Texas Administrative Code
Title 34 - PUBLIC FINANCE
Part 1 - COMPTROLLER OF PUBLIC ACCOUNTS
Chapter 3 - TAX ADMINISTRATION
Subchapter O - STATE AND LOCAL SALES AND USE TAXES
Section 3.288 - Direct Payment Procedures and Qualifications

Universal Citation: 34 TX Admin Code § 3.288

Current through Reg. 50, No. 13; March 28, 2025

(a) Qualified consumers may give a direct payment blanket exemption certificate in lieu of the taxes imposed by the Tax Code, Chapter 151, for taxable items which they purchase for their own use and which items will not be resold in any manner.

(b) All applicants for a direct payment permit must comply with the following conditions, prerequisites, and qualifications.

(1) The applicant must be annually purchasing at least $800,000 worth of taxable items for the person's own use and not for resale. A statement to this effect must be submitted to the comptroller. Adequate records must be available to support this statement. The statement must accompany the application for a direct payment permit.

(2) The applicant must be able to establish to the satisfaction of the comptroller that the applicant is a responsible person and that the applicant's accounting methods clearly distinguish between taxable and nontaxable purchases. A clear statement of the accounting method intended to be used must accompany the application for a direct payment permit.

(3) The applicant must agree to accrue and pay all taxes imposed by the Tax Code, § 151.101, on the direct payment return for items not specifically exempted and to make the payments to the state on or before the 20th day of the month following each monthly period in which the items become subject to the tax by reason of use or consumption in this state. A written agreement to this effect must be furnished to the comptroller, and it must be signed and returned along with the application for a direct payment permit.

(4) The applicant must agree to give a resale certificate (as opposed to a direct payment exemption certificate) for any taxable item that will be resold as provided by the Tax Code, § 151.054 or § 151.104.

(c) Applicants for a direct payment permit should write to the Comptroller of Public Accounts of the State of Texas, Austin, Texas 78774, requesting that an application be forwarded to them.

(d) Any consumer whose direct payment permit is either voluntarily forfeited or canceled by action of the comptroller's office must immediately notify all vendors from whom purchases of taxable items are made advising them that the exemption certificate issued to them pursuant to the direct payment permit is no longer valid. Failure to give notification is a violation of the Limited Sales, Excise, and Use Tax Act.

(e) A direct payment permit is issued to a legal entity, including all branches and divisions purchasing taxable items. A direct payment exemption certificate issued to a supplier by one branch or division applies to purchases made by all branches or divisions from the same supplier. Direct payment permit holders may not authorize any other person or firm to purchase any taxable items under their permit. Use by other persons may result in revocation of the permit.

(f) Direct payment exemption certificates may be issued to contractors performing separated contracts. The contractor, in this instance, will purchase the taxable items for resale and accept the direct payment exemption certificate in lieu of charging tax. The contractor may not accept a direct payment exemption certificate in lieu of paying tax on consumables or equipment. In addition, under no circumstances should a direct payment exemption certificate be issued to a contractor performing a lump-sum contract. Direct payment permit holders persisting in this practice may have their permits revoked. For a discussion of lump-sum and separated contracts, see § 3.291 of this title (relating to Contractors).

(g) Direct payment permit holders may not issue direct payment exemption certificates to persons providing nontaxable services.

(h) When a direct payment permit holder is doing business with a person who may be selling taxable items as well as nontaxable services, the direct payment exemption certificate must indicate that it does not cover any nontaxable services that the servicer may provide.

(i) If storage facilities contain taxable items purchased under a direct payment exemption certificate and at the time of storage it is not known whether the taxable items will be used in Texas, then the taxpayer may elect to report the use tax either when the taxable items are first stored in Texas or are first removed from inventory for use in Texas, as long as use tax is reported in a consistent manner. Use tax is not applicable to purchases of taxable items that are to be transported outside Texas for use solely outside Texas or on purchases of taxable items that are to be processed, fabricated, or manufactured into other property or attached or incorporated into other property and then transported outside Texas for use solely outside Texas. See § 3.325 of this title (relating to Refunds and Payments under Protest) and § 3.338 of this title (relating to Allowance of Credit for Tax Paid to Suppliers) for refund and credit provisions. See also § 3.346 of this title (relating to Use Tax).

(j) All direct payment permit holders must file direct payment returns, whether or not they have tax to report. If the permit holder has no city, MTA/CTD, or county tax to report, a zero return must be filed. A direct payment permit will be canceled when annual purchases are less than the amount required. See §3.377 of this title (relating to Divergent Use of a Direct Payment, Resale, or Exemption Certificate) and §3.427 of this title (relating to Divergent Use of a Direct Payment, Resale, or Exemption Certificate).

(k) A blanket exemption certificate described in this section may be given by qualified consumers in lieu of the tax upon purchases from their suppliers. Each exemption certificate must be accompanied by a direct payment permit number.

Attached Graphic

(l) The holder of a direct payment permit may not make an occasional sale of taxable items under the Tax Code, § 151.304(b)(1). See § 3.316 of this title (relating to Occasional Sales).

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