How Do I Obtain A Sales Tax Exemption Certificate?

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Obtaining a sales tax exemption certificate is an important process for businesses and organizations that qualify to make tax-exempt purchases. The process and requirements can vary by state, but there are common steps and best practices that apply in most jurisdictions. Below is a comprehensive guide to help you understand how to obtain and properly use a sales tax exemption certificate, including the use of related forms and documentation.

1. Determine Eligibility for Exemption

Before applying for a sales tax exemption certificate, you must determine whether your organization or the specific purchase qualifies for exemption. Exemptions generally fall into three categories:

Entity-based exemptions: Certain organizations, such as government agencies, nonprofit organizations, and schools, may be exempt from sales tax based on their status.
Use-based exemptions: Some purchases are exempt if the items will be used in a specific way, such as for resale, manufacturing, or agricultural production.
Product-based exemptions: Certain products, like prescription medicines or groceries, may be exempt regardless of the purchaser.

Each state defines its own criteria for exemption, so it is important to review the relevant state statutes or consult with a tax advisor to confirm eligibility [1].

2. Register with the State Tax Authority (If Required)

In many states, before you can issue a sales tax exemption certificate or a sales tax exempt form, your business must be registered with the state’s Department of Revenue or Tax Commission. For example, in Utah, every seller with an established presence in the state must have a Utah Sales Tax License, which is obtained by submitting a business registration form (such as Utah’s TC-69) [1].

3. Obtain the Correct Exemption Certificate Form

Each state provides its own version of a sales tax exemption form or sales and use tax exemption certificate. These forms are typically available on the state Department of Revenue’s website. Common forms include:

Resale Exemption Certificate: Used when purchasing items for resale.
Entity Exemption Certificate: Used by qualifying organizations (e.g., nonprofits, government agencies).
Use-based Exemption Certificate: Used for purchases that are exempt based on their intended use.

For example, Kansas provides several forms, such as the Resale Exemption Certificate (ST-28A), Ingredient or Component Part Exemption Certificate (ST-28D), and Consumed in Production Exemption Certificate (ST-28C) [2].

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4. Complete the Exemption Certificate

When filling out a sales tax exemption certificate, you must provide accurate and complete information. Typically, the following details are required:

Name, address, and tax identification number of the purchaser
Description of the items being purchased
Reason for the exemption (e.g., resale, nonprofit use)
Signature of an authorized representative (if required)
Date of the transaction

Some states allow electronic completion and submission of exemption certificates, while others require a paper form with a physical signature . It’s best to check the state’s official website for specific requirements and accepted formats.

5. Provide the Certificate to the Seller

Once completed, the sales tax exemption certificate or sales tax exemption form must be given to the seller at the time of purchase. The seller is required to keep this certificate on file as proof of the exempt transaction. In most states, the seller is relieved of liability for collecting sales tax if they accept a properly completed certificate in good faith.

6. Maintain Records

Both the purchaser and the seller must retain copies of all exemption certificates for a specified period (often three to four years), as required by state law. These records must be available for review in the event of a state audit [1].

7. Renew or Update Certificates as Needed

Some states require periodic renewal of exemption certificates, especially for entity-based exemptions. Blanket certificates may be used for recurring transactions with the same seller, but the purchaser must notify the seller if the certificate is cancelled, modified, or limited.

8. Special Considerations

Multi-State Transactions: If you make purchases in multiple states, you may need to complete a separate sales and use tax exemption certificate for each state, as exemption rules and forms differ.
Misuse Penalties: Improper use of an exemption certificate can result in liability for unpaid tax, penalties, and interest. States differ in how strictly they enforce these rules, but both parties can face consequences if the exemption is misused.

9. Uniform Exemption Certificates

The Streamlined Sales Tax (SST) Governing Board and Multistate Tax Commission (MTC) have produced standardized exemption documents that can help reduce administrative burden for vendors and purchasers.

Even if a seller or purchaser does not operate in multiple states, there are still practical reasons to use SST or MTC forms:

Consistency for Sellers: Sellers often have many exempt customers. Using a single, uniform form makes it easier for their staff to process and audit exemption certificates. It reduces training needs and the chance of rejecting a valid exemption because it looks “different.”
Audit Protection: Many states explicitly recognize SST or MTC forms as valid substitutes for their own forms. Having a single standard certificate helps ensure that an auditor in one state will accept it without nitpicking formatting or wording differences.
Flexibility for Purchasers: A purchaser may not currently buy across multiple states, but using a uniform form keeps them ready if they expand or drop-ship goods to other states. It avoids re-issuing exemption certificates every time business expands.
Vendor Requests: Some vendors require a uniform form regardless of the state because it simplifies their recordkeeping and reduces risk in multi-state audits.
Administrative Efficiency: A company with many locations or divisions can issue one form (MTC/SST) that applies across the board, instead of tracking dozens of different state-issued forms.

How to know when to use a uniform vs state-specific form:

Some states mandate use of their own certificate for particular exemptions (e.g., Florida resale certificates must be the state-issued version; Washington requires its own resale certificate for certain years/uses).
Specialized exemptions (agricultural, manufacturing, utilities, etc.) often need the state’s specific form rather than a general resale/exempt certificate.
The instruction pages on the SST and MTC forms identify which states require using a state-specific certificate number and which offer reciprocity for other state-issued numbers.

10. Additional Resources

Understand Exemption Certificates: Learn what a sales tax exemption certificate is, how it works, and why accurate documentation is critical for compliance. SeeExemption Certificates Glossary.
Know the Role of Economic Nexus: Discover how economic nexus rules can determine whether your business must collect sales tax even with exemption certificates in place. See Economic Nexus Glossary.
Address State and Local Tax Challenges: Understand common hurdles businesses face and implement strategies to stay compliant. SeeState and Local Tax Issues: Key Challenges and Best Practices.
Avoid Software Compliance Pitfalls: If you use sales tax compliance software like Avalara, be aware of frequent mistakes and how to prevent them. SeeAvoid Expensive Sales Tax Compliance Software Mistakes with Avalara.