Resale Certificates Sales Tax 101

What are sales tax exemption certificates?

by Jennifer Dunn

sales tax exemption certificates

Exemption certificates are a way for a business or organization to attest that you are a tax exempt entity, or that you are purchasing an item with the intent to use it in a way that has been deemed exempt from tax. In other words, sales tax exemption certificates are your proof that you can buy an item tax free.

There are two main types of exemption certificates:

Usage-based Exemption Certificates

  • Resale certificates – used when buying something at retail that you intend to resell
  • Offshore  – used to purchase items that will be used on oil rigs, etc.
  • Agent of a Governmental Entity – when contractors or other vendors make purchases that will be used for a government job

Resale certificates are the most common type of exemption certificate a retailer or online seller will use. You can everything you need to know about them in our Resale Certificates FAQ for Online Sellers.

Entity Exemption Certificates

This is where entities are allowed to buy items tax free for their own use. Some entity exemption certificates are:

  • Federal government
  • State government
  • Local government
  • Tax exempt or non-profit exemption certificates

Rules about which entities can use exemption certificates for which purchases vary by state. For more info, you can check with your state’s department of revenue.

While not technically an exemption certificate, a third type of sales tax certificate is often lumped in with these other types of sales tax documents:

Direct Pay Certificate

Companies who make large purchases of multipurpose items (i.e. mixed orders of items they intend to resale and intend to use in their own businesses) can sometimes obtain a “direct pay certificate.” In this case, the company doesn’t have to pay sales tax to their vendor when making a purchase. Instead, they are required to calculate, file and pay the sales tax they would have paid when making the purchase.

Rules for obtaining and using an exemption certificate vary by state and by type of certificate.

Further Resources

Have questions or something to say? Start the conversation in the comments!

Start your 30 day free trial of TaxJar. No credit card required.
Processing...
Thank you! Your subscription has been confirmed. You'll hear from us soon.
Subscribe to the TaxJar Sales Tax Blog
ErrorHere