The Future of Taxes
in a Digital World

Here are some general categories of organizations and situations that may be eligible for sales tax exemptions:

• Businesses purchasing goods for resale are often exempt from paying sales tax on those goods. They must resell the items in the same form without using them.
• Non-profit and charitable organizations, if recognized by the state, often qualify for sales tax exemptions.
• Federal, state, and local government agencies are typically exempt from paying sales tax.
• Schools, colleges, and other educational institutions often qualify for exemptions, especially on educational materials.
• Hospitals and other medical facilities might be exempt from sales tax on certain medical supplies and equipment.
• Farmers and agricultural businesses may be exempt from sales tax on purchases related to farming and agricultural production.
• Manufacturing or industrial production businesses may be exempt from sales tax on machinery, equipment, and sometimes raw materials used directly in production.
• Certain industries may have specific exemptions, such as SaaS or other digital goods and services, depending on the state.

What is a tax exemption?

An exemption is an exception to the rule that eliminates the buyer’s need to pay sales tax at the point of purchase. But it’s up to you, the buyer, to prove they’re exempt from tax. Unless you can produce a valid exemption certificate, the state or jurisdiction where you are registered will expect you to have collected the sales tax.

These exemptions can save you significant money, so understanding who qualifies and how to claim is worth it.

State sales tax exemption: Out-of-state purchases

Whether you’re exempt from sales tax for out-of-state purchases depends heavily on the specific situation and the regulations of both states. 

Generally, you are NOT exempt from sales tax for out-of-state purchases unless:

• You’re buying exempt goods: Food and prescription drugs are often exempt from sales tax in most states. Check the specific regulations of the state where you’re making the purchase.
• You’re buying for resale: Wholesalers and retailers may be eligible for sales tax exemptions through resale certificates.
• The seller has no nexus in your state: If the seller has no physical presence, employees, or economic ties in your state, they might not be required to collect sales tax on your purchase.

But to be absolutely sure, here are some resources to help you determine if you are responsible for sales tax on out-of-state purchases.

• Visit the tax website of the state you’re researching. Each state’s tax website should have information about sales tax exemptions and use tax
• The IRS’s Publication 334 provides information on federal sales tax regulations
• Consulting with a tax professional can help you understand your specific situation and responsibilities

How to get sales tax exemptions

It’s your legal right to claim for tax exemptions. Following the proper tax procedures will ensure you get issued the tax exemptions certificate needed to exercise it.

It’s pretty simple:

Identify your potential exemption

Research the specific exemptions offered in your state and work out which applies to your purchase.

1. Federal, state, and local governments, along with registered non-profits dedicated to specific activities, often qualify for exemptions
2. Individuals with disabilities may be exempt from medical equipment or supplies, and veterans may have exemptions depending on service and disability status
3. Resale purchases, manufacturing materials, and specific equipment used in production may be exempt
4. Out-of-state purchases or temporary residency in a new state may offer grace periods from sales tax

Apply for an exemption certificate

In most states, you’ll need to show an official exemption certificate to the seller at the time of purchase to claim your exemption. 

To start your certificate application:

• Contact your state tax agency or relevant organization to obtain the necessary form
• Fill in the form and provide documentation, such as proof of non-profit status or temporary residency 
• Submit the application and wait for approval

Complyt tips

• Don’t take for granted that what qualifies in one state as a tax exemption will apply to another – check the regulations for your location
• It’s not worth the risk of claiming an exemption you’re not eligible for just to save money when you factor in the risk of fines and back taxes

How to qualify for tax exemption

Qualifying for tax exemptions can be complex and vary depending on the specific type of exemption you’re seeking. Here’s how you could start.

1. Identify the exemption you seek

• Goods: Different states and countries have varying lists of exempt goods, including food, prescription drugs, and agricultural products. Research the specific exemption you’re interested in
• Services: Certain professional services like healthcare and education may be exempt in some jurisdictions. Understand the specific service you’re providing and its potential exemption
• Resale: If you’re buying goods for resale, you may be eligible for a resale certificate that exempts you from paying sales tax initially

2. Research the eligibility criteria

• State tax websites: Each state has its tax website with detailed information on exemptions and eligibility requirements. Consult the relevant website for the specific exemption you’re seeking
• Government publications: Official government publications like tax codes and regulations outline the precise criteria for each exemption. Familiarize yourself with the relevant document for your jurisdiction
• Professional resources: Consulting with a tax professional can be invaluable, especially for complex situations. They can help interpret regulations and advise you on the best course of action

3. Gather Supporting Documentation:

• Proof of Purchase: Depending on the exemption, you may need receipts, invoices, or other documents to prove your purchase qualifies.
• Resale Certificates: If you’re claiming a resale exemption, obtain valid resale certificates from the state you’re purchasing from.
• Business Licenses and Permits: Depending on the exemption, you may need to provide proof of your business license or relevant permits.

