What is a Tax Exemption Certificate?
Tax exemption certificates are documents issued by taxing authorities, usually the states, that grant businesses exemption from certain taxes. These documents are issued as a certificate and must be presented to the taxing authority to claim the exemption. Tax exemption certificates are typically issued to businesses registered as tax-exempt entities. However, in some cases, for-profit businesses qualify to use tax exemption certificates based on what is being purchased and its intended use.
Types of Tax Exemption Certificates
There are several types of Tax Exemption certificates including but not limited to:
- Resale Certificates
- Exempt Use Certificates
- Certificates for Nonprofit Organizations (i.e., Religious, charitable organizations)
- Direct Pay Permits
How Are Tax Exemption Certificates Used?
Tax exemption certificates are used to purchase goods or services from vendors without paying tax. Resale certificates allow resellers to avoid paying taxes on their sale since the purchaser will pay the taxes when the goods or services are resold. Exempt use certificates are typically used when the purchaser intends to use the purchased items in a way that is exempt from tax. For example, a manufacturing company may provide an exempt use certificate when buying materials incorporated into its products. Tax exemption certificates vary by state and typically must be completed and filed with the seller before the purchase is made to be valid.
The Issues
The difficulty with tax exemption certificates is with the storage and maintenance of the certificates. Each taxing authority maintains its rules and regulations governing the certificates they issue. These rules can include various conditions, such as:
- Tax exemption certificates must be stored securely to prevent fraud and data theft.
- They need to be regularly updated or replaced due to changes in laws or regulations.
- The business’ storage system may not be able to accommodate large volumes of certificates.
- The storage system must be regularly audited to confirm the validity of the certificates.
- Tax exemption certificates may have expiration dates that must be monitored.
Source Advisors is Here to Help!
At Source Advisors, we understand our businesses’ needs, especially regarding the necessity, storage, and management of tax exemption certificates. We offer a comprehensive application, TaxCertHub, which is a valuable tool to help businesses acquire, maintain, and address all their concerns regarding tax exemption certificates. With the use of TaxCertHub, businesses can be sure that their tax exemption certificates are in good hands and are being managed effectively, allowing them to focus on other essential aspects of their business. To find out more about TaxCertHub and other products and services we offer, contact a Source Advisors tax specialist today.
