After a Texas sales tax audit becomes final, how long do I have to claim a credit for resale or exemption certificates, and does the 60-day letter cut that off?

Subject

Tax Credit — Claim Procedure — Requires Customer'S Written Consent Before Crediting Its Account

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9401L1283G02

Plain-English Summary

This ruling answers three questions from a taxpayer whose sales and use tax audit (covering February 1, 1989 through January 31, 1993) had just become final. The Comptroller had issued a Notice of Tax Due, the taxpayer paid and requested redetermination, the petition was later withdrawn, and the determination became final on November 8, 1993.

When does the credit-claim window open? A special six-month period of limitation began running on November 8, 1993 — the date the determination became final (Sec. 111.104(c)(3)). During those six months, all transactions covered by the determination remain open for a credit or refund claim, even if the standard four-year limitations period has otherwise already run on some of those transactions (Sec. 111.104(c)(3) and (d)). After the six months expire, the ordinary four-year statute of limitations applies again to all transactions. The ruling also notes that the days between October 1, 1993 (the redetermination request) and November 3, 1993 (the waiver/withdrawal notice) don't count against the four-year period, because an "administrative proceeding" was pending during that stretch (Sec. 111.207[d]).

Does the 60-day letter still limit certificate-based credits? Yes. The 60-day letter issued during the audit is a final ultimatum for resale and exemption certificates covering the audit period. Any certificate presented or obtained after that 60-day period expired cannot be used as proof of exemption for transactions covered by the letter — meaning it cannot support a credit or a refund claim, even though the separate six-month window described above is still open (Sec. 151.054[e]). If a transaction was assessed because the taxpayer couldn't produce a valid resale certificate at the time, a properly completed certificate for that transaction had to be presented within the 60 days, or there is no recourse to a refund or credit (Sec. 151.054[a] and [e]).

Credit or refund — which one, and how? Generally, any transaction eligible for a refund is also eligible to be taken as a credit on a current sales and use tax report, subject to Comptroller Rule 3.338 (Allowance of Credit for Tax Paid to Suppliers). A taxpayer electing to take a credit rather than file a written refund claim should keep complete documentation, including any timely-acquired resale/exemption certificates, in case of a future audit. Local tax credits must be allocated to the correct local taxing jurisdiction. With limited exceptions under Rule 3.338(a), credit is not allowed for tax paid to a supplier rather than directly to the state — that tax must be recovered from the supplier unless the supplier assigns its refund right to the taxpayer in writing, in which case the assignee's refund claim is subject to the same limitations period that applied to the supplier/assignor.

What This Means For You

If your audit determination just became final: Mark the date it became final — that starts a special six-month window (Sec. 111.104[c][3]) during which you can still pursue credits or refunds for transactions in the determination, even if the general four-year deadline has technically passed for some of them.

If you received a 60-day letter during the audit: Treat it as a hard deadline for resale and exemption certificates. Certificates obtained after that 60-day period cannot support a credit or refund for transactions covered by the letter, regardless of how much time remains in the six-month post-determination window.

If you have a legitimate credit claim: You generally don't have to file a formal refund claim — you may take the credit on a current sales/use tax report under Rule 3.338, but keep full documentation. If the tax was paid to a supplier rather than the state directly, you'll need to recover it from the supplier or obtain a written assignment of the supplier's refund rights before you can claim it yourself.

Q&A

Q: If my audit determination became final on a certain date, how long do I have to claim a credit for taxes paid during the audit period?
A: A special six-month period of limitation begins on the date the determination becomes final (Sec. 111.104[c][3]). All transactions included in the determination remain open for a credit or refund claim during that six months, even if the ordinary four-year limitations period has already expired for some of them. After the six months run out, the standard four-year statute applies again.

Q: Does the six-month window let me use resale or exemption certificates I obtain after the audit's 60-day letter has expired?
A: No. The 60-day letter is a final cutoff for resale and exemption certificates covering the audited period. Certificates obtained after that 60 days cannot support a credit or refund for those transactions, even though a separate six-month claim window may still be open (Sec. 151.054[a] and [e]).

Q: Can I just take a credit on my current tax return instead of filing a refund claim?
A: Generally yes — transactions eligible for a refund are also generally eligible for a credit on a current sales and use tax report under Comptroller Rule 3.338, as long as you keep complete supporting documentation. However, credit is not allowed for tax you paid to a supplier (rather than directly to the state) unless the supplier assigns you its refund right in writing.

