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Exempt Customers from Sales Tax

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 CertCapture

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.

Configure CertCapture in AvaTax

To configure CertCapture for an AvaTax account, follow these steps:

  1. In AvaTax, go to the Organization tab, and then select a Company.
  2. On the Company page, click the Exemptions tab.
  3. On the Exemptions tab, click AvaTax Certs Company Settings.
  4. In the Edit: AvaTax Certs Company Settings window, type your AvaTax Certs Client Code and AvaTax Certs Org Code. Set the AvaTax Certs Status as Enabled and click Save.

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Add a customer record to CertCapture from Microsoft Dynamics AX

  1. Go to Accounts receivable > Common > Customers > All customers.

  2. In the Customer Master window, you can either directly click AvaCerts > Create Customer or select a customer and then click AvaCerts > Create Customer.
  3. In the Create customer record in AvaCert window:
    1. Go to the Overview tab and select the customer address.

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    2. On the Address tab, click Functions and then click Validate the address.

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    3. On the Contact information tab, type the contact details for your customer.

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    4. Click Send. The message "Customer record has been successfully created in AvaCert" is shown. Click OK.

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    5. Click Close.

Request an exemption certificate

  1. Go to Accounts receivable > Common > Customers > All customers.

  2. In the Customer Master window, you can either directly click AvaCerts > Initiate Exemption Request or select a customer and then click AvaCerts > Initiate Exemption Request.
  3. In the Exemption certificate request workflow window:
    1. To choose how to send a certificate request to a customer, in the Send Method section, select Email or Fax or Mail.   
    2. You can add a custom message to the request. This field is useful for communicating instructions if you send the exemption request via Fax.
    3. Click Send.

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      The message "The Exemption Certificate Workflow Request has been successfully generated. Tracking code is - xxxx-xxxxxxx" is shown. Click OK.

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    4. Click Close.

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:

  1. Go to Accounts Receivables > Common Forms > Customers > Choose Customer > Setup tab to open the Customer Card.
  2. Locate the Tax Exempt Number drop-down box
  3. Click the down arrow and click the appropriate tax exemption number for this customer.
  4. Every sale for this customer is now be exempt from tax.

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.

  1. Go to Avalara AvaTax > Utilities > Entity Use Code Mapping menu.
  2. Click in the grid and click the NEW icon.
  3. Click New Line.
  4. In the Customer Account field, select a customer from the drop-down menu.
  5. In the Address Name field, select the name for this address from the drop-down menu.
  6. In the Address field, select an address for that customer from the drop-down menu.
  7. In the Entity Use Code field, select an entity/use code from the drop-down menu.
  8. 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.

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