4. Apply and submit the necessary documentation 

• Depending on the exemption, you may need receipts, invoices, or other documents to prove your purchase qualifies
• If you’re claiming a resale exemption, obtain valid resale certificates from the state you’re purchasing from
• Depending on the exemption, you may need to provide proof of your business license or relevant permits

5. Apply for the Exemption (if applicable)

• Some states require you to register for and obtain a resale certificate before claiming the exemption. Follow the state’s specific application process
• Certain exemptions may require additional paperwork or filing. Consult the relevant government agency for specific instructions

6. Stay Informed and Compliant

• Tax laws and regulations can evolve. Stay updated on any changes that might impact your exemption eligibility
• Maintain accurate records of your purchases, documentation, and claims for potential future audits

Always remember, when in doubt, consulting with a tax professional can provide tailored advice and help avoid costly mistakes.

Streamline your tax exemption experience – with Complyt 

• Automate many of the manual tasks associated with claiming tax exemptions
• Manage and store reports, certifications, and exemptions in one place 
• Simplify monitoring, calculating, and remitting sales tax

For more information, please get in touch with our team.

Sales tax permits VS. resale certificates

While it’s a simple enough concept, exemption complexities soon arise in this modern, borderless business landscape. Because resellers require a resale certificate for each state in which they have a sales tax permit. So once you have a nexus and are required to collect sales tax yourself, you need a resale certificate to avoid double taxation. 

So now the question is, how do you obtain a resale certificate? 

How do I apply for a resale certificate? 

While each state has its own application process and set of requirements, applying for a resale certificate generally involves these key steps: 

Step 1: Obtain a Sales Tax Permit

Yes, we’re working backwards here. But you have to start at square one. Before you can issue or use a resale certificate, your business needs to have a valid sales tax permit (also known as a seller’s permit or a sales and use tax permit) from the state in which you operate. This permit allows you to collect sales tax on behalf of the state.

Step 2: Download & Fill Out the Resale Certificate Form 

Each state has its own resale certificates which capture the key information regarding the business and the purchase, in order to accurately document the exemption. 

The information that needs to be filled out on the certificate generally include the following:

• Name and address of purchaser
• Name and address of seller
• Registration number of purchaser
• Description of property purchased for resale
• Reason for exemption
• Statement that if the property is put to use in a taxable manner that the purchaser will remit the consumer’s use tax
• Date and Signature and Title of authorized individual at the purchaser

Resale certificates can be downloaded from the state’s department of revenue website or often a local tax agency’s site.

Step 3: Provide the Certificate to Suppliers & Keep Record of Exempt Purchases

Once you’ve completed the form, you’re ready to roll. Simply provide a copy of your resale certificate to suppliers when purchasing goods for resale and make sure you keep record of all purchasers that are going to be used for resale. 

Step 4: Renewing and Updating Your Exemption

Some states require businesses to renew their resale certificates periodically, while others issue them with no expiration. Colorado and Indiana, for instance, require renewal after two years, while Michigan requires annual renewal. 

Additionally, if any of your business information changes (like your address or business name), your resale certificate should be updated accordingly.

What are multijurisdictional resale certificates? 

When buying from multiple states, the approach to resale certificates can get a bit more complex. Here’s what typically happens:

Generally, businesses need to obtain a resale certificate for each state in which they are registered to collect sales tax. This means if you have a sales tax nexus in multiple states (due to physical presence, economic activity, etc.), and you purchase goods for resale in those states, you’ll need separate resale certificates for each state.

To ease this burden, however, some states participate in a streamlined system that allows the use of a multijurisdictional resale certificate (or uniform resale certificates). This is a single document, a “blanket” resale certificate if you will, that can be used across multiple states.  

