Exemption Certificates vs. Resale Certificates – The Difference Matters In Texas

by | May 26, 2021

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Ray Diaz

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The Texas Resale Certificate and the Texas Exemption Certificate are literally two sides of the same form. 

While both serve to substantiate exemptions for otherwise taxable transactions, they operate in different circumstances. Accepting the right certificate, or in Texas, completing the correct side of the form is critical to avoid unwanted (and unnecessary) tax exposure.

Texas, notably, applies very exacting standards when auditing exemption certificates. As a result, this process can become very frustrating and costly to businesses making sales in Texas. We frequently find that people in business – taxpayers – approach exemptions very differently than state auditors. Businesses want to make sales, and if the substance of a transaction leads to the conclusion that the transaction should qualify for an exemption and the documentation generally seems in order, such exemption is allowed. State auditors, on the other hand, approach a transaction from a very different standpoint. Texas auditors in particular are known for being meticulous in ensuring that the specific requirements of documentation is satisfied before allowing an exemption to stand.  

Technical deficiencies that frequently result in unnecessary (and unfair) taxability determinations include: 

  • Acceptance of exemption certificates for resale transactions (the wrong side of the form!). 
  • Sales to charitable organizations that, for whatever reason, failed to register as an exempt organization with Texas.
  • Acceptance of resale certificates with an improperly entered Texas sales tax registration number.
  • Acceptance of resale certificates with missing information. 

So what steps should sellers take to avoid exempt sales liability in Texas?

  • Validate that the correct forms have been submitted to support different types of transactions.
  • Validate that each form contains all required information.
  • Confirm that resellers’ tax registration numbers are accurate.
  • Confirm that purchasers that are charitable organizations have properly registered with the state.
  • Ensure that forms are signed and dated.

In order to ensure the exempt status of the transactions, each of the listed steps should be completed at the time of purchase. 

This is best accomplished by implementing a seamless, integrated system that both simplifies the process for your customers and staff and minimizes your audit exposure. We at CERTifyTax have designed a scalable, affordable solution that does exactly that. 

If you have questions about the requirements of resale and exemption certificates in any jurisdiction or if you would like to know your potential exposure related to exempt sales please reach out to Ray Diaz at 914-798-9925 or Tom McCarthy 914-798-9902.

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