If your Texas business buys goods to resell, lease, or transfer to customers as part of a taxable service, you need a Texas resale certificate to avoid paying the state’s 6.25% sales tax on those purchases.1Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions – Section: Resale Certificates The certificate — Form 01-339, issued by the Texas Comptroller — tells the vendor the items will be resold, so tax will be collected later when the goods reach the final buyer.2Texas Comptroller of Public Accounts. Sales and Use Tax Resale Certificate and Exemption Certification (Form 01-339) You cannot use one until you hold a Texas Sales Tax Permit, and you can only use it for purchases that actually qualify.
Which Purchases Actually Qualify
Texas Tax Code Section 151.006 recognizes three situations as a “sale for resale.”3Texas Public Law. Texas Tax Code Section 151.006 – Sale for Resale You can buy tangible goods or taxable services you plan to resell in the normal course of business, either in the same form or as a component of another product. You can buy goods solely to lease or rent to others. And you can buy property you will transfer to a customer while providing a taxable service.
A furniture store buying chairs from a wholesaler, a rental company buying power tools to lease out, or an IT company buying a router it hands off to a client as part of a taxable networking service can all issue a resale certificate for those purchases.
There’s an important limit. If you buy property to perform a service that isn’t on Texas’s list of taxable services, the purchase doesn’t qualify — even if the property eventually ends up with your customer.3Texas Public Law. Texas Tax Code Section 151.006 – Sale for Resale And anything you buy for your own use is never eligible: desks, staff computers, breakroom supplies, cleaning products, office equipment.1Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions – Section: Resale Certificates If a single order mixes resale inventory with items for internal use, tell the vendor which is which.
If you buy something tax-free with a resale certificate and later use it yourself, you owe sales tax on that item, calculated on either the purchase price or the fair market rental value for the period you used it.2Texas Comptroller of Public Accounts. Sales and Use Tax Resale Certificate and Exemption Certification (Form 01-339)
Get a Sales Tax Permit First
You can’t issue a resale certificate without a Texas Sales Tax Permit. Apply online through the Comptroller’s website, or file a paper Form AP-201. Sole owners, partners, officers, or directors without a Social Security number have to use the paper form and submit it by email or fax.4Texas Comptroller of Public Accounts. Texas Online Tax Registration Application
Once approved, you’ll receive an 11-digit Texas taxpayer identification number.5Texas Comptroller of Public Accounts. Texas Application for Sales Tax Permit and Use Tax Permit (Form AP-201) That number goes on every resale certificate you issue. An incorrect or expired number can invalidate the certificate, so confirm yours is active before any tax-free purchase. Holding the permit also means you’re responsible for collecting sales tax on your own sales and filing returns with the Comptroller.
How to Fill Out Form 01-339
Form 01-339 is a PDF you download from the Comptroller’s website. Under Texas Administrative Code Section 3.287, a valid certificate has to include:6Cornell Law School. 34 Texas Administrative Code 3.287 – Exemption Certificates
- Your legal business name and address as registered with the state
- The seller’s name and address
- A clear description of the items you’re buying tax-free
- The reason for the exemption — that the items are being purchased for resale
- Your signature (or an authorized representative’s) and the date
Include a description of your business so the seller can see why these items fit your resale inventory. Every field has to be legible. A certificate with missing or unreadable information may not protect the seller in an audit, and a seller who spots problems will usually refuse to accept it.6Cornell Law School. 34 Texas Administrative Code 3.287 – Exemption Certificates
You hand the signed certificate directly to the seller at the time of the transaction. The Comptroller isn’t involved in the exchange itself. Many vendors accept a scanned copy uploaded to their account portal, but confirm the preferred format with each vendor beforehand.
Blanket or One-Time
For recurring purchases of the same type of goods from one supplier, issue a blanket resale certificate. It covers all qualifying future purchases from that vendor until you revoke it in writing or your permit lapses.7Cornell Law School. 34 Texas Administrative Code 3.285 – Resale Certificate; Sales for Resale For a one-off purchase, use a one-time certificate that covers only that transaction.
Penalties for Misusing the Certificate
Using a resale certificate on items you don’t actually intend to resell is a criminal offense in Texas. The charge depends on how much tax you avoided:1Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions – Section: Resale Certificates
- Less than $20: Class C misdemeanor
- $20 to less than $200: Class B misdemeanor
- $200 to less than $750: Class A misdemeanor
- $750 to less than $20,000: third-degree felony
- $20,000 or more: second-degree felony
On top of the criminal exposure, the Comptroller can assess the unpaid tax plus interest and may suspend your sales tax permit.8Cornell Law School. 34 Texas Administrative Code 3.281 – Records Required; Information Required If there’s any doubt about whether an item will actually be resold, pay the tax at the register rather than issuing a certificate.
Keep Every Certificate for Four Years
Both buyers and sellers have to keep copies of every resale certificate for at least four years after the last sale it covered.8Cornell Law School. 34 Texas Administrative Code 3.281 – Records Required; Information Required Records can be digital, on microfilm, or in any format the Comptroller can examine.
If you’re audited and can’t produce them, the Comptroller may estimate your tax liability from whatever information is available, including your suppliers’ records, which often produces a higher assessment than your actual obligation.8Cornell Law School. 34 Texas Administrative Code 3.281 – Records Required; Information Required Missing records can also lead to permit suspension and criminal charges. Organized backups of every Form 01-339 you issue are your simplest protection.
Out-of-State Purchases and Drop Shipping
When you buy from out-of-state vendors, Texas also accepts the Multistate Tax Commission’s Uniform Sales and Use Tax Resale Certificate in place of Form 01-339.9Multistate Tax Commission. Uniform Sales and Use Tax Resale Certificate – Multijurisdiction The multi-jurisdiction form is useful when you buy for resale from sellers in states that won’t accept another state’s certificate, because dozens of states recognize it.
Drop shipping — where a manufacturer ships directly to your customer — is a three-party transaction that can complicate documentation. The sale from the manufacturer to you is a resale transaction, so you issue a resale certificate to the manufacturer for your wholesale purchase. Problems arise when the manufacturer has nexus in the state where your customer receives the goods and you don’t. In that case the manufacturer may need to collect tax unless you provide resale documentation acceptable in the delivery state. Most states will accept your home-state certificate or the MTC form, but a few require their own form with an in-state registration number. If drop shipping is part of your business, check the documentation rules for every state where your customers receive deliveries.