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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.

    NS_Cetcapture4.png

Add a customer record to CertCapture from Sage 300

  1. Go to Sage Sales Tax powered by Avalara > AvaTax CertCapture Management > Avalara CertCapture.

  2. In the Avalara CertCapture window, select a Customer.

  3. On the Create Customer tab:
    1. Add the customer's address and click Validate Address.
    2. Click Add new Customer In CertCapture. Then, click OK.

    3. Click Close.

Request an exemption certificate

  1. Go to Sage Sales Tax powered by Avalara > AvaTax CertCapture Management > Avalara CertCapture.

  2. In the Avalara CertCapture window, select a Customer
  3. On the Initiate Exemption Request tab:
    1. Go to the Send Method section and select one of the options to send the certificate request.    
    2. Add a custom message. This field is useful for communicating instructions when you select Fax as the send method. 
    3. Click Initiate certificate request. Then, click OK.

    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 customer using exemption certificate number

To exempt customer from sales tax using the customer's tax registration/exemption number, follow these steps: 

  1. Go to Accounts Receivables > A/R Customers > Customers.

  2. Select the customer.
  3. On the Invoicing tab, follow these steps:
    1. Set the Tax Class to 2.

      Note:

      • A transaction with a Tax Class of 2 and a valid Registration Number is exempted.
      • A transaction with a Tax Class of 1 is taxable and the customer is not exempted, even if the customer has a valid Registration Number.
      • A transaction with a Tax Class of 2 and an invalid or missing registration number is not exempted. The Tax Class is changed from 2 to 1 and the transaction is treated as taxable.
    2. In the Registration Number field, type the customer's tax registration/exemption number.
    3. Click Save, and then click Close.

Configure entity/use codes

Learn how to configure entity/use codesHoverTT.png before you map them to specific customer addresses.

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View and create your own entity/use codes using the Entity/Use Code menu.

  1. In the Entity/Use Code field, click the Magnifying Glass to select an Entity/Use Code.
  2. In the Description field, type the exempt reason.
  3. Click Save, and then click Close.

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Map entity/use codes

Use the Customer Entity Code menu to map entity/use codes to specific addresses. For more information about available entity/use codes, see exemption reason matrices.

  1. In the Customer Number field, click the Magnifying Glass and select the Customer Number you want to map. The Customer Name field auto-populates.
  2. In the Address Type field, select the address type from the drop-down menu.
  3. In the Entity/Use Code field, click the Magnifying Glass and select the Entity/Use Code you want to map.
  4. Click Add, and then click Close.

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Assign Header-level entity/use code

To flag customers as exempt with the header-level entity/use code, follow these steps:

  1. Go to Sage Sales Tax, Powered by Avatax > AvaTax Customer Entity/Use Code Mapping.
    S300-AvaTaxCustomerEntityUseCodeMenuPath.png
  2. Next to the Customer Number field, click the Magnifying Glass and select the customer's number from the drop-down menu.
  3. Next to the Customer Address field, select the customer's address from the drop-down menu.
    S300-EntityUseCodeMapping.png
  4. In the Entity/Use Code field, click the Magnifying Glass and in the AvaTax Entity/Use Code finder, click the entity/use code you wish to use and click Select.S300-EntityUseCodeLookup.png
  5. Click Add.