6.3 Resale, Agricultural, Organizational, and Interstate Exemptions
Key Takeaways
- A seller should presume a taxable retail sale unless a statute and timely, properly completed certificate or shipping record support an exemption.
- A resale certificate applies when the buyer acquires the item for resale in the regular course of business, not for the buyer’s own use.
- Agricultural exemption depends on qualifying use and a valid Ag/Timber number; some hay or rotary mowers can qualify, so “all mowers are excluded” is wrong.
- An out-of-state buyer who takes possession in Texas generally owes Texas tax; seller-arranged shipment outside Texas requires delivery evidence.
- Certificates accepted in good faith must be retained and matched to the transaction.
6.3 Resale, Agricultural, Organizational, and Interstate Exemptions
Burden of the file: If an auctioneer does not collect tax, the file should show why. A bidder's out-of-state address, farm name, or nonprofit claim is not enough by itself.
Resale
A buyer may issue a Texas Sales and Use Tax Resale Certificate, Form 01-339, when purchasing a taxable item for resale as an integral part of the buyer's regular business. The certificate should identify the purchaser, seller, items, and nature of the purchaser's business and include the required tax-permit information.
A contractor buying a desk for its office is using the desk, not reselling it. A dealer buying the same desk for inventory can qualify. If the facts on the certificate are obviously inconsistent, acceptance is not in good faith.
A valid certificate accepted in good faith relieves the seller of collection responsibility for that transaction. Retain it with the invoice; do not send each certificate to the Comptroller for advance approval.
Agricultural and Timber Exemption
Texas exempts qualifying items used exclusively or principally in producing agricultural or timber products for sale. The purchaser ordinarily supplies the appropriate Form 01-924 and an active 11-digit Ag/Timber number.
Eligibility comes from the item and its qualifying use, not simply from the purchaser owning land. Common qualifying categories can include seed, feed, fertilizers, fencing used for agricultural production, and machinery used in production.
Avoid blanket equipment rules. The Comptroller's current exempt list includes qualifying hay mowers and rotary cutters or mowers used in agricultural production. A lawn mower used to maintain a residence does not qualify merely because the home sits on a ranch. Highway motor vehicles and property used for personal convenience generally follow different rules.
Ask what the item will do in the production process and whether the current statute or Comptroller list includes it. Preserve the certificate and number.
Exempt Organizations
Governmental entities and qualifying religious, charitable, and educational organizations may buy exempt items for their exempt functions. The purchasing organization provides the proper exemption certificate and identifying information.
An employee's personal purchase is not automatically exempt because the employee works for a church or school. The organization should be the purchaser, and payment and use should match the exempt purpose.
Interstate Shipments
An out-of-state driver's license does not exempt a Texas pickup. When the buyer takes possession in Texas and carries the goods away, Texas tax generally applies.
A sale can qualify for interstate treatment when the seller is obligated to deliver the goods outside Texas and ships them by common carrier, contract carrier, or the seller's vehicle under the applicable rule. Keep a bill of lading, shipping invoice, carrier receipt, delivery address, and contract terms.
Allowing the buyer to load a trailer in Texas and promise to cross the state line later is not seller-arranged interstate delivery.
Occasional Sale Reminder
Occasional-sale rules are separate from resale and organizational certificates. The personal-property route generally excludes an owner who employs an auctioneer, broker, factor, or similar agent, while the statute has a particular online-auction provision. Analyze that statute rather than writing “estate sale” on the invoice.
Certificate Review
A strong checkout process asks:
- Was the certificate received at or before the transaction?
- Is every required field complete?
- Does the number have the proper form?
- Does the described business or use reasonably fit the lot?
- Is the purchaser the person named?
- Is there anything obviously false?
- Has the certificate been linked to the invoice and retained?
Good faith is not blind faith. An agricultural certificate for a collectible painting or a resale certificate from a business that clearly consumes the item calls for clarification.
Examples
A Louisiana buyer picks up a forklift in Beaumont on a personal trailer: Texas tax generally applies.
A farm buys a rotary cutter used directly in qualifying agricultural production and supplies a valid Ag/Timber certificate: the purchase may qualify; “mowers never qualify” is the wrong rule.
An antique dealer buys inventory and supplies a complete resale certificate: the auctioneer can accept it in good faith and preserve it with the invoice.
Memory Rule
Purpose + paper + possession. Identify the exempt purpose, obtain the proper paper, and determine where possession or delivery occurs.
An out-of-state buyer picks up equipment at the Texas auction and hauls it away. What is the general sales-tax result?
Which statement about agricultural mowers is correct?
What should an auctioneer do with a resale certificate accepted in good faith?