Should a manufacturer give its supplier a resale certificate or an exemption certificate when buying component parts or ingredients that will become part of an item manufactured for sale?

Plain-English summary

A taxpayer wrote to the Comptroller's office asking whether it should use a resale certificate or an exemption certificate when buying component parts of items it manufactures for sale. The Comptroller's response was short and direct: either certificate may be issued to the supplier in lieu of paying tax on the component parts.

Both certificates accomplish the same practical result here — the supplier doesn't collect tax on the sale, because the parts are going into a manufactured item rather than being consumed by the buyer. The letter doesn't distinguish any difference in effect between the two certificate types for this purchase; it simply confirms that a manufacturer has the choice of either one.

The Comptroller noted that this opinion is based on the facts presented and could change if the facts were different.

What this means for you

Manufacturers buying component parts or ingredients

If you're purchasing parts or ingredients that will become part of a product you manufacture for sale, you don't have to pay sales tax to your supplier on those purchases. You can give the supplier either a resale certificate or an exemption certificate to document that the purchase is tax-exempt.

Accountants and tax professionals

This letter is a useful, if terse, confirmation that Texas does not require manufacturers to use one specific certificate type over the other for component-parts purchases — either a resale certificate or an exemption certificate is acceptable to relieve the supplier of the obligation to collect tax. As with any STAR letter, it's based on the specific facts described and could differ if the facts differ.

Common questions

Q: Should I use a resale certificate or an exemption certificate to buy component parts tax-free?
A: Either one. The Comptroller confirmed that a supplier may accept either certificate in lieu of tax on the purchase of component parts of an item manufactured for sale.

Q: Does this apply to ingredients as well as parts?
A: The letter refers to "component parts" of a manufactured item; the subject line covers both component parts and ingredients of a manufactured item purchased under either certificate.

Q: Can I rely on this letter for my own purchases?
A: This letter can be the basis of a detrimental reliance claim only for the taxpayer to whom it was directly issued. It illustrates the Comptroller's general position, but your own facts should be confirmed with a tax professional or the Comptroller's office.

Citations and references

No specific statutes or administrative rules are cited in the text of this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9410L1325F13

Original ruling text

October 24, 1994

Dear ***:

Thank you for your letter of October 13, 1994. You asked whether a resale or
exemption certificate should be issued for the purchase of component parts of
items manufactured for sale.

Either certificate may be issued to suppliers in lieu of paying tax on the
component parts.

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

You may call me toll free at 1-800-531-5441, ext. 50037. The direct line
is 512/475 0037. You also may write to Tax Administration Division,
Comptroller of Public Accounts.

Sincerely,

Lindey Osborne
Tax Administration Division

NOTE: Previous Accession Number 9410759L