The regulatory body that currently oversees the governance of these uniform resales certificates is the Multistate Tax Commision (MTC). As of the writing of this answer, 36 states accept the MTC’s multijurisdictional resale certificate, simplifying the lives of countless business practitioners and tax experts across the USA> 

As with any other exempt transaction, regardless of whether you use state-specific or multijurisdictional certificates, it’s important to ensure that each certificate is properly filled out, kept on file, and used only for qualifying purchases. 

The objectives of a sales tax audit are simple: 

• Verify if a business is charging and remitting the right amount of sales tax on taxable sales.
• Look for mistakes or discrepancies in tax filings or records that might have slipped through the cracks.
• Maintain an environment of fair play, where no business has an unfair advantage by not properly collecting and remitting sales tax.

Yet even though every business should be prepared for an audit, it doesn’t mean the tax man will come knocking at everyone’s door with an audit notice. 

What triggers a sales tax audit? 

Not all businesses get audited, and the likelihood of an audit can depend on various factors. While audits can be somewhat random, certain activities or situations may increase the chances of a business being selected for an audit. Here are some factors that might lead to an audit:

• Red flags in previous filings
• High sales volume 
• Remote sellers who have multiple economic nexus
• Previous non-compliance
• Changes in business structure
• Acting on a whistleblower tip

How long does a sales tax audit take? 

That’s probably one of the first questions that comes to mind for businesses who have been served an audit notice. Because audits can feel like a guillotine hanging over the future of the business. And it’s a period that’s filled with uncertainty and a fair bit of nervous tension that makes it difficult to continue with regular business operations. 

Sales tax audits usually take between 3 and 7 months depending on factors such as the following: 

• The scope and complexity of the audit
• The cooperation and preparedness of the auditee company
• The nature of the issues found during the investigation
• The size of the business
• The regulations of state practices:
• Appeal process if companies do not agree with the findings of the auditor

There are a lot of factors that can prolong your audit, factors that businesses have no control over. So the real question is, is there anything you can do to make sure your audit isn’t drawn out unnecessarily? 

Your Sales Tax Audit Preparation Checklist

So what can you do to simplify your audit and make sure it goes as smoothly as possible? 

Before the Audit 

• Review the Audit Notice and Prepare Documentation

Carefully review the audit notification, noting the scope, time frame, and specific information requested. Then begin gathering the requested documentation, including sales records, purchase invoices, exemption certificates, and financial statements.

During the Audit

• Think twice before agreeing to a statute of limitations waiver

A statute of limitations waiver may offer a company extra time to get their documents in order, it also prolongs the auditor’s time with the audit and gives them more time to dig out even the smallest non-compliance. Which means any discrepancies are added onto the initial review period, and interest on unpaid taxes continue to grow. 

• Be wary of expedited sampling methods

Auditors often rely on varying sampling methods to speed up the audit. But some sampling methods, such as block sampling which focus on a narrowed reporting period, can create a skewed image of your compliance by unintentionally focusing on a brief period where non-compliance crept into your reporting.  

• Request a waiver of sales tax penalties

If an auditee company has never been guilty of fraud or willful negligence in their non-compliance, then tax authorities will usually waive sales tax penalties and only demand payment of taxes and accrued interest. 

• Cooperate with the auditor … if they ask for it

Cooperate fully with the auditors, providing prompt and accurate responses to their inquiries and providing them with your records and documentation, but never offer documents that weren’t requested specifically. This could prolong the audit and open up new investigative avenues. 

• It’s harsh, but keep them isolated

Also try to see to their needs proactively, giving them snacks and coffee and so on, and isolate them from employees and customers. Remember, they’re looking for any and all forms of discrepancies. 

After the Audit

• Take a breath, stand tall, and strengthen your future

Audits can feel like weight around the neck of the business’s future. But as long as fraud and willful non-compliance wasn’t unearthed, audits are actually valuable compliance roadmaps, giving businesses valuable ways in which to strengthen their growth going forward. 

Keep in mind that your business is unique and there may be unique requirements and additional steps or preparations, which highlights the importance of consulting with a sales tax expert as soon as an audit lies on the horizon. 

And remember, maintaining a proactive approach to compliance can significantly contribute to a successful sales tax audit.

This is a typical permit. The form will look different depending on the issuing department.

Do all these names mean the same as a ‘sales tax permit’?

Yep, these terms are used interchangeably in different states, but they all refer to the same document authorizing your business to make taxable retail sales and collect sales tax from customers. 

