Is a customer's exemption certificate valid if it claims Texas sales tax is illegal because U.S. currency isn't backed by gold or silver coin?

Subject

Tax Deduction Form/Exemption Certificate Given — Claiming Collection Of Tax Not Legal Because Currency Not Backed By Gold Or Silver Coin

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9403L1294D06

Plain-English Summary

A vendor received an exemption certificate from a customer claiming that collecting Texas sales tax was not legal because U.S. currency is not backed by gold or silver coin — an argument tied to Article I, Section 10 of the U.S. Constitution, which says "No state shall...make any Thing but gold and silver Coin a Tender in Payment of Debts." The vendor sent a copy of the certificate to the Comptroller, who also reported it to the agency's Enforcement Division.

The Comptroller rejected the argument outright. The ruling explains that the Constitution's gold-and-silver clause only restricts the states — it does not restrict Congress. Congress, not the State of Texas, created the Federal Reserve System and authorized paper money backed by the credit of the United States. Citing Guilliard v. Greenman, 110 U.S. 421 (1884), and Norman v. B. & O. R. Co., 294 U.S. 240 (1935), the letter notes the Supreme Court has confirmed Congress has the constitutional power to declare what is money, including paper currency, as legal tender. It also quotes a federal statute (31 USCA Section 392) stating that Federal Reserve Notes are legal tender "for all debts, public and private, public charges, taxes, duties, and dues."

Because Texas accepts the same federally established currency that Congress has made legal tender, the Comptroller found the State was doing nothing more than following the Constitution. The bottom line: the exemption certificate was invalid on its face, and accepting an exemption certificate that is invalid on its face does not relieve the vendor of the burden of collecting the tax. The vendor was told to go back to the customer and collect the tax that was not charged.

What This Means For You

If a customer gives you an exemption certificate based on a "gold and silver coin" or similar currency/constitutional argument: Do not accept it. This type of certificate is invalid on its face, meaning you cannot treat it as taken in good faith, and you remain responsible for collecting the tax from the customer even if you initially let the sale go through untaxed.

If you're unsure whether a certificate is valid: An exemption certificate that is invalid on its face — for example, one asserting a legal theory with no basis in Texas sales tax law — does not protect the seller. The burden of collecting the tax stays with you regardless of what the certificate claims.

If you receive this kind of tax-protest argument: The Comptroller treats "currency not backed by gold or silver" arguments as having no legal basis for a sales tax exemption, and forwards such certificates to its Enforcement Division.

Q&A

Q: Is an exemption certificate valid if it claims sales tax collection is illegal because currency isn't backed by gold or silver coin?
A: No. The Comptroller ruled such a certificate is invalid on its face and cannot be accepted in good faith.

Q: If a vendor already accepted this kind of invalid certificate, are they off the hook for the tax?
A: No. Accepting an exemption certificate that is invalid on its face does not relieve the recipient of the burden of collecting the tax — the vendor must go back and collect it from the customer.

Q: Does the Constitution's gold-and-silver coin clause stop Texas from collecting tax in ordinary U.S. currency?
A: No. That clause (Article I, Section 10) only restricts the states from making anything but gold and silver coin legal tender — it does not restrict Congress. Congress has made Federal Reserve Notes legal tender for all taxes, and Texas accepting that federally established currency is consistent with the Constitution.

Original ruling text

March 24, 1994

Dear **:

Thank you for your recent letter and copy of an certificate
claiming exemption from paying sales tax because of Article I Section 10 of the
U.S. Constitution. I have notified our Enforcement Division of its issuance.

This is not a valid basis for claiming exemption. Therefore the
certificate is invalid on its face and could not be taken in good faith. You
should contact the customer and collect the tax. Acceptance of an exemption
certificate that is invalid on its face does not relieve the recipient of his
or her burden of collecting the tax.

The State can legally collect a state tax in a currency other than
one backed by gold or silver coin.

The United State Constitution, Article I, Section 10, provides in part:

No state shall...make any Thing but gold and silver Coin a Tender
in Payment of Debts;

The United States Supreme Court, in the case of Guilliard v.
Greenman, 110 U.S. 421 (1884), pointed out that the quoted portion of the
Constitution prohibits only the states, not Congress, from making anything but
gold and silver coin a tender in payment of debts. You will note that it was
Congress, not the State of Texas, that established the Federal Reserve System
and ordered the issuance of paper money backed only by the credit of the United
States.

The Supreme Court has also stated that the Constitutional power to
declare what shall be money and to regulate its value is vested in the
Congress. Norman v. B. & O. R. Co., 294 U.S. 240(1935). Further, the power of
Congress to establish paper money as a legal tender has long been decided. As
far back as 1884 the Court noted that Congress is authorized to establish a
national currency, either
in coin or in paper, and to make that currency lawful money for all
purposes ... Guilliard v. Greenman, supra. Operating within its Constitutional
limits, Congress enacted legislation (31 USCA Section 392) which provides the
following:

All coins and currencies of the United States (including Federal
Reserve Notes ..., regardless of when coined and issued, shall be legal tender
for all debts, public and private, public charges, taxes, duties, and dues.
(emphasis added)

As you can see, Congress has established that Federal Reserve Notes
are legal tender for the payment of all taxes. Since the Constitution grants
that power to Congress and prohibits the states from doing otherwise, the State
of Texas is merely following the Constitution in accepting federally
established currency other than gold and silver coin in the payment of state
taxes.

This opinion is rendered based on the facts you submitted. Other
facts, though similar, may yield different results.

If you have questions or need more information, please call or
write. You may reach me by calling toll free, (800) 531-5441 (ext. 34680). My
direct line number is (512) 463-4680. The number for FAX transmissions is
(512) 475-0900. You may write to me in care of Tax Administration Division.

Sincerely

Al Van Allen
Tax Administration Division

NOTE: Previous Accession Number 9403214L