South Dakota: Get Exemption Certificates Right
- Jan 26, 2015 | Gail Cole
Sales tax exemptions occur for one of several reasons: The product or service may be specifically exempt by state law; the product or service may be exempt for a specific purpose; or the buyer may be exempt. Different situations may require different types of validation.
The South Dakota Department of Revenue explains what sellers need to do to properly document an exempt sale in situations where the good or service is not specifically exempt.
Sellers must charge sales tax unless the buyer presents the seller with a properly completed sales tax exemption certificate. Once obtained, the exemption certificate must be maintained for a period of at least three years.
Buyers who make recurring exempt purchases from a seller may remit a blanket exemption certificate, provided the reason for the exemption is the same. “A blanket certificate continues in force until canceled by the purchaser.” It is the responsibility of the buyer to assure that his/her purchases “are of a type covered by the exemption certificate.”
Sellers in possession of a properly completed exemption certificate are not responsible for collecting and remitting South Dakota sales tax on covered purchases provided all of the following conditions are met:
- “All fields on the exemption certificate are completed by the purchaser.
- The fully completed exemption certificate is provided at the time of sale.
- The state that is due the tax on the sale allows the exemption reason.
- The seller does not fraudulently fail to collect the tax due or solicit customers to unlawfully claim an exemption.”
South Dakota, a member of the SST member states may request copies of the certification South Dakota sellers use to document exempt sales.
Sellers doing business in non SSUTA member states “must obtain documentation to support exempt transactions as required by that state.”
Reasons for an exemption
Exemption certificates must identify the reason for the sales tax exemption (along with other information). Valid exempt sales include the following:
- Sales to the federal government and its agencies.
- Sales to South Dakota and local governments.
- Sales to Indian tribes.
- Sales to foreign diplomats.
- Sales to charitable organizations.
- Sales to private or religious education organizations.
- Sales for resale.
Additional valid reasons for a seller to exempt a sale include the following:
- Agricultural exemptions.
- Direct pay permit purchases.
- Direct mail.
The South Dakota Department of Revenue Tax Facts provides detailed information about each of the above, as well as a South Dakota Streamlined Sales and Use Tax Agreement Certificate of Exemption (and instructions).