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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER OSTATE AND LOCAL SALES AND USE TAXES
RULE §3.287Exemption Certificates

(a) Definition. Exemption certificate--A document that, when properly executed, allows the tax-free purchase of an item that would otherwise be subject to tax. A purchaser claiming an exemption because the item purchased is for resale must issue a resale certificate to the seller. See §3.285 of this title (relating to Resale Certificate; Sales for Resale). There is no provision in the sales and use tax act for an exemption number or a tax exempt number to be issued or used in connection with an exemption certificate.

(b) Who may issue an exemption certificate. An exemption certificate of the type described in this section may only be issued by one of the following:

  (1) an organization that has qualified for exemption under the Tax Code, §151.309 or §151.310. See §3.322 of this title (relating to Exempt Organizations);

  (2) a person purchasing an item that is exempt under the Tax Code, Chapter 151, Subchapter H.

(c) Maquiladora exemption and direct payment permits.

  (1) People who make purchases using direct pay permits should refer to §3.288 of this title (relating to Direct Payment Procedures and Qualifications).

  (2) People who make purchases using maquiladora exemption permits should refer to §3.358 of this title (relating to Maquiladoras).

(d) Acceptance of exemption certificate.

  (1) All gross receipts of a retailer are subject to sales or use tax unless a valid and properly completed exemption certificate is accepted by the seller.

  (2) A sale is exempt if the exemption certificate is accepted in good faith at the time of the transaction and the seller lacks actual knowledge that the claimed exemption is invalid.

  (3) A person who intentionally or knowingly makes, presents, uses, or alters an exemption certificate for the purpose of evading the Texas sales or use tax is guilty of a criminal offense.

    (A) If the tax evaded by the invalid certificate is less than $20, the offense is a Class C misdemeanor.

    (B) If the tax evaded by the invalid certificate is $20 or more but less than $200, the offense is a Class B misdemeanor.

    (C) If the tax evaded by the invalid certificate is $200 or more but less than $750, the offense is a Class A misdemeanor.

    (D) If the tax evaded by the invalid certificate is $750 or more but less than $20,000, the offense is a felony of the third degree.

    (E) If the tax evaded by the invalid certificate is $20,000 or more, the offense is a felony of the second degree.

  (4) The seller should obtain the properly executed exemption certificate at the time the transaction occurs. All certificates obtained on or after the date the comptroller's auditor actually begins work on the audit at the seller's place of business or on the seller's records after the entrance conference are subject to verification. All incomplete certificates will be disallowed regardless of when they were obtained. The seller has 60 days from the date written notice is received by the seller from the comptroller in which to deliver the certificates to the comptroller. Written notice shall be given by the comptroller upon the filing of a petition for redetermination or claim for refund. For the purposes of this section, written notice given by mail is presumed to have been received by the seller within three business days from the date of deposit in the custody of the United States Postal Service. The seller may overcome the presumption by submitting proof from the United States Postal Service or by other competent evidence showing a later delivery date. Any certificates delivered to the comptroller during the 60-day period will be subject to independent verification by the comptroller before any deductions will be allowed. Certificates delivered after the 60-day period will not be accepted and the deduction will not be granted.

  (5) The exemption certificate will be valid if the seller received it in good faith from a purchaser and if the certificate states valid qualifications for an exemption. A retailer must be familiar with the exemptions that are available for the items the retailer sells. A retailer may accept a blanket exemption certificate given by a purchaser who purchases only items that are exempt. For information on blanket exemption certificates received for agricultural exemptions, see §3.296 of this title (relating to Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer).

  (6) An exemption certificate is not acceptable when an exemption is claimed because tangible personal property is exported outside the United States. For proper documentation required for proof of export, see §3.323 of this title (relating to Imports and Exports) and §3.360 of this title (relating to Customs Brokers).

(e) Improper use of items purchased under an exemption certificate.

  (1) When an item purchased under a valid exemption certificate is used in a taxable manner, whether the use is in Texas or outside the state, the purchaser is liable for payment of sales tax based on the value of the tangible personal property or taxable service for the period of time used. If the exemption certificate was invalid at the time of its issuance, the purchaser owes tax on the original purchase price.

  (2) The value of tangible personal property is the fair market rental value of the tangible personal property. The fair market rental value is the amount that a purchaser would pay on the open market to rent or lease the tangible personal property for use. If tangible personal property has no fair market rental value, sales tax is due based upon the original purchase price.

  (3) The value of a taxable service is the fair market value of the taxable service. The fair market value is the amount that a purchaser would pay on the open market to obtain that taxable service. If a taxable service has no fair market value, sales tax is due based upon the original purchase price.

  (4) At any time the person using tangible personal property or a taxable service purchased under a valid exemption certificate may stop paying tax on the value of tangible personal property or the value of a taxable service and instead pay sales tax on the original purchase price. When the person elects to pay sales tax on the purchase price, credit will not be allowed for taxes previously paid based on value.

  (5) Sales tax is not due when an item purchased under a valid exemption certificate is donated to an organization exempt from tax under the Tax Code, §151.309 or §151.310(a)(1) or (2), provided the purchaser does not use the donated tangible personal property or the donated taxable service.

  (6) Contractors using equipment purchased under a valid exemption certificate on both taxable and exempt projects must account for tax based upon the provisions in §3.291 of this title (relating to Contractors).

(f) Content of an exemption certificate. An exemption certificate must show:

  (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.

(g) Purchases of taxable items by agents of the Federal Deposit Insurance Corporation (FDIC) or the Resolution Trust Corporation (RTC). The FDIC or RTC may purchase items tax free for use in operating a property or business to which it has title. An exemption certificate may be issued by the FDIC or RTC or by persons acting as agents for the FDIC or RTC when purchasing items that are incorporated into or used on the property or business being managed. The certificate must state that the purchases are being made by or for the FDIC or RTC. The FDIC or RTC or persons managing property or a business for these corporations may issue an exemption certificate when:

  (1) the FDIC or RTC provides documentation to the person managing the property or business showing that title to the property or business being managed was transferred to the FDIC or RTC; and

  (2) the FDIC or RTC has entered into a written agreement with the person managing the property or business that designates that person as its agent and authorizes that person to make purchases on its behalf. The agreement must be in the person's files for review by the comptroller. It is not necessary to provide a copy of the agreement to suppliers.

(h) Form of an exemption certificate. An exemption certificate must be in substantially the form of a Texas Sales and Use Tax Exemption Certification that the comptroller adopts by reference. Copies are available for inspection at the office of the Texas Register or may be obtained from the Comptroller of Public Accounts, Tax Policy Division, 111 West 6th Street, Austin, Texas 78701-2913. Copies may also be requested by calling our toll-free number 1-800-252-5555. In Austin, call 463-4600. (From a Telecommunication Device for the Deaf (TDD) only, call 1-800-248-4099 toll free. In Austin, the local TDD number is 463-4621).


Source Note: The provisions of this §3.287 amended to be effective November 18, 1981, 6 TexReg 4064; amended to be effective November 19, 1984, 9 TexReg 5717; amended to be effective November 24, 1987, 12 TexReg 4198; amended to be effective February 19, 1990, 15 TexReg 657; amended to be effective September 10, 1991, 16 TexReg 4681; amended to be effective December 28, 1993, 18 TexReg 9312; amended to be effective February 7, 1996, 21 TexReg 599.

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