How to get a tax exemption certificate 

To make it easier to navigate, there are usually recognizable tax-exempt entities. Many of these include schools, churches, non-profits, charities, and parent teacher associations. The Federal Government is also tax-exempt. States will grant tax-exempt status to these types of organizations for items purchased for use in exempt activities. 

Tax exemption is not a given. Individual states decide whether organizations should be taxed. In all cases, stringent exemption certificate requirements need to be met for an entity to qualify. Many states tie their exemption to federal provisions under Section 501 of the Internal Revenue Code. 

When a tax exemption certificate is issued, it may need to be renewed and must be shown at all times to be valid. To elaborate, some states have exemption certificates that don’t expire, while others expire within one to five years. At the end of the expiration period, an evaluation will determine whether the organization or entity is still actively engaged in an exempt activity. 

Why Are Exemption Certificates Required?

To make tax-free purchases of taxable items and services, it is essential to have an exemption certificate. This certificate should be provided to the seller within 90 days of the sale or preferably at the time of the transaction. This allows the purchaser to buy taxable items and services without having to pay sales tax. 

Remember, it’s important to keep in mind that the certificate must be properly completed to avoid any issues later on. By following these guidelines, you can ensure that your transactions are conducted smoothly and without any hiccups.

A seller may also need a state tax exemption certificate 

If a food retailer, for example, has a nexus with a state, that retailer must collect a tax exemption certificate whenever they don’t charge a buyer sales tax on a taxable transaction

Different Types of Tax Exemption Certificates

In general, a tax certificate of exemption certificates can fall into three categories:

1.

The entity purchasing the item or service is a sales tax-exempt entity in their state.

2.

The purchaser will use the item or service in an exempt way. In other words, they resell the item. 

3.

The buyer has an agreement with the state responsible for the sales tax remittance. 

Let’s talk about sales exemption certificates 

Essentially, exemption certificates for sales tax are documents that allow a business, organization or person to purchase taxable goods and services, tax free. 

Resale certificates

Resale certificates (also called sales tax certificates, reseller permits, or sales tax exemption certificates) are state-issued documents that exempt buyers from paying sales tax when purchasing products from vendors, retailers, or wholesalers. 

The primary purpose of this exemption is to limit the payment of sales tax to the final user, which is why retailers and resellers don’t have to pay sales tax on items they will resell or the components that will form part of the final product they sell. 

However, there are exempt final users, such as non-profit organizations, who can apply for sales tax exemption. Organizations with 501(c)(3) status can also apply for tax exemption certificates, which remit the requirements of sales taxes. 

In general, proof is the key. Companies need to be able to produce these certificates whenever they request exemption. 

Are you finding resale certificates tricky to manage?

We know that managing sales tax can be a bit tricky, especially when dealing with resale certificates. It’s understandable that sales departments may feel a bit overwhelmed when it comes to accepting exemption requests.

However, it’s important to remember that dealing with resale certificates is not always a straightforward process, and it can be easy to assume that you’re exempt when you’re not. But don’t worry, by keeping track of your resale certificates and being diligent in managing them, you can avoid any issues with sales tax.

Read our blog on everything you need to know about resale certificates here. 

Link to blog on exemption certificates
Exemption certificates