Instructions for Federal Tax Exempt Purchases by Credit Card

Completing a tax-exempt transaction with a credit card involves important details.

In the United States, non-profit organizations enjoy tax-exempt status, which carries exemption from paying federal income taxes, such as on employee earnings. This federal exemption qualifies the non-profit for exemption from state sales tax when goods are purchased for the organization. If you plan on making a tax-exempt purchase for a non-profit using any form of payment, you should contact the merchant before your trip to gain an understanding of its process. You must make the purchase using a credit card with your business name on it.

Things You'll Need

• State certificate of tax exemption

Instructions

1. Ensure that your non-profit has applied and been approved for tax exemption on retail purchases. You complete this process with your state after you've been approved by the federal government. If you don't have a copy of your non-profit's certificate, contact your state's department of revenue to obtain a duplicate or to verify the tax-exempt status in the first place.

2. Contact the merchant where you plan to make the purchase. Some large retailers require tax-exempt customers to create accounts to keep their information on file and to keep their checkouts running quickly. Knowing this before you go to make your purchase can help you avoid delay.

3. Bring your certificate of tax exemption when you go to make your purchase. The cashier will input details from it into either a paper or electronic form before processing the transaction. Alternatively, if the retailer is a purveyor of "tax-exempt" accounts, you'll need the certificate to establish your status with it.

4. Pay using a credit card with your company's name on it. In addition to preventing any discrepancies at the point of sale, this will make your accounting process a lot easier. When you apply for a new tax-exemption certificate every year, you need to provide your state with the amount of tax-exempt purchases you made the previous year.

5. Keep your receipt. You won't normally be required to submit these, but if either the IRS or your state's tax department audits you, you'll want to have as much proof as possible on file.

References

• The Home Depot: Tax Exempt Customer FAQs

Resources

• The Internal Revenue Service: Form 1023