State & Local Tax Blog

Don’t Mess With Texas – When it Comes to Sales Tax Exemption Certificates

Don’t make this same mistake — they missed one critical detail and it cost them $25,000!

The Texas Department of Transportation actually coined the “Don’t Mess With Texas” phrase as a way to discourage littering. It’s not the state motto, even though many think it is.  It looks like the Texas Comptroller’s Office is considering adopting it as their motto though — you might think they have after you read this.

A client came to us recently and told us a tragic story. Unfortunately, there wasn’t anything we could do to help. They told us they had recently completed a Texas sales tax audit. The total audit assessment was $25,000. The only items scheduled in the audit were a few non-taxed sales. The fact is those customers really were exempt, but our client wasn’t able to produce the certificates during the audit.

Not a problem, yet.

If you protest an audit deficiency using the correct format and in a timely fashion, you get a reprieve on missing certificates. The Comptroller’s Office will issue you a “60-day letter” once you file the formal protest. This letter gives you 60 days (you guessed it) to produce any missing certificates or the tax becomes your problem. The important thing to remember about Texas and the 60-day letter is this: the deadline is ABSOLUTE!

You have to furnish those certificates by 5PM on the last day or else.

This is particularly distressing because it was all so needless. These sales really were exempt. Sometimes sales are exempt but the customer has gone out of business and you just can’t get the certificate. This happens occasionally to sellers in Texas, and many other states. In this case, however, our client was actually able to secure ALL of the missing certificates and actually got them submitted in what they thought was a timely fashion.

The $25,000 should have been erased. Except …

Tragically, this company failed to file the formal protest within 30 days of the final audit notice. By missing the deadline, they forfeited the right to the 60-day extension and the supervisor denied the certificates and allowed the assessment to stand.

Every once in a while we are reminded that when it comes to state tax procedures, the state is in charge.

By the way, do you know what the real Texas motto is? … Friendship. That’s becoming as ironic as Philadelphia’s motto of Brotherly Love.

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