sale because
   COMPANY B was acting as an agent for CORPORATION A, a direct payment permit
   holder. COMPANY B forwarded another direct payment exemption certificate
   issued by CORPORATION A to COMPANY B. COMPANY B also indicated that Dennis
   Eastman, an auditor with our ** office agreed that no tax was due
   on the sale.

If you billed COMPANY B for the taxable items, COMPANY B must pay tax to you on
the purchase. Although under certain circumstances an advertising agency may
act as a client's agent in dealing with others as indicated in the enclosed
Comptroller's Rule 3.321 (Advertising Agencies), the agency must pay tax to
suppliers on taxable items billed to the agency but purchased for their client
(Rule 3.321(b)(2)). Furthermore, direct pay permit holders may not authorize
any other person or firm to purchase any taxable items under their permit as
indicated in section (e) of the enclosed Comptroller's Rule 3.288 (Direct
Payment Procedures and Qualifications).

In the situation you describe, you can accept CORPORATION A's direct payment
exemption certificate in lieu of tax only if your company billed the items to
CORPORATION A. However, you should not that even if you billed the items to
CORPORATION A, the direct payment exemption certificates submitted aren't
acceptable because:

1. The certificate must be dated when issued. The certificates issued are
   dated May 1, 1984.

2. The certificates should be substantially in the form of the certificate in
   Rule 3.288.

3. One of the certificates is issued to COMPANY B, not you.

Furthermore, if COMPANY B is acting as an agent of CORPORATION A:

1. COMPANY B must disclose to suppliers that it is acting as agent for the
   client designated on the agency's purchase order or other written documentation
   (Rule 3.321(a)(1)).

2. COMPANY B can't issue a resale certificate in lieu of tax to suppliers
   unless the items are purchased for resale as indicated in Rule 3.321(b)(3).

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

If you have any questions, please contact Tax Correspondence. You may call toll
free 1-800-252-5555, or our regular number is 512/463-4600. My extension is
3-4662. You may write me at Tax Correspondence, Comptroller of Public
Accounts.

Sincerely,

Bob Jeffcoat
Tax Correspondence