• Seller’s permit
• Retail license
• Sales tax license
• Sales and use tax permit
• Vendor’s license
• Resale permit
• Wholesale certificate
• Reseller’s permit
• Nontaxable transaction certificates
• Sales tax exemption certificate

What does it allow your business to do?

Whatever they’re called, they all give your company permission to collect sales tax from customers at the point of sale. They allow you to remit the collected sales tax to the appropriate government agency. It’s Avoid penalties and fines for non-compliance.

Does your business need a permit? Well, do you…

• Sell tangible personal property, such as clothing, furniture, and electronics?
• Sell certain services, such as restaurant meals, haircuts, and car repairs?
• Sell digital products and services, such as software and streaming services?
• Have a physical presence in the state, such as a store, office, or warehouse?
• Have economic nexus in the state, meaning they exceed a certain sales threshold, even without a physical presence?

How to register for a sales tax permit in the US 

The process varies by state. However, it generally involves six steps:

1. Gather business and contact information

Typically, the registration process requires submitting general business and industry information (like your product catalog) and financial information (like total sales). The time it takes to complete a registration varies by jurisdiction. 

Additionally, some jurisdictions might require you to file returns even if you don’t have any collected tax to remit.

2. Visit your state’s Department of Revenue website

Since each state has its own sales tax authority, you have to individually register to collect sales tax in each state where you have met tax registration requirements. To register for a sales tax permit, visit the state tax authority website using our guide.

3. Figure out which states you need to register in

It all depends on where you have nexus. 

Your company needs to register for sales tax in each state where you have met the state’s physical nexus or economic nexus standards or any other requirement. If you’re an out-of-state seller, economic nexus is generally your go-to standard for determining when to register to collect sales tax. 

Economic nexus thresholds are based on sales revenue or the number of transactions you make in that state – or, in some states, both. For instance, if you do business in Pennsylvania, your company must collect sales tax if you exceed $100,000 in sales revenue or complete 200 customer transactions. Here’s a complete breakdown of these thresholds.

Want to confirm your nexus the easy way? Book a Demo now. 

4. Complete the application form

Visit your state’s Department of Revenue website using this handy list. Locate the sales tax registration section. This can be done online or by mail. Most states offer online applications, but paper versions might be available. Be sure to answer all questions accurately and thoroughly.

5. Pay the application fee

Each state has a different registration fee, usually paid online or by mail – scroll back up to take another look.

6. Submit the application and required documentation

Submit your completed application and documents to the appropriate agency. Once approved, you’ll receive your sales tax permit. This allows you to collect and remit sales tax legally.

Complyt tips

• Start early: The application process can take weeks or months, so begin early to avoid delays
• Stay informed: Keep your permit up to date and familiarize yourself with any changes in state regulations
• Seek professional advice: Consult a tax advisor or talk to our teams if you need personalized guidance in plain, jargon-free English

Sales tax automation reduces (avoidable) errors that can trigger an audit

By ensuring accurate calculations and timely filings, the (avoidable) errors that can trigger audits are largely eliminated.

How? 

1. Automated sales tax software are impeccable record keepers

Say goodbye to paper invoices, messy spreadsheets, and human error. Automated systems record all your sales tax transactions, including dates, times, locations, sales amounts, and applied tax rates. What’s more, this info means you can respond to auditor requests ASAP, confidently knowing your books are on point.

2. Streamlined reporting and filing

By automatically generating reports for your specific state and local tax authorities requirements, sales tax software eliminates the need for manual data entry while ensuring compliance with the latest sales tax rates and regulations.

3. Readily available and more precise data 

With sales tax software, you can send auditors organized and easily accessible data when requested. Streamlined processes ensure highly accurate data, reducing the time and resources needed to respond to auditor requests and the associated costs.

Sales tax automation calculates the sales tax rate unique to your business 

Automated systems are constantly updated to align with changes in sales tax laws and rates. This adaptability is vital to maintain compliance, especially for businesses operating across various jurisdictions with different tax regulations. Sales tax compliance platforms, such as Complyt, also monitor new sales tax obligations that may arise for business scales that are expanding rapidly. (If this situation applies to you, be sure to check out our handy guide to navigating Nexus.)

By utilizing the most up-to-date tax rates and regulations for each jurisdiction you operate, sales tax automation guarantees accurate collection and remittance of the exact amount due. This data also lets you gain instant insights into your tax liabilities to identify and correct potential issues before an auditor knocks on your door.

Choosing the right sales tax automation solution

With various solutions out there, which one is right for your business? 

