Did Texas-based independent salespeople require an out-of-state seller to collect tax, and what resale or exemption documents could the seller accept?

Plain-English summary

An out-of-state seller solicited Texas sales through commissioned independent contractors. Under Tax Code § 151.107 and Rule 3.286(a)(1)(D), the Comptroller said that activity alone meant the seller was engaged in business in Texas. It had to obtain a Texas sales and use tax permit and collect tax on nonexempt Texas sales or retain proper resale or exemption certificates.

The letter also said an incorporated seller using independent Texas salespeople would be responsible for Texas corporate franchise tax under Rule 3.406(c)(4).

A Texas or other-state sales-tax permit copy was not a valid Texas resale or exemption certificate. Texas used two separate documents: a resale certificate for purchases for resale within the United States, territories, or possessions, and an exemption certificate for other statutory exemptions.

The submitted combined form was invalid. A resale certificate needed, among other items, descriptions of the purchases and purchaser's business or normally sold items, seller information, and a resale affirmation. An exemption certificate needed seller and purchaser names and addresses, item descriptions, the exemption reason, an authorized signature and date, and an affirmation of responsibility; no tax number was required.

Anyone authorized by the purchaser could sign; the signer did not have to be an owner, partner, or corporate officer. A seller had to reject a certificate if it knew the signer lacked authority but did not have an affirmative duty to obtain proof of authority.

The letter described a proposed rule amendment reflecting then-current audit policy: a facially valid certificate obtained before a Comptroller auditor began work after the entrance conference would not be verified in audit, even if it was not obtained at the sale. That was a proposed 1991 rule change, not a statement about today's rule text.

What this means for you

Independent-contractor status did not prevent Texas nexus. For exempt sales, a permit number or improvised combined form did not replace the distinct Texas resale and exemption certificates and their required contents.

Common questions

Did commissioned independent Texas salespeople create collection responsibility? Yes.

Was a sales-tax permit copy a valid certificate? No.

Could an authorized employee sign? Yes; signature authority was not limited to owners, partners, or officers.

Did the seller have to investigate every signer's authority? No, but it could not accept a certificate in good faith if it knew the signer was unauthorized.

Citations and references

• Tex. Tax Code § 151.107 — engaged in business in Texas
• 34 Tex. Admin. Code Rule 3.286(a)(1)(D) — independent salespeople located in Texas
• 34 Tex. Admin. Code Rule 3.285 — resale certificates
• 34 Tex. Admin. Code Rule 3.287 — exemption certificates
• 34 Tex. Admin. Code Rule 3.406(c)(4) — corporate franchise-tax responsibility arising from independent Texas salespeople

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9107L1123E04

Original ruling text

July 22, 1991

Dear **:

Thank you for your recent letter. Your questions are restated below, followed
by answers:

1. Based on the information in paragraphs 2 & 3, will you consider the company
   "doing business" in your state, or would they only need to register to collect
   and remit sales tax?

Answer: To be "engaged in business" in Texas for purposes of being required to
collect and remit Texas use taxes, your client must be engaged in one or more
the activities listed in Tax Code Section 151.107 and our Rule 3.286.

According to the facts given in your letter, your client solicits sales through
"independent contractors" who receive a commission on final sales, but are not
employees of the client. According to our rule, the use of independent
salespersons located in Texas constitutes "engaging in business" for purposes
of Texas law. Rule 3.286 (a)(1)(D).

This activity alone would make your client responsible for obtaining a Texas
sales and use tax permit and collecting tax on non-exempt sales into Texas, or
obtaining the appropriate resale or exemption certificates to document exempt
sales.

I might add that, if your client is incorporated, the use of independent
salespersons in Texas would also subject your client to responsibility for
paying the Texas corporate franchise tax. Rule 3.406 (c)(4).

2. Will you accept copies of any of your state registration documents as valid
   sales tax exemption certificates, and if so, which ones?

Answer: I have enclosed copies of the resale and exemption certificates we
currently produce for public use, as well as copies of our Rules 3.285 (Resale
Certificates) and 3.287 (Exemption Certificates), which describe the required
contents for a certificate to be valid. A seller may print up his or her own
versions of these certificates as long as all of the required information is
contained thereon.

A copy of a sales tax permit, from Texas or any other state, is not a valid
resale or exemption certificate in Texas.

3. Is the enclosed sales tax exemption certificate valid in your state for
   their customers who resale the equipment, and if it is, must it be signed by
   the owner, partner, or corporate officer, or can it be signed by any authorized
   company employee? If it is not valid, please state what information needs to be
   added or deleted.

Answer: The sample certificate you enclosed is not a valid resale or exemption
certificate under Texas rules. it is entitled an "exemption certificate" but
contains a statement that the item purchased will be resold. In Texas, we have
two separate types of certificate, each with a different form and different
required contents: one is valid only if the claimed exemption is a purchase for
resale inside the United States, its territories or possessions; and the other
is valid for any other exemption claimed under the law, but not for the resale
exemption.

To be a valid resale certificate in Texas, the certificate you submitted would
have to include a description of the items purchased and a statement of the
type of business generally engaged in by the purchaser or the type of items
normally sold by the purchaser, in addition to the information it already
contains (the purchaser's sales tax permit number and address, etc.). It would
also require the name and address of the seller. Finally, our certificates
contain a form of certification or affirmation that the purchaser intends to
resell the items purchased and is aware of his or her responsibilities in that
regard.

To be a valid exemption certificate, the information required includes the
names and addresses of both seller and purchaser, a description of the items
purchased, an explanation of the reason the exemption is claimed, an authorized
signature and a date, and a certification or affirmation that the purchaser is
aware of his or her responsibilities in claiming the exemption. No "tax number"
is required on an exemption certificate.

As for the signature requirement, our rules require that the "purchaser" sign
the certificate. This includes anyone authorized by the purchaser to sign a
certificate on behalf of the purchaser, and is not limited to an owner,
partner, or corporate officer.

In general, a seller is responsible for acting in good faith when accepting a
resale or exemption certificate, and part of this is the responsibility to
reject a certificate if the seller knows at the time the certificate is offered
that the person who signed it is not authorized to sign for the purchaser. But
this does not impose an affirmative duty on the seller to obtain proof of
authorization before accepting the certificate. Rather, if the seller accepts
the certificate at the time of the transaction, then a good faith belief in the
authority of the signator is sufficient.

Further, we have filed proposed amendments to the rules on exemption and resale
certificates that would codify our current policy that a facially valid,
properly completed and signed certificate will not be subject to verification
in audit as long as the seller obtains it from the purchaser before a
comptrollers auditor actually begins work on an audit at the seller's place of
business, or on the seller's records, after the entrance conference. (The rules
currently in effect state only that a certificate should be obtained at the
time the transaction occurs).

For your convenience, I have transmitted under separate cover a sales tax
permit application packet and applicable rules.

This opinion is based on the facts presented. Different facts, though similar,
might lead to different answers. If you have further questions, feel free to
write or call me at 1-800-252-5555, ext. 3-3889.

Sincerely,

John Christian
Attorney
Tax Administration