Exemption Certificates

In most cases, for a sales tax exemption to apply, the purchaser must present the seller with a written certificate that documents the exemption the purchaser is claiming. The seller will then be relieved from paying or collecting tax on the sale, provided the seller accepts the certificate in good faith and with a reasonable belief that the purchaser is entitled to the claimed exemption.

Contents of certificates. Some states provide specific exemption certificate forms that purchasers should use in claiming different exemptions. Other states, while not issuing specific forms, specify what information must be included in an exemption certificate. At a minimum, the certificate should include the following information:

Blanket certificates. Most states recognize that it would be burdensome for purchasers to supply sellers with whom they frequently deal separate exemption certificates for each separate purchase. Accordingly, these states generally allow sellers and vendors to agree to use a "blanket certificate" that will continue in force for a period specified on the certificate. However, some states put a limit on how long blanket certificates may remain valid without being renewed or updated. Regardless of any such state limitation, as a practical matter it's probably a good idea to request that a purchaser annually provide you with an updated certificate to ensure that your records are current.

Good faith requirement. States impose this requirement on sellers to ensure that proffered exemption certificates have some minimum degree of accuracy and reliability. Obviously, "good faith" is an extremely subjective standard, and it doesn't require that sellers delve into every detail of their purchasers' business operations. What the requirement generally obligates sellers to do is to verify that basic information on the certificate is accurate, that the certificate fits the business for which it is given, and that the claimed exemption could reasonably apply to the transaction at hand.


Let's assume you own a tire shop. The owner of a restaurant across the street provides you with a resale certificate for the purchase of some tires. You should ask your customer to explain how the resale of tires applies to his restaurant business. That is, you should require some further evidence that the restaurant owner is engaged in the retail tire business. While taking these additional precautions may seem intrusive to the purchaser, you need to protect yourself from any claim that you improperly accepted the exemption certificate.