Monday, February 20, 2012

FAQ: What are the Different Types of Exemption Certificates?

An exemption certificate is presented to the seller by the buyer.  Properly completed, it relieves the seller of the responsibility of collecting sales and use tax from the buyer.

Generally, certificates are needed for exemptions based on buyer's organization, or how the buyer will use the purchase. The forms required vary by state.  Sometimes there is one form that works for all exemptions, and sometimes there are specific certificates for certain sets of exemptions.

There are several types of exemption certificates:

The buyer is intending to resell the purchase or use it as an ingredient in something he will manufacture.

The buyer will be using the purchases for farming, cattle, or nursery-type activities.  This category also sometimes include forestry and aqua-culture.

Direct Payment 
The buyer has made a deal with the state to allow them to pay their use taxes directly.  Therefore, they do not have to pay sales and use taxes to the seller.

Most states have the above exemptions.  The following are exemptions that are used in most states, but are nowhere near universal.

Non-profit organizations
Charitable organizations usually have to be registered with the state and provide a certificate to the seller if the purchase will be tax free.

Government agencies
Often these exemptions are documented by other paperwork, such as contracts or purchase orders.  However some states do use certificates for this exemption. 

If they're going to use equipment and supplies in manufacturing, many states give an exemption which the buyer must document with a certificate.

You'll also see exemption certificates used for other exemptions including mining, commercial fishing, out of state custom printing, enterprise zones, research and development, etc.

Note, despite the disclaimers plastered all over, some people still bust my chops about a particular rule not being the case in their state.  Remember, the rules are different where you are!  Sheesh.

The Sales Tax Guy

See the disclaimer - this is for education only.  Research these issues thoroughly before making decisions.  Remember: there are details that haven't been discussed, and every state is different.  Here's more information

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