If you regularly sell to customers who're exempt from tax, you need to store their exemption certificates and consistently exempt their purchases. There's more than one way to exempt customers using Avalara products.
Use exemption certificate numbers or entity/use codes
An entity/use code is a string of characters that tells AvaTax to exempt a transaction from tax. It's called an entity/use code because it flags a transaction with a reason for exemption, based on the kind of entity that's buying - or how the buyer will use what they purchase. An exemption certificate number is a unique string of numbers found on an exemption certificate.
If you use AvaTax and want to exempt a transaction using an entity/use code, enable this option in your AvaTax Configuration menu in your accounting software, and then choose a code from available options in your accounting software when processing a transaction. To exempt a transaction using an exemption certificate number, enter the number when processing the transaction. Your accounting software may not support entity/use codes and exemption certificate numbers, so check your accounting software documentation to confirm that it can pass these codes.
Passing an entity/use code or an exemption certificate number exempts a transaction from tax, but it doesn't attach exemption information or store a copy of your buyer's certificate. You need complete records to support tax exemptions in case of an audit. If you exempt transactions from tax with entity/use codes, maintain organized records for all exempt purchases. For a list of available entity/use codes and their taxability by state or matrix, see Exemption Reason Matrices for US and Canada (Entity/Use Code List).
Use the Avalara Exemption Certificate Management System (ECMS)
If you use AvaTax, the Exemption Certificate Management System (ECMS) is a cost-free feature of your account. To exempt a purchase from tax using ECMS, enable ECMS in AvaTax, and then enter information from your buyer's exemption certificate into AvaTax. ECMS stores the information with your customer's AvaTax record, so their future transactions are exempt.
ECMS doesn't store a copy of your buyer's certificate. You need copies of all of your buyers' exemption certificates in case of an audit, so if you use ECMS to exempt buyers from tax, maintain organized records of your customers' exemption certificates.
CertCapture is an application that manages exemption certificates and other compliance documents. It can be used with or without AvaTax. With CertCapture:
- Send mail or email campaigns to ask your customers for certificates
- Keep your customers' current and historic certificates in one place, so you're ready for audits
- Connect CertCapture to AvaTax to automatically exempt purchases from tax when appropriate
CertCapture stores exemption information and copies of exemption certificates for each customer. With CertCapture, you always have an organized, audit-ready database of exemption certificates.
If you're not using CertCapture to manage exemption certificates, contact your Avalara Customer Account Manager (CAM) for more information.
Once you've exempted the necessary customers, manage the varying taxability of your products and services.