Tax Exempt

What is tax exempt?

Tax exempt means not subject to a particular tax. Certain organizations (like nonprofits), products, or types of income may be exempt from sales tax or income tax. If a customer is tax exempt, you don't add sales tax to their invoice—but you need proper documentation of their exempt status.

Common tax exemptions

Exemptions vary by jurisdiction but often include:

• Nonprofit organizations — 501(c)(3) charities and similar entities
• Government agencies — Federal, state, and local government purchasers
• Resellers — Businesses buying goods to resell (with resale certificate)
• Certain products — Food, medicine, or other necessities in some states
• Manufacturing equipment — In some states, equipment used in production

Handling tax-exempt sales

When a customer claims tax exemption, get their exemption certificate and keep it on file. Your invoice should note the sale is tax exempt and reference the certificate number. Without proper documentation, you could be liable for the uncollected tax.