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Common Business Tax Questions: Certificates and Use Tax

business tax questions certificates

In part one of this two-part blog series, we looked at some of the most common tax questions often asked of business tax professionals. This is a vital area for businesses large and small, and it’s natural to have some questions — even simple ones, as these are often some of the most important.

At SalesTaxSolutions.US, we’re happy to serve a number of roles for our clients in the realm of sales tax and tax compliance, including answering all your questions about business taxes and related areas. What are some of the other important questions you might have in this realm? Here are a few, plus the basic answers to each of them.

I Accepted an Exemption Certificate — Why Was I Still Charged State Tax?

This question often arises based on a simple misunderstanding of what an exemption certificate actually is. This certificate allows retailers to buy items they intend to resell without paying any sales tax if they present a resale certificate, and retailers may also accept these certificates from buyers.

There are many cases where using these certificates indeed does not incur any state sales tax. However, these certificates also expire after three to four years, and if you haven’t updated your records since the certificate was first presented, you may still be charged state sales tax.

Another possibility is that the items in question weren’t actually eligible for exemption in the first place. For example, food and drink are almost never exempt from state sales tax, no matter what the purpose of the purchase.

What is Use Tax, and Why Does it Exist?

Use tax refers to tax on any storage, use or consumption of a taxable item where no sales tax was paid. For instance, let’s say your company is buying products it intends to resell later on — you do not typically have to pay sales tax on these items, as you are not the final user. However, if you store these items in your office or use them in any way before selling them, your state may charge use tax.

Essentially, the goal of use tax is to ensure that everyone who uses taxable items pays some form of tax on them, regardless of whether they paid sales tax when they made the purchase. This balances out the system and provides states with important tax revenue.

How Can I Avoid Use Tax?

The simplest way to avoid use tax is to ensure you are only using products you’ve already paid sales tax on, or that are exempt from sales tax. However, if you do find yourself in a situation where you owe use tax, you can often apply for a use tax exemption.

For example, if you’re buying materials to create a product that will be exported out of state, you may not have to pay any use tax on these materials. To claim this exemption, you’ll need to provide documentation showing that the products were indeed exported.

For more answers to common questions about business tax and related areas, or to learn about any of our sales tax compliance, registration or other solutions, speak to the staff at SalesTaxSolutions.US today.


Christopher Stout

Christopher Stout has 25 years of experience as a sales tax accountant, working across a wide variety of industries and sales platforms. He's personally prepared or supervised the preparation of over 60,000 sales and use tax returns in his career.

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