Two situations where you'll need an exemption certificate - and why!

Exceptions from the default sales tax rules can usually be broken down into four broad categories:

1 Services that are taxed

Exemptions from the tax based on:
2 Organization of the buyer
3 Expected use by the buyer
4 What is being sold

Generally, if something is exempt, because of what it is (item 4) - like food or drugs, then no certificate is necessary. But if it's exempt because of who the buyer is (item 2), or what the buyer's intended use is (item 3), then you'll probably need a certificate from the customer.

In both of these cases (2 and 3), the reason for the exemption is buyer-centric. The buyer is a particular type of organization (eg. government or non-profit). Or the buyer is going to use the purchase in a certain way. Therefore, you will need something from the buyer giving you assurance of their type of organization or their planned use. Because they know, and you don't. But with exemptions that are based on what is being sold (item 4), the exemption is self-evident and usually has nothing to do with the buyer.

The buyer knows who they are and they know what they're going to use the purchase for. So they need to inform you in a way that puts them on "the hook" and gets you "off the hook." That is the purpose of an exemption certificate.

By the way, a short plug: the Four Exceptions are essentially the basis for our Taxing Policies by State webinar. Please join us for states you're interested in.

Sales Tax Guy

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