Thursday, September 20, 2007

A Certificate Isn't Enough!

Here's a question I recently got (I've edited it a little):

"I am selling someone a machine, and they have provided me with their tax id number. Is this enough? What else do I need and how do I report it on my return?"

Every state is different so make sure you check the local statutes and regulations. But here are the general rules:

1. You'll need a certificate from the buyer, usually signed, describing the situation, and showing their registration number with the state. Each state has their own set of forms and requirements. Check the forms section of the state Web site. Just the number itself usually will not do it. And make sure the number is the state's assigned number, not the federal employer ID number.

2. The transaction must truly be exempt from tax. If you know it's taxable, even if they give you the proper paperwork, you usually must still charge tax. For example, if your friend is a funeral director, and he's buying a cash register, it's probably not for resale. Even with a resale certificate, you'll probably need to charge tax. Again, state rules vary - I'm giving you the most conservative perspective.

3. As far as reporting it on the return, read the instructions. Most states require you to report your gross sales and deduct your exempt sales.

Sales Tax Guy


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