If a customer paid tax on parking space rent before getting a Texas sales tax permit, and later gets a permit, can the tax already paid be refunded?

Plain-English summary

The Texas Comptroller's Tax Policy Division answered a company that leases motor vehicle parking spaces about how to handle a refund request from one of its own customers (a sub-lessee who re-leases the spaces to its own customers).

From April 1994 through the late spring of 1995, that customer paid sales tax to the parking-space lessor. In May or June 1995, the customer asked for a refund because it had since obtained a sales tax permit, effective February 8, 1995.

The Comptroller's answer: the customer cannot issue a resale certificate for purchases made before its permit's effective date of February 8, 1995, so the lessor should not refund the tax collected before that date. The only path to recovering the tax paid from April 1994 through February 7, 1995 is for the customer to amend its permit's "first taxable sale date" or "effective date" to April 1, 1994 (or whenever its contract with the lessor actually began). If the customer does that, it must then file the appropriate sales tax returns for 1994 through 1995, remit the tax due on its own sales, and pay applicable penalty and interest. If the customer claims it has changed its permit's effective date, the letter recommends the lessor write in again so the Comptroller's office can verify that claim.

The letter notes it is based on the facts presented and may change if the facts are different, and flags that an earlier version of this same guidance was issued under accession number 9508383L.

What this means for you

Businesses that collected tax from a customer who later obtained a permit

Do not refund tax collected from a customer for any period before the effective date shown on that customer's sales tax permit. A resale certificate cannot retroactively cover purchases made before the permit existed.

Customers seeking a refund of tax already paid before their permit was effective

The only route to a refund of tax paid before your permit's effective date is to have your own sales tax permit's effective date amended back to when you actually started making sales (here, the start of the lease arrangement) — and then file the back sales tax returns, remit the tax due on your own sales for that period, and pay penalty and interest on it. This is not a simple refund; it shifts your own filing and payment obligations back to the earlier period.

Accountants and tax professionals

If a client asks you to process a refund based on a customer's claim that they've obtained or amended a permit, verify the claim (e.g., by having the client write to the Comptroller's Tax Policy Division) before refunding any tax, since only the amended permit effective date — not the mere existence of a later permit — supports a refund for the earlier period.

Common questions

Q: Our customer got a sales tax permit partway through our lease arrangement. Can we refund the tax they paid us before the permit's effective date?
A: No. The customer cannot issue a resale certificate for purchases made before the permit's effective date, so tax collected before that date should not be refunded.

Q: Is there any way for the customer to get that earlier tax back?
A: Yes, but only if the customer amends its permit's "first taxable sale date" or "effective date" to match when its contract with you (or its business activity) actually began. The customer must then file the appropriate returns for that earlier period, remit the tax due, and pay penalty and interest.

Q: What should we do if the customer tells us they've changed their permit's effective date?
A: The letter recommends writing to the Comptroller's Tax Policy Division again to verify the claim before acting on it.

Q: Does this guidance apply regardless of the specific facts?
A: No. The letter states the opinion is based on the facts presented and may change if there are different or additional facts.

Citations and references

No specific statutes, rules, or case law are cited in 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/9508L1363G13

Original ruling text

August 17, 1995

Dear *:

I am responding to your letter requesting guidance on handling a
refund request from one of your customers. Your situation is
restated below with response following.

Your company leases motor vehicle parking spaces to the customer.
In turn, the customer leases these spaces to their customers.
From April 1994 through the late spring of 1995, this customer
paid the tax to you. In May or June, the customer requested
a refund because they had obtained a sales tax permit. The
effective date of the permit is February 8, 1995.

This customer may not issue a resale certificate to you for
purchases that took place before February 8, 1995. Therefore, you
should not refund the tax collected before February 8, 1995.

As I explained to you earlier, the tax paid by this customer from
April 1994 through February 7, 1995, may be refunded only if the
customer amends the "first taxable sale date" or "effective date"
on its permit to April 1, 1994, or the effective date of their
contract with you. If this action is taken, the customer must
file the appropriate returns from 1994 to 1995, remit the tax, and
pay the appropriate penalty and interest.

If the customer says they have changed the effective date of their
permit, etc., I recommend your writing again to verify this claim.
I will be happy to assist you in any way possible.

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

You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Tax Policy Division

NOTE: Previous Accession Number 9508383L