Is an out-of-state exemption certificate valid
Sales tax exemption certificates allow buyers to make tax-free purchases on sales that would normally be subject to sales tax. For instance, if a buyer holds a non-profit status, it may be eligible to make purchases without paying sales tax. Exemption certificates serve as proof that the tax-free sale was valid.
Many states have state-specific exemption certificates, though there are certificates that work for multiple states.
Since certificate rules vary from state to state, questions do arise. Here is an example from our forum:
We are a Virginia based company with an Alabama customer who is doing work in Virginia for a division of the federal government. Can we accept the customer’s Alabama tax exemption certificate for multiple purchases and remove Virginia sales tax?
As a general rule, vendors are required to register as a sales tax vendor in all states where they have nexus. Since the Alabama vendor described above is operating in Virginia, it should be able to give the Virginia-based company a Virginia exemption certificate.
Virginia does not provide specific guidance on this scenario. However, the Virginia Tax Commission does list Common Exemptions and Exceptions to the Retail Sales and Use Tax, explaining the following:
“In many cases, in order to sell, lease or rent tangible personal property without charging Sales Tax, a seller must obtain a Certificate of Exemption from the buyer…. A dealer who makes a sale without charging applicable Sales Tax must retain a copy of the exemption certificate on file to substantiate the sale was indeed tax exempt under the law.”
The Tax Commission then recommends vendors verify that dealers who provide sales exemption certificates are in fact registered to collect retail sales and use tax in Virginia.
All registered vendors (in this case, the Virginia based company) have an obligation to ensure that any certificate they accept supports the exemption provided. Vendors assume risk every time they accept a certificate for any exemption, and that risk can be compounded when the certificate provided is not one issued by the vendor’s home state.
Virginia does not accept the Multistate Tax Commission (MTC) exemption form. This suggests an inclination to rely solely on Virginia exemption certificates.
The 2021 sales tax changes report: midyear update
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