Citations

• Tex. Tax Code § 111.104(c)(3) (special six-month limitations period beginning when an audit determination becomes final)
• Tex. Tax Code § 111.104(d) (transactions in the determination remain within limitations during the six-month period)
• Tex. Tax Code § 111.207(d) (time during a pending administrative proceeding does not count against the four-year limitations period)
• Tex. Tax Code § 151.054(a) (resale/exemption certificate as proof of exemption)
• Tex. Tax Code § 151.054(e) (certificates obtained after the 60-day period cannot support a credit or refund)

Original ruling text

ALERT – Sections 151.054 and 151.104 were amended to change the 60-day timeframe for presenting resale/exemption certificates to the auditor. Senate Bill 296, 87th Leg. Session (2021) now requires that certificates be presented to the auditor within 90 days or a date agreed to by the comptroller and the seller effective 06/07/2021.

January 27, 1994

Re: *****; Audit period 8902-9301

Dear *****:

Martin Cherry asked me to respond to your letter on his behalf. According
to your facts and our records, the Comptroller audited your company for sales
and use taxes for the period from February 1, 1989 through January 31, 1993. We
sent a Notice of Tax Due, dated September 28, 1993. You paid the tax and
interest, but requested redetermination in a letter postmarked October 1, 1993.
Your request was granted and Hearing No. 32,590 assigned. On November 3, 1993,
we notified you of our decision to waive penalty and confirmed that you had
withdrawn your petition for redetermination. The determination became final on
November 8, 1993. Based on these dates and events, you ask the following
questions:

A. When does the six-month period begin in which I can claim a credit
for taxes paid within the audit period?

Response: A special six-month period of limitation began to run on
November 8, 1993, the date the determination for 8902-9301 became final. Sec.
111.104(c)(3). All transactions that were included in the determination are
still within limitations until six months after November 8, 1993, even if the
standard four-year limitations period has by then expired as to some of those
transactions. Sec. 111.104(c)(3) and (d). After the six-month
period expires, the standard four-year statute of limitations will apply
to all transactions regardless of whether they were within the audited period
and/or included in the determination. (However, the number of days between
October 1, 1993, and November 3, 1993, is the four years because an
"administrative proceeding" was pending the Comptroller during that time. See
Sec. 111.207[d].)

B. Does a 60-day letter preclude me from claiming any resale or exemption
certificate credits for taxes paid pursuant to the audit but within the six-
month time frame?

Response: The 60-day letter is a final ultimatum on resale and exemption
certificates for the entire period to which the letter applies (usually, an
entire audit period). Resale and exemption certificates presented or obtained
by you after the expiration of the 60-day period are not acceptable proof of
exemption for any transaction included the time period to which the 60-day
letter applied. Therefore, they cannot support credits or refunds.

For example, if a transaction in the audit period was assessed because
you could not support a tax-free sale with a resale certificate, then a
valid, properly completed resale certificate covering that transaction must
have been presented to the Comptroller within the 60 days.

No resale certificate acquired after the expiration of 60 days could
support an exemption for that transaction. See Sec. 151.054(e). Due to these
proscriptions, certificates obtained after -- the 60 days cannot be used to
support even a timely-filed refund claim or timely-claimed credit. Upon
expiration of the 60 days, there is no recourse to obtain a refund or claim a
credit for any transaction for which a resale or exemption certificate was the
only proof of exemption permitted under the statute. See Sec. 151.054(a) and
(e).

C. If I have legitimate claims, am I required to request a refund or may
I take a credit on one of my current tax returns?

Response: Generally speaking, any transaction for which you could claim a
tax refund from the Comptroller is also eligible for a credit against your
current sales and use tax reports. I have enclosed a copy of Rule
3.338(Allowance of Credit for Tax Paid to Suppliers), which sets out guidelines
and restrictions for taking credits on tax reports. I also enclosed a recent
Sales Tax Update that explains some of the guidelines. If you elect to take a
credit instead of filing a written claim for refund, you should maintain
complete documentation (including timely-acquired resale and exemption
certificates), in
the event of audit. Local tax credit must be allocated to the appropriate
local taxing jurisdiction.

You should know that, with few exceptions (see Rule 3.338[a]), credit is
not allowed for any taxes you paid to a supplier and not directly to the
state. Such tax must be recovered from the supplier, unless the supplier
assigns his right to a refund to you. If you have a written assignment, you may
file a refund claim with this office, provided the statute of limitations on
the supplier's claim has not expired. As an assignee, your right to a refund
would be wholly derived from the assignor's right. That means, for example,
that the applicable statute of limitations would be the one that applies to the
supplier/assignor, not you (the assignee).

Please feel free to contact the Credits Verification Section of the
Revenue Accounting Division at (512) 463-4545, for the necessary refund
assignment forms and instructions.

This opinion is based on the facts outlined above. Different facts,
though similar, might yield different answers. If you have further
questions, please feel free to write or call me at 1-800-531-5441, extension
3-3889.

Sincerely,

John Christian
General Law Section

NOTE: Previous Accession Number 9402011L.6 and/or 9402011L