Could a direct-payment permit holder choose which purchases and suppliers its certificate covered, and how were uncovered taxes handled?

Plain-English summary

A direct-payment permit holder did not have to make every own-use purchase tax-free. It could issue a blanket certificate, limit the certificate to specified purchases, or use certificates only with selected suppliers.

For items outside a certificate, accounting staff had to ensure the vendor collected state and appropriate local taxes. Local use tax not collected by a supplier had to be accrued on the direct-payment return. Tax also had to be accrued on certificate purchases and purchases from out-of-state suppliers not permitted to collect Texas tax.

The letter stated that a permit holder had to buy at least $800,000 of taxable items annually for its own use, not resale, to retain the permit.

What this means for you

Selective certificate use was allowed, but it increased the permit holder's accounting responsibility for state and local tax accruals.

Common questions

Did the certificate have to cover every purchase? No.

Could it cover only certain suppliers or items? Yes.

What happened to tax on certificate purchases? The holder accrued and remitted it on the direct-payment return.

What annual purchase threshold did the letter state? At least $800,000 of taxable own-use purchases.

Citations and references

The letter did not cite a specific statute or rule.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9104L1106F07

Original ruling text

April 11, 1991

Dear **:

Thank you for your letter concerning the issuance of direct payment
exemption certificates.

A direct payment permit holder is not required to make all purchases
for its use tax free. The permit holder may issue a direct payment
exemption certificate as a blanket certificate to cover all purchases
or only specific purchases from a supplier or may issue the certificate
only to certain suppliers.

When a direct payment exemption certificate is issued to cover specific
items and not all purchases from a supplier, your accounting staff must
be sure that the state tax and the appropriate local taxes are paid to
the vendor on those items not covered by the direct payment exemption
certificate. Any local use taxes that may be due but which the
supplier is not required to collect must be accrued and remitted on
your direct payment return. The tax must be accrued and remitted on
your direct payment return on those items purchased tax free or
purchased from out-of-state suppliers not permitted to collect the
Texas tax.

A direct payment permit holder must annually purchase at least
$800,000 of taxable items for its own use and not for resale to
hold the permit.

A direct payment permit application is being mailed to you under
separate cover.

This opinion is based on the facts presented. If there are
additional or different facts, the opinion may change.

If you have any questions or need additional information, you may
call me toll free at 1-800-252-5555, extension 3-4666, or the
regular number 512/463-4666. You may write to Tax
Administration Division.

Sincerely,

Jo Ann Dieck
Tax Administration Division