Could airlines buying Texas debt-collection services claim multistate-purchaser treatment with exemption certificates?

Plain-English summary

The letter addressed debt-collection services supplied from Arlington to two airlines. It said a multistate purchaser had to issue an exemption certificate to the service provider to claim exemption and then became responsible for accruing the proper amount of Texas tax.

For Airline A, the Comptroller said its certificate had to be verified before the provider's refund request could be paid. The provider was instructed to keep the original certificate as documentation of tax-free sales in case of audit.

For Airline B, the Comptroller would not refund the amount the provider had already returned to the airline until verifying either that the airline remitted the correct Texas tax directly or that no Texas tax was due on the services.

What this means for you

Under this 1991 letter, an exemption certificate shifted the Texas accrual responsibility to the multistate service purchaser, but it did not make the provider's refund automatic. Certificate and tax-payment verification still mattered.

Common questions

What did a multistate airline purchaser have to give the provider? An exemption certificate.

Who then accrued the proper Texas tax? The airline purchasing the debt-collection services.

Could the provider immediately recover tax it had refunded to the airlines? No. The Comptroller required verification before issuing the provider's refunds.

What should the provider retain? The original exemption certificate as documentation of tax-free sales for a possible audit.

Citations and references

• Comptroller Rule 3.287(d)(4) (exemption certificates)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9103L1099E01

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

JOHN SHARP
Comptroller March 21, 1991

Dear ****:

Thank you for your letters concerning the debt collection services
that you provided for AIRLINE A and AIRLINE B. I am sorry for the
delay in responding to your first letter concerning AIRLINE A.

As I told you in our telephone conversation last week, the
exemption certificate that you received from AIRLINE A must be
verified before we can refund the $**** that you refunded to
AIRLINE A on February 20, 1991. Please refer to section (d)(4)
of Rule 3.287-Exemption Certificates, which I mailed to you with
my letter dated November 2, 1990. Another copy is enclosed for
your convenience.

I have enclosed the original exemption certificate that AIRLINE A
sent to you. You should keep the certificate in your files as
documentation of tax-free sales in the event that you are audited.

I could find no record of our having received the October 18, 1990
letter that AIRLINE B sent to the Comptroller's office.
As you now know, AIRLINE B as a multi-state purchaser of
debt collection services must issue an exemption certificate to
you in order to claim exemption. AIRLINE B (and AIRLINE A) is then
responsible for accruing the proper amount of tax due to Texas.

Before we can refund the $**** that you already refunded to
AIRLINE B, we must verify that either AIRLINE B has remitted the
correct amount of tax directly to the Comptroller's office or
AIRLINE B doesn't owe any tax to Texas for the debt collection
services provided by your office in Arlington.

This opinion is based upon the facts you presented. If there are

Please feel free to contact me if you have any additional
questions. You may write me, call toll free 1-800-531-5441 (ext.
34685) from anywhere in the United States or phone 512/463-4685.

Sincerely,
Julie Pesl
Tax Administration Division