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Resale Certificates in a Sales Tax Audit

If you are undergoing a sales tax audit, then, pay close attention to your resale certificates. If they are not up to date, or just incorrectly prepared, then, you will be on the hook for the sales tax.


Are resale certificates enough for a sales tax audit? I’m Mansoor Ansari with Nexus Tax Defense. Resale certificates are given to those vendors that purchase at wholesale prices and then turn around and resell those items or products back to the end user. No, I didn’t say the general public because a business entity can also be an end user. At the very least the holders of resale certificates are not in and of themselves the end consumer. However, the comptroller has been issuing various guidance on the subject matter. Here are a few of our stories.

Case A: a shipping company. Client A was audited for sales tax. They are a shipping company that sells goods to overseas companies. Their goods are all sent with a bill of lading showing that they are being exported from the Gulf of Mexico to various countries abroad. However, the state is asserting that since some of the products are supposed to be sent out of the country are being consumed by the ship crew on board of the ship, that they should be taxable. This is because they thought that the items being sold were not enough in volume that they were going to be consumed on the ship.

Case B: our seller of gloves. Client B was audited for sales tax. They supply gloves and similar equipment to car dealerships among other vendors. The state’s position is that since the dealership uses the gloves for the mechanics to repair vehicles, the dealership is the end user. Even though the dealership provided a reseller certificate, their position is that our client is responsible for collecting the sales tax on that particular transaction involving the gloves because they should have known that only selling a few gloves at a time is indicative of not being a resale item.

Case C: expired certificates. Client C was audited for sales tax and had expired sales tax certificates. Our client’s buyers were either out of business for a number of years or did not renew their sales tax certificates. In either case, the state’s position is that our client should be responsible for not only providing adequate resale certificates but making sure that they are still timely.

Case D: sales tax certificates of an affiliate company. Client D was audited for sales tax and submitted a sales tax exemption certificate for their own affiliate company. The state found this to be also inadequate. If business A is selling to business B then it has to have a resale certificate from business B. Business B cannot provide the resale certificate from its affiliate business C even if business C is owned by business B.

In summary, resale certificates are at the top of every sales tax audit. You will normally see that the auditor will ask you for these certificates at the beginning of your audit. If any of these cases apply to you, call us to discuss your sales tax structure and your sales tax audit.

Ansari Law Firm

Author Ansari Law Firm

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