How do I obtain a sales tax exemption certificate?

< Back to Q&A

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].

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.

Get Expert Advice

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, any potential liability is transferred to the purchaser while 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.

Key Takeaways

Always use the official sales tax exemption certificate or sales tax exempt form provided by the state.
Ensure all information is accurate and complete to avoid liability.
Keep records of all exemption certificates for the required retention period.
Consult with a tax advisor or your state’s Department of Revenue for specific guidance.

If you have further questions or need assistance with a specific state’s requirements, Bennett Thrasher can help guide you through the process. Contact BT’s SALT team or call 770.396.2200.

Cited sources

Back to Q&A