SALT Blog 

The State of Texas imposes a sales tax on most property and services.[1] A seller who makes a sale subject to the Texas sales tax is required by law to “add the amount of the tax to the sales tax.”[2] Once added, the Texas Tax Code says the following occurs:

1. The sales tax becomes part of the sales price;
2. The sales tax is a debt of the purchaser to the seller until paid; and
3. If unpaid, the sales tax is recoverable at law in the same manner as the original sales price.[3]

Sellers are not required to collect the sales tax if the purchaser provides an exemption certificate.[4] The exemption certificate, however, must be “properly completed”, and accepted “in good faith”.[5]

All the following must be true for an exemption certificate to have been accepted “in good faith”:

1. The exemption certificate is accepted at or before the time of the transaction;
2. The exemption certificate is properly completed; and
3. The seller does not know, and does not have reason to know, that the sale is not exempt.[6]

An exemption certificate is properly completed if it contains all the following information:

1. The name and address of the purchaser;
2. A description of the item to be purchased;
3. The reason the purchase is exempt from tax;
4. The signature of the purchaser and the date; and
5. The name and address of the seller.[7]

So, a seller is required to collect the sales tax due on a taxable transaction, unless the seller accepts, in good faith, a properly completed exemption certificate. An exemption certificate is not properly completed or accepted in good faith if all the above requirements are not met.

What if the seller gets it wrong? What if the reason the purchase is exempt is not correctly stated on the exemption certificate? What if the purchaser’s mailing address is missing? What if the purchaser’s mailing address or Texas taxpayer number is incorrect?

If any of those are true, then the Texas Comptroller will likely assert that the seller is on the hook for the sales tax due on the transaction. If a business makes even occasional exempt sales, the consequences could be enormous.

The talented legal team at Chamberlain Hrdlicka has the varied skills necessary to defend businesses that are put in this difficult situation. If the Texas Comptroller claims that your business is liable for sales tax on transactions where you relied on an exemption certificate, our team has the expertise to defend you. Further, if your business ends up owing the sales tax to the State, we can assist you with collecting the debt from the purchaser.

[1] Tex. Tax Code § 151.010, .051.

[2] Id. § 151.052(a).

[3] Id.

[4] Id. § 151.155(a).

[5] 34 Tex. Admin. Code § 3.287(d)(2).

[6] Id. § 3.287(d)(2).

[7] Id. § 3.287(f).