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Sales tax exemptions can help businesses reduce costs by avoiding double taxation—paying sales tax on items purchased for resale, then collecting it again when selling to customers.
To make a tax-exempt purchase, a business typically needs an exemption certificate from the state where it operates, which it presents to suppliers. “Exemption certificate” is a broad term and may refer to documents like a Resale Certificate, Exempt Use Certificate, or Exemption Certificate for Promotional Materials. Specific rules vary by state and business type.
Which Business Purchases Qualify for Sales Tax Exemption?
If you’re a retailer or manufacturer buying items for resale, you’re likely eligible for sales tax exemption. Eligibility depends on business operations and state regulations. Commonly exempt business operations include retail, manufacturing, charity, and government.
Retailers buying goods for resale pass the sales tax burden to the end consumer. Similarly, manufacturers can often purchase machinery, materials, and services used directly in production tax-free. However, items like office or cleaning supplies used internally don’t qualify. As the Sales Tax Institute notes,
“A business cannot use a resale certificate to purchase merchandise that they will use and consume in the conduct of business.”
Can You Buy Manufacturing Equipment Tax-Free?
Yes. In many states, machinery and equipment used directly and predominantly in the manufacturing process are tax-exempt if they produce tangible goods for sale. This includes items that cause physical or chemical changes in a product, along with related essential equipment.
Support tools not directly tied to production—such as HVAC systems for employee comfort or general office equipment—are generally not exempt. For guidance, see item eligibility lists from states like Texas and Washington.
Businesses involved in both manufacturing and retail may benefit from holding multiple certificates. For instance, a New York business might use ST-120 for resale and ST-121 for manufacturing.
Do All States Allow Tax-Exempt Business Purchases?
Yes, but processes and qualifications vary widely. States like New Hampshire, Oregon, Montana, and Delaware don’t impose sales tax, so no further steps are needed.
In most other states, businesses must present a valid exemption certificate (e.g., ST-120 in New York, CDTFA-230 in California) to suppliers. Generally, a sales tax permit is required to use a resale certificate.
Furthermore, some businesses that have physical presence across different states may need to obtain a tax exemption certificate from each of state where their purchases are delivered, as some states do not accept out-of-state certificates. For example, New York explicitly states,
“Exemption certificates of other states or countries are not valid to claim exemption from New York State and local sales and use tax.”
Similarly, Maryland requires an in-state sales and use tax license for resale purchases. Therefore, businesses often need seller’s permits in states where they want to make tax-exempt purchases.
What Is a Multijurisdictional Sales Tax Exemption Certificate?
To streamline exemptions across states, intergovernmental organizations have developed standardized multijurisdictional certificates:
Multistate Tax Commission’s Uniform Sales & Use Tax Certificate (MTC Certificate)
- Accepted in 35 states
- Used for resale and component purchases
Streamlined Sales Tax Exemption Certificate (SST Certificate)
- Accepted by 24 member states
- Covers resale and industrial production
These certificates reduce administrative burdens by replacing multiple forms with a single document. However, they’re not universally accepted. Some states require the purchaser to be registered in-state to validate exemption claims. Always read the certificate’s notes section and consult state regulations.
How to Use Blanket Certificates for Recurring Tax-Free Purchases?
Instead of submitting an exemption certificate for every purchase, buyers can use a blanket certificate for ongoing, similar transactions.
A blanket certificate stays valid as long as the buyer-seller relationship remains active and the information remains accurate. Some states require updates periodically (e.g., every three years) or whenever business details change.
Most state revenue departments provide blanket certificate forms. For example, Ohio offers the “Blanket Exemption Certificate” (STEC B), and New York allows ST-120 to be used as a blanket certificate when the appropriate box is checked.
Are Sellers Required to Accept My Resale Certificate?
No, acceptance is up to the seller. If a seller doubts the certificate’s validity or completeness, they may charge the buyer’s seller permit records.
To verify a certificate, sellers may use tools like New York’s Registered Sales Tax Vendor Lookup. According to Tax Valet, even in states that accept out-of-state certificates, suppliers may reject them due to unfamiliarity. Providing supporting documentation can help resolve these issues.
If a seller refuses your certificate, you must pay sales tax but may be eligible for a refund or deduction later. For instance, in California, you can file a CDTFA-101 Claim for Refund with supporting invoices and records.
How to Make Tax-Free Purchases on Marketplaces Like Amazon and eBay?
Amazon offers the Amazon Tax Exemption Program, which enables eligible customers to make tax-exempt purchases. To enroll, businesses must complete a valid exemption certificate online by using the Tax Exemption Wizard. Once submitted, the exemption is typically activated within 15 minutes.
Other major platforms also offer tax exemption programs, such as eBay’s Buyer Exemption program for sales tax, Lowe’s Tax-Exempt Management System, and Alibaba US Sales Tax Exemption Program. Approval times vary by platform—from about 5 days for eBay to up to 30 days for Lowe’s. Smaller marketplaces may not support tax exemptions directly, in which case you’ll need to coordinate with individual sellers to provide the necessary documentation.
Final Thoughts: Boosting Profit Margins with Tax-Exempt Purchasing
Tax-exempt purchases can improve a business’s profit margin by a few percentage points—an advantage that can be significant in competitive industries like consumer goods.
However, navigating sales tax rules can be complex, as regulations vary greatly by state. A company’s ability to make tax-exempt purchases often depends on the location of the purchase and whether the business holds a valid seller’s permit in that state, which may affect eligibility.
Still, businesses can reduce costs by obtaining sales tax exemption certificates in states where they are already registered. Additionally, using a multijurisdictional sales tax exemption certificate can streamline compliance for larger organizations.
Important: This article is intended to provide helpful information. However, it is not legal or professional advice, and should not be relied upon as such. Always consult a qualified expert for guidance tailored to your situation.
