Unfortunately, Sales Tax auditors are denying more resale and exemption certificates based on technical faults and/or auditor judgement. Because of stricter training procedures and new policies, many auditors are now enforcing a zero-tolerance certificate policy which results in over-taxation.

Often these denied certificates are obviously for an exempt or non-taxable sale and yet the auditor will still disallow them and tax the transaction. Or worse yet, the denied certificate is part of a sample and projection estimation which caused even more invalid tax to be due. Bottom line, business owners must be more pro-active obtaining complete certificates before the auditor starts the audit.

What should you do?

The answer is to delay the audit and then obtain as many certificates as possible before the audit begins. If Texas Tax Group is hired we will always request a 30 day timeout before the auditor meets with our consultant to begin the audit. This usually gives us time to evaluate and obtain missing or incomplete certificates. Of course we depend on assistance from our clients in certain cases.

The Entrance Conference Date

The Entrance Conference Date is an important date. This is considered the official audit start date (i.e., usually the day the auditor began the review of your records). After the Entrance Conference Date, it often becomes much harder to get auditors to accept certificates for a variety of reasons (see below for explanation).

Certificates Obtained After the Entrance Conference Date

Any certificates obtained AFTER the Entrance Conference Date can be field verified and/or judgmentally evaluated by the auditor. These terms (field verified and/or judgmentally evaluated) means the auditor can deny them for a variety of reasons even if the document appears to be complete.

For instance the auditor may not agree with the description given for the exemption on the document. In addition, the auditor has the right, and is encouraged, to call the customers who issued those certificates and question (and sometimes interrogate) them about their right to issue those certificates.

This can be very annoying to the customer and the business under audit. Often a customer will withdraw the legitimate certificate due to intimidation by the auditor. And yet there is little that can be done to stop this from happening except to have these facially complete certificates on hand BEFORE the Entrance Conference Date.

Often, a properly completed certificate is signed and dated after the Entrance Conference date and the auditor will want to disallow the document. The reason is simply that the certificate is dated AFTER the date of the purchase. In this case, it is best to argue for acceptance. One way to do this is to check the permit status link to confirm the customer was permitted at the time of the purchase. This is the link to the sales taxpayer permit status on the agency website:


If the permit was active as of the purchase date but signed after the transaction date, then we would hope the auditor would still accept the certificate. Of course some auditors will take it a step further and check to see if any sales tax was remitted for that period by the purchaser. If this position is taken, then our firm would contend that the purchaser might not have yet resold the item, may have re-wholesaled the item or the item may have shipped out of state.

Certificates Obtained Before the Entrance Conference Date

Any certificates which are facially complete and obtained BEFORE the Entrance Conference Date are almost universally accepted under the concept of good faith acceptance. There are few exceptions to this rule as long as the purchaser would normally be in the business of purchasing that good or service.


The most important pre-audit activity for businesses with resale, exempt, multi-state or direct pay permit certificates would be to confirm that the certificates are on hand and are facially complete BEFORE the Entrance Conference Date. As stated before, we also suggest to our clients to have their customers back-date these certificates to the original purchase date before and/or after the Entrance Conference. The date of the certificate should not matter. However, some auditors will try to deny certificates dated and signed AFTER the initial transaction date. To my knowledge there is no agency policy AGAINST back-dated certificates. Please call Texas Tax Group with any questions regarding the acceptance of certificates.

Get Free Advice from Former Auditors

Contact us at 855-TX-AUDIT (855-892-8348) to schedule a free 20-minute consultation today!