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 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.
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).
Exempt customers with exemption certificate number
To update the sales tax group, determine the customer you want to update and perform the following updates:
Map entity/use codes
Use the entity/use code mapping menu to assign a specific entity/use code to a specific customer address. For more information about available entity/use codes, see exemption reason matrices.
- Go to General Ledger > Setup > Sales tax > AvaTax > Utilities > Entity Use Code Mapping menu.
- Click in the grid and click the NEW icon.
- Click New Line.
- In the Customer Account field, select a customer from the drop-down menu.
- In the Address Name field, select an address for that customer from the drop-down menu.
- In the Entity Use Code field, select an entity/use code from the drop-down menu.
- Click the Save icon. Every sale for the customer at this address will be exempt from tax within the extent that exemption codes can exempt tax at that jurisdiction.