Does a wholesaler that only makes exempt resale of natural gas during pipeline transportation need a Texas sales tax permit, and can it use a resale certificate without a permit number?

Subject

Natural Gas — Spot Sales Or During Pipeline Transportation — Resale/Exemption Certificates Guidelines

Plain-English summary

This letter answers a follow-up question from a telephone conversation about sales tax permits and resale certificates for wholesalers of natural gas that gets resold while it is still moving through pipeline transportation (that is, before it reaches a final end user).

The Comptroller's Tax Policy Division explained that a person who makes only exempt sales of natural gas does not have to hold a sales tax permit just to report those exempt sales. However, that seller still must give a resale certificate to any supplier who requests one. A resale certificate for natural gas can be accepted even without a permit number, as long as the buyer claims that all of its sales are either for resale or to exempt customers, and the seller has no actual knowledge that the claim is false.

The letter also notes that natural gas is subject to limited sales tax, and a properly executed resale or exemption certificate is the only proof a seller can offer to show that a particular sale qualifies for exemption. Because of that, sellers of natural gas are completely within their rights to demand a resale or exemption certificate before making a tax-free sale.

Finally, even though a permit isn't required for a seller making only exempt sales, the Comptroller offered to send an application for a Texas sales and use tax permit, noting that obtaining a permit and filing a yearly return is acceptable (and available) even though it isn't mandatory in this situation.

What this means for you

Natural gas wholesalers and spot-market sellers

If you resell natural gas only during pipeline transportation and all of your sales are exempt (for resale or to exempt customers), you are not required to hold a Texas sales tax permit solely to report those exempt sales. You do, however, need to be ready to issue a resale certificate to any supplier who asks for one, even without a permit number, as long as your buyer's claim of resale/exempt status is not something you actually know to be false.

Suppliers selling to natural gas wholesalers

You are entitled to demand a resale or exemption certificate from a buyer before making a tax-free sale of natural gas. That certificate (with or without a permit number, per the buyer's own permit status) is the only proof you can rely on to support treating the sale as exempt.

Accountants and tax professionals

Note the practical distinction the letter draws: the permit requirement is separate from the resale certificate requirement. A seller can lack a permit (because it makes only exempt sales) while still being obligated to issue certificates on request. Also note that obtaining a permit and filing returns voluntarily remains an option even when not required, which may be useful for clients who want a formal filing history.

Common questions

Q: Does a natural gas wholesaler need a sales tax permit if all of its sales are exempt resales?
A: No. The Comptroller does not require persons who make only exempt sales of natural gas to hold a sales tax permit solely to report those exempt sales.

Q: Does that mean the seller never has to deal with resale certificates?
A: No. These sellers must still issue a resale certificate to any supplier who asks for one.

Q: Can a resale certificate for natural gas be valid without a permit number?
A: Yes, if the buyer claims all sales are for resale or are to exempt customers and the seller does not have actual knowledge that the claim is invalid.

Q: Can a seller refuse to make a tax-free sale until it gets a resale or exemption certificate?
A: Yes. The letter states that sellers of natural gas who demand a resale or exemption certificate before making a tax-free sale are completely within their rights.

Q: Can a wholesaler get a permit and file returns even though it isn't required to?
A: Yes. The Comptroller noted this is acceptable and offered to send a permit application for anyone who would feel more comfortable filing a yearly sales tax return.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9608300L

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

August 15, 1996

Dear **:

This is in response to our telephone conversation August 14, 1996, concerning a
sales tax permit and/or a resale certificate for wholesalers of natural gas
that is resold during pipeline transportation.

We do not require persons who make only exempt sales of natural gas to hold a
sales tax permit solely to report those exempt sales. However, these sellers
must issue a resale certificate to a supplier who asks for one. A resale
certificate for natural gas without a permit number may be accepted if the
buyer claims all sales are for resale or are to exempt customers and the seller
does not have actual knowledge that the claim is invalid.

Natural gas is subject to limited sales tax and properly executed resale or
exemption certificates are the only proof that may be offered to show that a
particular transaction qualifies for exemption. Sellers of natural gas who
demand a resale or exemption certificate before making a tax free sale are
completely within their rights.

I understand your concern as expressed during our telephone conversation.
Because of this, I am enclosing an application for a Texas sales and use tax
permit. If you feel more comfortable obtaining the permit and filing a yearly
sales tax return with us, it is certainly acceptable to this agency, even
though we do not require you to do so.

Please call me if you have any questions or need more information. Our toll
free number is 1-800-531-5441, and my extension is 5-0330. The direct line is
512/475-0330. You may also write to Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,
Bettie Peterson
Tax Policy Division