Sales tax exemption certificate
Also called exemption certificate, tax-exempt certificate
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is sales tax exemption certificate?
A sales tax exemption certificate is a form a customer gives a seller to show that a purchase isn’t subject to sales tax, so tax is left off the invoice. In the US, the common types are resale certificates, for businesses buying goods to resell, and certificates for exempt organizations or exempt uses defined by each state.
How it works
The distributor has to keep a valid certificate on file for each exempt customer; in a sales tax audit, a sale without one can leave the distributor owing the tax. Because sales tax rules differ by state, a certificate generally needs to be valid for the state the goods are delivered to, which matters for drop shipments and multi-state customers.
Sales tax exemption certificate example
“We’re tax-exempt,” says a new account. Until the certificate arrives, the CSR leaves the account taxable, then marks it exempt for that ship-to state.
Related terms
- Resale certificateA resale certificate is a form a business gives its supplier to show it is buying goods to resell, so the supplier doesn’t charge sales tax on them.
- InvoiceAn invoice is the seller’s bill for goods or services delivered, listing the items, quantities, prices, freight, tax, payment terms and amount due.
- Bill-to and ship-toBill-to and ship-to are the two addresses on a customer order: the bill-to is where the invoice goes, and the ship-to is where the goods are delivered.
- Drop shipmentA drop shipment is an order the distributor sells but has the manufacturer ship straight to the customer, so the goods never pass through its warehouse.
