Why certificates exist
A buyer who purchases goods to resell, or who is an exempt organization, can generally avoid paying sales tax if they provide a valid certificate. The certificate shifts responsibility, but only if you accept it properly and keep it. Without one, the state may treat the sale as taxable and look to you for the tax.
Selling into a new state? Sales tax permit registration.
Each state has its own forms, and some accept a multi-state form. Download the form from the state's agency.
Get it at the time of sale
The easiest time to get the certificate is before or at the first sale, not after a state letter. Add it to your new customer setup. Pause the first exempt order until the certificate arrives, or charge tax and refund it later.
Do not accept a verbal statement. A customer who says they are tax-exempt must provide the paperwork.
Check the certificate
Look at the buyer's name and address, the reason for exemption, the registration number, the date and the signature. Check that the exemption matches what is being bought. A certificate for resale does not cover a purchase the buyer will use themselves.
Some states allow you to verify numbers online. Do so for large accounts, and note the verification date.
Store and link
Attach each certificate to the customer's record in your accounting or sales system and mark the customer as exempt for the stated reason. Keep a spreadsheet listing the customer, certificate date, expiration if any, state and location of the file. Certificates may expire or need renewal, so set a reminder.
Keep them for the period your state requires, which can be long, and confirm with the agency.
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Handling problems
If a customer cannot provide a certificate, charge the tax. If a certificate turns out to be invalid after the sale, speak with your advisor and the state about how to correct it. Do not simply ignore the problem.
At return time, report exempt sales separately and be ready to show certificates for each one if asked.
A sample tracking sheet
Set up columns for customer name, state, reason for exemption, certificate number, date received, expiration, the person who checked it and the file name. Sort by expiration so renewals show up first. Review the sheet before each return and confirm every exempt sale in the period has a matching row.
When a customer buys under more than one exemption, such as resale for some items and an exempt use for others, note which items the certificate covers and charge tax on the rest.
A last practical point concerns staff. Whoever enters orders needs a simple rule, such as no exempt flag without a certificate on file. Without that rule, a well-meaning employee may mark a friendly customer as exempt to be helpful, and the business will carry the cost of that kindness later.
Worked example with numbers
A buyer gives a resale certificate on a $2,000 sale. You keep the signed, dated certificate with the invoice and record the sale as exempt, collecting no tax. If you were audited and could not produce the certificate, tax may be due on that $2,000. At a 6.625% rate that would be $132.50, plus any interest and penalties; confirm the current rate with the NJ Division of Taxation.
Build a tracking sheet with the customer, certificate type, date received, expiration if any, and where the file is stored.
Mistakes that cost money
Taking a certificate months after the sale. Accepting an incomplete form. Losing the certificate. Applying an exemption to items the certificate does not cover.
Check your work
Once a year, compare exempt sales on your return to the certificates on file.
Common questions
Do I need a certificate from every business customer?
Only from those you do not charge tax. A business customer who pays tax does not need one.
Can I accept an electronic certificate?
Many states accept electronic copies, but check the agency's rules.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.