How to invoice a tax-exempt customer

Some customers don't pay sales tax: nonprofits, government agencies, schools, and businesses buying items to resell. If you normally charge sales tax, a few steps keep a tax-exempt sale clean.

1. Get the exemption certificate first

Ask for the customer's exemption certificate (or resale certificate) before you issue the invoice. Each state has its own forms — for example, New York uses Form ST-120 for resale and ST-119.1 for exempt organizations — and many states accept the multistate Streamlined Sales Tax certificate or the MTC Uniform Sales & Use Tax Certificate.

Check that the certificate is:

• Complete — the customer's name, address, signature and exemption reason are filled in.
• Valid for your state and for what you're selling.
• Current — some certificates expire.

2. Don't add sales tax to the invoice

Leave sales tax off the exempt customer's invoice, but make it obvious why. A good tax-exempt invoice has:

• your usual line items and totals,
• the tax line shown as $0.00 (or omitted), and
• a note like "Tax-exempt sale. Exemption certificate: NY-ST-120-0042."

In Invoice Native, open Bill to, turn on Tax-exempt and enter the certificate number — the note is added to the PDF and no tax is charged.

3. Keep the certificate on file

Store the certificate with your records for at least as long as your state can audit you — often three or four years after the sale, sometimes longer. If you're audited, the certificate is what proves the sale was exempt.

Common mistakes

• Accepting a certificate after the fact without checking your state allows it.
• Using an expired or incomplete certificate.
• Applying a resale exemption to items the customer will use themselves — resale certificates only cover goods bought to resell.

Who is usually tax-exempt?

Common exempt customers include:

• Businesses buying for resale — they pay tax when they sell to their own customers, so they give you a resale certificate.
• Nonprofit organizations that hold a state exemption — not every nonprofit is exempt from sales tax, and the rules differ by state.
• Government agencies, such as federal agencies and, in many states, state and local governments.
• Schools and some religious or charitable organizations, depending on the state.
• Buyers claiming a use-based exemption, such as certain manufacturing or agricultural uses.

Being tax-exempt for income tax (for example, a 501(c)(3)) does not automatically make an organization exempt from sales tax. The state's own exemption certificate is what counts.

What if you already charged sales tax?

If you invoiced sales tax and the customer later shows you they were exempt at the time of the sale:

1. Get the certificate covering that sale.
2. Issue a corrected invoice or credit that removes the tax.
3. Refund the tax to the customer if they already paid it.
4. Adjust your sales tax return as your state's rules allow.

It's much simpler to collect the certificate before you invoice.

A worked example

A Brooklyn print shop sells $500 of printed flyers to a nonprofit that has given it a valid exemption certificate. The invoice shows:

Description	Amount
Flyers, 1,000 × full colour	$500.00
Sales tax (exempt)	$0.00
Total	$500.00

Note: Tax-exempt sale. Exemption certificate: NY-ST-119.1-0042.

Keep an exemption log

If you have several exempt customers, keep a simple log with the customer's name, the type of certificate, its number, the date you received it and any expiry date. Review it once a year and ask for new certificates before old ones expire. When you invoice an exempt customer in Invoice Native, the certificate number you enter is printed on the PDF, so each invoice matches your log.

Customers in more than one state

An exemption certificate is usually tied to a state. If you deliver to an exempt customer in several states, you may need a certificate that's valid in each of them — some states accept multistate certificates, others require their own form. Check before you invoice a delivery to a new state.

If you're not sure whether a certificate is valid, contact the tax agency of the state it was issued for — most publish guidance on accepting certificates in good faith, and some let you verify a customer's registration online.