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We sell t-shirts and screen printing. One customer uses them for promotion and sells some of them. He says promotional companies are tax exempt. Is that true?

Full Question: We have a customer who is a promotional company and we are providing t-shirts and screen printing on them. He uses them for promotion and he sells some of them. According to him promotional companies are automatically tax exempt and he does not have to pay sales tax. I need to know if this is true.

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Diane Yetter photoIt is not true that promotional companies are exempt from tax. In fact it is the opposite. In Texas, sales of tangible personal property for use as gifts, samples, or for advertising purposes are taxable. You should collect sales tax on the sale of the t-shirts to the promotional company since they are being used for advertising purposes. If the promotional company is buying shirts with the intent to resell them, however, they would be allowed to purchase the shirts from you free of sales tax if they present you with a valid resale certificate at the time of purchase. Then, when the promotional company sells the shirts, they would need to collect sales tax on the sale of the shirts. Note that a resale certificate may not be signed by a purchaser who does not know at the time of purchase whether the item will be resold or used for some other purpose.

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