administration & accounting - Kentucky: Revenue Employee Website

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KRS 139.430 – Property Used by Purchaser after Giving Certificate KRS 139.270 – Resale Certificate or Certificate of Exemption (1) The resale certificate or certificate of exemption relieves the retailer or seller from the burden of proof only if taken in good faith from a person who, at the time of purchasing the tangible personal property: (a) Indicates an intention to sell it in the regular course of business by executing the (b) resale certificate; or Indicates that the property purchased will be used in an exempt manner by executing a certificate of exemption. This relief from liability does not apply to a retailer or seller who fraudulently fails to collect the tax or solicits purchasers to participate in the unlawful claiming of an exemption. (2) "Good faith" shall be demonstrated by the retailer or seller if the retailer or seller: (a) Accepts a properly completed resale certificate or certificate of exemption; and (b) Maintains a file of the certificate in accordance with KRS 139.720. (3) If the department later finds that the retailer or seller exercised good faith according to the provisions of subsection (2) of this section but that the purchaser used the property in a manner that would not have qualified for resale status or the purchaser issued a certificate of exemption and used the property in some other manner or for some other purpose, the department shall hold the purchaser liable for the remittance of the tax and may apply penalties provided in KRS 139.990. Effective: June 20, 2005 History: Amended 2005 Ky. Acts ch. 85, sec. 414, effective June 20, 2005. -- Amended 2003 Ky. Acts ch. 124, sec. 14, effective July 1, 2004. -- Amended 1988 Ky. Acts ch. 135, sec. 2, effective July 15, 1988. -- Amended 1982 Ky. Acts ch. 208, sec. 1, effective July 15, 1982. -- Created 1960 Ky. Acts ch. 5, Art. I, sec. 27, effective February 5, 1960. R - 2
GENERAL INFORMATION The seller of tangible personal property will not include within the measure of his tax the gross receipts from a retail sale if he takes from the purchaser a "certificate of exemption" that the property purchased will be used in a manner or for a purpose entitling the seller to regard the gross receipts from the sales as exempt under the Sales and Use Tax Law. The "certificate of exemption" relieves the seller from the sales and use tax only if he takes the certificate in good faith from the purchaser at the time of sale. Good faith shall be demonstrated by the seller if he accepts a signed certificate and maintains a file of such certificate in accordance with KRS 139.720. If the Department later finds that the purchaser used the property in a manner that would not have qualified for tax exempt status, the Department shall hold the purchaser liable for the remittance of the tax and may apply any penalties as provided in KRS 139.990. In order to obtain the benefits of any of the sales tax exemptions, i.e. farm machinery, etc., the purchaser claiming the exempt status must issue to the seller the required certificate substantiating the exemption. The statute contains, and has contained for many years, the requirement that the seller (vendor) is relieved from liability only if he takes the certificate from the purchaser in "Good faith". Although the statute or regulations have not always contained a definition of “Good faith” an addition to KRS 139.490 by the 1982 General Assembly effectively restricted this avenue of assessment against the seller and shifted the Department’s responsibility to secure compliance from the numerous purchasers who have issued invalid exemption certificates. "Good faith" is currently defined as accepting a signed certificate at the time of sale and maintaining a file of those certificates. Concisely stated, current procedure mandates that if a vendor has a certificate on file that is entirely complete, signed and dated and the certificate being issued applies to the purchaser's business, then such certificate will be honored. Additionally, the certificate will be honored if the property is applicable to the purchaser’s type of business. As far as legislative changes as a result of Streamlined Sales and Use Tax Agreement, the language in KRS 139.270 basically reinforces the prevailing intent of the General Assembly. In a related matter, the question of “Good faith” has been addressed in a case styled Whayne Supply Company v. <strong>Revenue</strong> Cabinet, K02-R-40. At issue were three exemption certificates the taxpayer-seller had received in connection with <strong>Kentucky</strong> retail sales. Under KRS 139.490, a seller is relieved of liability for sales and use tax if it accepts in good faith from a purchaser a written certificate that the property purchased will be used in a tax-exempt manner or for a tax-exempt purpose and maintains a file of these certificates in accordance with KRS 139.720. In this case, the KBTA granted summary judgment in the Department’s favor, ruling that the three certificates “were either incomplete or obviously invalidly completed, and none [met] the threshold requirement of KRS 139.490 for a written statement that the property will be used in a R - 3
Page 1 and 2: ADMINISTRATION & ACCOUNTING EXEMPTI
Page 3: EXEMPTION CERTIFICATES INTRODUCTION
Page 7 and 8: The auditor/reviewer has the respon
Page 9 and 10: Machinery for New and Expanded Indu
Page 11 and 12: Certificate of Exemption - Out-of-S
Page 13 and 14: Situation #4: Retailer has accepted
Page 15 and 16: Verification of Payment of Use Tax
Page 17 and 18: * * * 51A153 51A154 51A155 51A156 C
Page 19 and 20: Streamlined Sales Tax Agreement Cer
Page 21 and 22: KRS 139.270 was amended in 2005 to
Page 23 and 24: KRS 139.280 - Contents and Form of
Page 25 and 26: correct, i.e., amounts claimed do n
Page 27 and 28: Resale certificates will not be hon
Page 29 and 30: KRS 139.270 - Resale Certificate or
Page 31 and 32: Situation #3: Resale certificate ob
Page 33 and 34: Situation #9: Vendor completes resa
Page 35: In the event the taxpayer accepts t

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