200710196L



AWM 07248444

October 18, 2007

Dear ************:

Thank you for your e-mail concerning the necessity of your company, a wholesale 
marketer of natural gas, having to obtain a Texas sales and use tax permit in 
order to issue a resale certificate to your customers.

Mr. Jeff Wiginton asked that I respond to your e-mail.  As I understand your 
request, your company has two suppliers that are insisting that your company 
issue resale certificates to them as a condition precedent to their sale to 
your company of natural gas in the pipeline.  Your company, having no Texas 
sales and use tax permit, is unable to issue a resale certificate, and is of 
the opinion that, in accordance with STAR accession number 9608300L, it is not 
required to obtain such permit.  You asked that we respond in writing to your 
request for clarification in order that your company can address the concerns 
of your two suppliers.

STAR accession number 9608300L, was written by former Comptroller employee 
Betty Peterson in August of 1996.  It states that the Comptroller’s office does 
not require persons who make only “exempt” sales of natural gas to hold a sales 
tax permit solely to report those exempt sales.  Ms. Peterson goes on to say 
that, “… these sellers must issue a resale certificate to a supplier who asks 
for one. A resale certificate for natural gas without a permit number may be 
accepted if the buyer claims all sales are for resale or are to exempt 
customers and the seller does not have actual knowledge that the claim is 
invalid.” 

The policy expressed in that letter is still valid. A resale certificate for 
natural gas without a permit number may be accepted if the buyer claims all 
sales are for resale or are to exempt customers and the seller does not have 
actual knowledge that the claim is invalid.

Natural gas is tangible personal property and as such, subject to Texas sales 
and use tax.  Please see Rule 3.295(b).  I have copied the relevant portion 
below:

(b) Sales tax applicable. The furnishing of natural gas or electricity is a 
sale of tangible personal property. All the provisions in the Tax Code, Chapter 
151, applying to the sale of tangible personal property, apply to the sale of 
natural gas or electricity. 

A properly executed resale or exemption certificate is the only proof that may 
be offered to show that a particular transaction qualifies for exemption.  Ms. 
Peterson went on to say that, “sellers of natural gas who demand a resale or 
exemption certificate before making a tax free sale are completely within their 
rights.”  Ms. Peterson’s letter and its contents remain true today.

You stated that your suppliers believe that Rules 3.295 and 3.286 require a 
result different than that announced in STAR accession number 9608300L.  Rule 
3.295 mentions resale only once and that is in subsection (c)(3).  It states 
the following:

(c) Gas and electricity are exempted from the taxes imposed by this chapter 
when sold for: 

(3) direct or indirect use or consumption, including electricity lost in the 
lines, by an electric utility engaged in the purchase of electricity for 
resale;

Rule 3.295 does not address the issue of permitting of natural gas sellers.

We are left then with the situation where our office has said that wholesale 
sellers of natural gas are not required to be permitted, yet they must issue a 
resale certificate to suppliers who ask for them.  Rule 3.285 is titled Resale 
Certificates; Sales for Resale.  Rule 3.285(a)(2)(A) defines a sale for resale 
as a sale of tangible personal property to a purchaser who acquires the 
property for the purpose of reselling it in the United States or Mexico in the 
normal course of business either in the form or condition in which it is 
purchased, or as an attachment to, or as an integral part of other tangible 
personal property;

Rule 3.285(b)(1) and (2) state the following:

Acceptance of resale certificate.

A sale for resale as defined in subsection (a)(2) of this section is not 
taxable. All gross receipts of a seller are subject to sales or use tax unless 
a properly completed resale or exemption certificate is accepted by the seller. 
A properly completed resale certificate contains the information required by 
subsection (g) of this section. See also  3.287 of this title (relating to 
Exemption Certificates).

A sale is exempt if the resale certificate is accepted in good faith and the 
seller lacks actual knowledge that the sale is not a sale for resale. It is the 
seller's responsibility to take notice of the type business generally engaged 
in by the purchaser as shown on the resale certificate.

Rule 3.285(g) states the following:

(g) Content of a resale certificate. A resale certificate must show:

1. the name and address of the purchaser;

2. the number from the sales tax permit held by the purchaser or a statement 
that an application for a permit is pending before the comptroller with the 
date the application for a permit was made. If the application is pending, the 
resale certificate is valid for only 60 days, after which time the resale 
certificate must be renewed to show the permanent permit number. If the 
purchaser holds a Texas sales and use tax permit, the number must consist of 11 
digits that begin with a 1, 2, or 3. Federal employer's identification (FEI) 
numbers or social security numbers are not acceptable evidence of resale. See 
also subsection (d)(2) of this section regarding registration numbers for 
retailers outside Texas;

3. a description of the taxable items generally sold, leased, or rented by the 
purchaser in the regular course of business and a description of the taxable 
items to be purchased tax free by use of the certificate. The item to be 
purchased may be generally described on the certificate or itemized in an order 
or invoice attached to the certificate;

4. the signature of the purchaser or an electronic form of the purchaser's 
signature authorized by the comptroller and the date; and

5. the name and address of the seller.

Although Rule 3.285 (g) (2) provides that a resale certificate must contain a 
sales tax permit number, the Comptroller’s office by policy (as reflected in 
the 1996 letter opinion, STAR accession number 9608300L) has established an 
exclusion from that requirement for persons who make only exempt sales of 
natural gas. By Comptroller policy a sales and use tax permit is not required 
of persons who make only “exempt” sales of natural gas, therefore natural gas 
sellers making only exempt sales are not required to provide a sales tax permit 
number on resale certificates issued to suppliers of natural gas.  Natural gas 
sellers must however still issue a resale certificate to a supplier who asks 
for one. As previously noted, a resale certificate for natural gas without a 
permit number may be accepted if the buyer claims all sales are for resale or 
are to exempt customers and the seller does not have actual knowledge that the 
claim is invalid.

You are invited to share this letter with your customers and suppliers.

Should you wish to further read and review additional documents on this 
subject, you are invited to use the Comptroller’s STAR system. STAR is an 
acronym for the State Tax Automated Research system, which provides viewing and 
downloading of edited letter rulings, hearings, rules, AG Opinions, etc.  It 
may be accessed on the Internet at: http://cpastar2.cpa.state.tx.us/index.html.

The entire text of the Tax Code, a complete set of rules, and a wealth of other 
information are available on the Window on State Government web site at 
www.window.state.tx.us .  You may find the sales tax rules or statute by first 
clicking on "Sales Tax" under the Quick Links on the left side of the web page 
and then by clicking on "Rules" or "Statutes" on the next web page.

Our goal is to provide you with prompt, professional service.  Please take a 
moment to complete our on-line survey at 
http://aixtcp.cpa.state.tx.us/surveys/tpsurv2/index.html.

This opinion is based on the facts presented and current law.  Other facts 
though similar may provide a different result.

I trust that this information has appropriately addressed your questions.  
Should you have additional questions, please e-mail me at 
nolan.ward@cpa.state.tx.us , or you may reach me by telephone at 
1-800-531-5441.

Sincerely,


Nolan F. Ward
Tax Policy Division




ACCESSION NUMBER: 200710196L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 10/18/2007
TAX TYPE: SALES