SECTION 3.287. Exemption 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. Except as otherwise stated, the exemption certificate described in this section refers to the Texas Sales and Use Tax Exemption Certification, Form 01-339 (Back) or a document substantially in the same format. There is no provision in Tax Code, Chapter 151 (Limited Sales, Excise, and Use Tax) for an exemption number or a tax exempt number to be issued or used in connection with the Texas Sales and Use Tax Exemption Certification, Form 01-339 (Back).

(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 Tax Code, §151.309 (Governmental Entities) or §151.310 (Religious, Educational, and Public Service Organizations). See §3.322 of this title (relating to Exempt Organizations); or

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

(c) Exemptions addressed by other sections of this title: Direct payment permit holders, maquiladoras, agriculture, timber, qualifying data centers, qualified research, prior contracts and sales for resale.

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

(2) Purchasers using maquiladora exemption permits should refer to §3.358 of this title (relating to Maquiladoras).

(3) Purchasers claiming an agriculture exemption should refer to §3.296 of this title (relating to Agriculture, Animal Life, Feed, Seed, Plants, and Fertilizer).

(4) Purchasers claiming a timber exemption should refer to §3.367 of this title (relating to Timber Items).

(5) Purchasers claiming a qualifying data center exemption should refer to §3.335 of this title (relating to Property Used in a Qualifying Data Center or Qualifying Large Data Center Project; Temporary State Sales Tax Exemption).

(6) Purchasers claiming a qualified research exemption should refer to §3.340 of this title (relating to Qualified Research).

(7) Purchasers claiming a prior contract exemption should refer to §3.319 of this title (relating to Prior Contracts) and §3.334 of this title (relating to Local Sales and Use Taxes).

(8) Purchasers claiming a sale for resale exemption should refer to §3.285 of this title (relating to Resale Certificate; Sales for Resale).

(d) Accepting an exemption certificate.

(1) All gross receipts of a seller are presumed subject to sales or use tax unless a valid and properly completed resale or exemption certificate is accepted by the seller. A properly completed exemption certificate contains the information required by subsection (f) of this section. Resale certificates are addressed in detail in §3.285 of this title.

(2) A seller does not owe tax on a sale, lease, or rental of a taxable item if the seller accepts a properly completed exemption certificate in good faith. An exemption certificate is deemed to be accepted in good faith if:

(A) the exemption certificate is accepted at or before the time of the transaction;

(B) the exemption certificate is properly completed, meaning that all of the information required by subsection (f) of this section is legible; and

(C) the seller does not know, and does not have reason to know, that the sale is not exempt. It is the seller's responsibility to be familiar with Texas sales tax law as it applies to the seller's business and to be familiar with the exemptions that are available for the items the seller sells.

(3) A person commits an offense if the person: intentionally or knowingly makes a false entry in, or a fraudulent alteration of, an exemption certification; makes, presents, or uses an exemption certificate with knowledge that it is false and with the intent that it be accepted as a valid exemption certificate; or intentionally conceals, removes, or impairs the verity or legibility of an exemption certificate or unreasonably impedes the availability of an exemption certificate.

(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.

(A) The seller has 90 days from the date written notice is received by the seller from the comptroller, or until a later date agreed to in writing by the comptroller and the seller, referred to in this section as "the period," in which to deliver the certificates to the comptroller. Written notice shall be given by the comptroller no earlier than the filing of a petition for redetermination or claim for refund.

(B) 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.

(C) Any certificates delivered to the comptroller during the period will be subject to independent verification by the comptroller before any exemptions will be allowed. Certificates delivered after the period will not be accepted and the exemption will not be granted. See §3.282 of this title (relating to Auditing Taxpayer Records) and §3.286 (relating to Seller's and Purchaser's Responsibilities) of this title.

(5) A seller 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. For information on blanket exemption certificates received for timber items see §3.367 of this title.

(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).

(7) Exemption certificates are subject to the provisions of §3.281 of this title (relating to Records Required; Information Required). A seller is required to keep exemption certificates for a minimum of four years from the date on which the sale is made and throughout any period in which any tax, penalty, or interest may be assessed, collected, or refunded by the comptroller or in which an administrative hearing or judicial proceeding is pending.

(e) Taxable use of items purchased under an exemption certificate; improper use of 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 who purchased tangible personal property or a taxable service under a valid exemption certificate and is using the tangible personal property or taxable service in a divergent taxable manner may stop paying tax on the value of tangible personal property or 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 a taxable item purchased under a valid exemption certificate is donated to an organization exempt from tax under 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) This subsection is not applicable when an item purchased under Tax Code, §151.318 (Property Used in Manufacturing) is used in a taxable manner. A purchaser who uses such items in a taxable manner is liable for sales or use tax and should refer to §3.300 of this title (relating to Manufacturing; Custom Manufacturing; Fabricating; Processing).

(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). The FDIC 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 by persons acting as agents for the FDIC 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. The FDIC or persons managing property or a business for the FDIC may issue an exemption certificate when:

(1) the FDIC 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; and

(2) the FDIC 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, Form 01-339 (Back). Copies of the form may be obtained from the Comptroller of Public Accounts, Tax Policy Division or by calling 1-800-252-5555. The form is also available online at https://comptroller.texas.gov/forms/01-339.pdf.

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; amended to be effective May 14, 2018, 43 TexReg 3100; amended to be effective April 26, 2022, 47 TexReg 2293