Consider the following factors:

• Business size and complexity: Opt for a solution that scales with your business needs and handles the intricacies of your operations
• State and local tax jurisdictions: Ensure the solution supports all jurisdictions you operate in and adheres to their specific regulations
• Budget constraints: Choose a solution that fits your budget while offering the required features and functionality
• Desired features and functionality: Explore real-time reporting, multi-state compliance tools, and integration with your existing ERP or accounting systems

Investing in a reliable automated sales tax solution simplifies your everyday tax compliance and equips you to handle audits confidently and efficiently. Ultimately, it lets you focus on running your business, knowing your days of worrying about sales tax audits are far behind.

Are you wondering about the state of your sales tax compliance? Grab your free Complyt sales tax assessment now!

Determining you SaaS sales tax liability 

Determining sales tax obligations for Software as a Service (SaaS) can indeed be daunting, but there’s a structured approach a company can take to navigate this complexity:

• Step 1: Establish Your Nexus

Begin by determining in which states you have a sales tax nexus. This includes both physical nexus (physical presence like an office, employees, or property) and economic nexus (based on sales volume or transaction count – the one to look out for). Post-Wayfair, economic nexus is particularly relevant for SaaS companies due to the nature of cross-border online sales.

• Step 2: Understand State Laws

Once you know in which states you have a nexus, you should get a clear understanding of how each state where you have customers classifies SaaS. Do they consider it a taxable service, a digital product, or do they exempt it from tax entirely? This information is foundational and sets the stage for all subsequent decisions.

• Step 3: Analyze Product Details

Assess how your SaaS is delivered and used. Is it purely cloud-based, or does it involve any downloadable software components? Are there any additional services or products bundled with it? The specifics of your SaaS offering can influence taxability.

• Step 4: Identify Customer Locations

Pinpoint where your customers are accessing your service. Sales tax is generally destination-based, meaning it’s applied based on the customer’s location. For SaaS, this can be complex, as customers can access the service from multiple locations. So it’s important to monitor customer locations continuously in order to catch nexus triggers early on. 

• Step 5: Assess Possible Exemptions

Determine if there are any customer- or state-specific exemptions. For instance, sales to government entities, non-profit organizations, or resellers might be exempt in certain states.

How to keep track of your SaaS sales tax liabilities

Given the complexity and variability in tax rates and rules, using automated tax calculation software can be a lifesaver. These tools can accurately calculate tax based on the latest regulations and rates, taking into account the customer’s location and product classification.

And once calculated, collected, and remitted, automated software helps you maintain detailed records of transactions, customer locations, exemption certificates, and how tax was calculated. This is vital for audit preparedness and compliance.

Automation software keeps track of tax laws and regulations for you, especially concerning digital goods and services like SaaS, which are frequently updated. It takes the pressure off your shoulders to regularly review your sales tax processes and obligations amid an evolving tax landscape. 

But even with the simplicity of automation software, navigating SaaS sales tax liability is a methodical process if you want to avoid non-compliance. But with the right tools and expert sales tax consultants to help you navigate novel complexities as they arise, it’s a piece of cake. 

How to know where you have a physical nexus

Determining if you’ve triggered a physical nexus is a bit like piecing together a puzzle. The picture becomes clearer as you fit in the right pieces. 

Here are the key factors you need to keep an eye on continuously:

• Physical Location: The most straightforward piece. If your business has a physical location in a state – a store, office, or warehouse – you’ve likely established a physical nexus.
• Employees or Representatives: If you have employees, salespeople, or even independent contractors working for you in a state, this typically constitutes physical nexus.
• Inventory: This is particularly relevant for eCommerce businesses. If your goods are stored in a warehouse in a state, even if it’s an Amazon Fulfillment Center, that usually triggers a nexus.
• Property: Owning or leasing property (equipment, vehicles, etc.) in a state can also establish a nexus.
• Temporary Physical Presence: Attending trade shows, temporary pop-up events, or having a temporary physical presence in a state can sometimes establish a nexus, depending on the state’s laws and how often you engage in such activities.
• Drop-Shipping: If you’re involved in drop-shipping, where a third party fulfills orders on your behalf, this can sometimes create a nexus, depending on the specifics.
• Affiliate & Click-through Nexus: Having affiliate relationships in a state who drive business to you (through referrals or advertising, for instance) can sometimes be considered as triggering physical nexus. 

The complexity arises because each state in the U.S. has its own rules and interpretations of what constitutes a physical nexus, making “Do I have a physical nexus?” a nuanced question to answer. 

What triggers nexus in California might not be the same in Texas or any other state. 

Remember, triggering a physical nexus isn’t just about where you’re physically present; it’s about where your business activities extend. It’s a crucial step in understanding your tax obligations and staying on the right side of state tax laws.

How do I know when I’ve triggered one of these triggers? 

In practical terms, it means keeping a keen eye on your business activities in each state and staying updated with state laws, which can change. When in doubt, consulting with a tax professional or the state’s Department of Revenue can provide clarity and ensure compliance.

The best way to know whether you have a physical nexus is through the use of sales tax software that monitors your business presence automatically. 

Automated sales tax software keeps track of business activities across your operational network, notifying you the moment a nexus is created. That way you know immediately when to register for a sales tax certificate and can actively avoid exposure.

The indirect impact of classifications on nexus liability 

Product classification plays a crucial role in the world of sales tax and can indeed have implications for a company’s nexus liability, albeit indirectly. 

Let’s unpack this:

• Varied Taxability: Different products are taxed differently across states. Some items might be taxable in one state but exempt in another. For example, clothing is exempt from sales tax in Pennsylvania but taxable in many other states. 
• Inaccurate Calculations: Incorrect classification can lead to undercharging or overcharging sales tax, both of which have significant consequences. 
• Taxable Sales Reporting: Misclassifying a product could mean misreporting your total taxable sales, which in turn could erroneously trigger or fail to trigger economic nexus. 
• Complexity in Multistate Operations: For businesses operating in multiple states, the complexity multiplies. Each state can have its unique definitions and rules about product taxability. 
• Use Tax Considerations: If a product is purchased for a purpose that is exempt but later converted to a taxable use, understanding the classification helps in assessing the use tax due.
• Audits and Compliance: If audited, you need to demonstrate that you’ve correctly applied the tax rules to your products. Misclassification can lead to penalties and interest on unpaid taxes.

Sure, while product classification doesn’t create nexus per se, it’s a critical component in managing sales tax obligations and collecting accurate sales tax once nexus is indeed established. 

Putting a label on it: Different product classifications

The impact on nexus liability largely revolves around the taxability of these products and how they are viewed under various state laws. 

Here’s a breakdown of key classification types that should simplify things:

• Tangible Personal Property (TPP) vs. Services: Most states tax the sale of tangible personal property, but their treatment of services can vary significantly. The distinction is crucial because if you sell both TPP and services, your tax obligations can vary greatly depending on the mix of what you’re selling and where.
• Exempt Goods: Some products are universally exempt across many states, like prescription medications and groceries. However, what qualifies as an exempt grocery item can differ from one state to another. 
• Luxury Items or Sin Goods: Some states impose higher tax rates on luxury items or so-called “sin goods” like alcohol, tobacco, and sometimes even items like fur clothing or expensive cars. 
• Digital Goods and Software: The taxation of digital goods (e-books, digital music, etc.) and software (including canned software and SaaS) varies widely. While digital goods are largely tax-free, because they are not tangible property, many states recognize their place within the market zeitgeist and tax them as the “new” form of tangible product. 
• Clothing and Apparel: Clothing is a unique category. In some states, clothing is entirely exempt, while in others, only items below a certain price point are exempt. In some jurisdictions, specific types of apparel (like work uniforms or protective gear) are also exempt.
• Food and Beverages: Like clothing, food and beverages have varying tax treatments. Some states exempt all food sold in grocery stores but tax meals sold in restaurants. Others have special tax rates for prepared foods, soft drinks, or alcoholic beverages.
• Eco-Friendly Products: Some states offer tax incentives for environmentally friendly products, such as solar panels or electric vehicles. These products might be exempt from sales tax or eligible for tax credits.
• Educational Materials: In some states, educational materials are exempt, especially when purchased by students or educational institutions.
• Medical Equipment and Supplies: Although generally exempt, what qualifies as medical equipment can vary. For example, some states might exempt over-the-counter drugs, while others only exempt prescription drugs.
• Children’s Products: Certain products designed for children, like diapers or baby formula, might be exempt or have a reduced tax rate in some states.

Understanding how each of these categories is treated in the states where you have a nexus is essential. Ultimately, product classification isn’t just about what the product is; it’s about understanding a complex web of tax laws that change from one state to another.