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Exemption Certificates for Federal Government Purchases

author photo of Silvia Aguirre

Why do we collect exemption certificates from the federal government? We can assume that all sales are exempt when dealing with the United States government. Right? Wrong. That’s the problem. We don’t always know if the items that are sold are going to be used by the federal government. Obtaining a certificate from the government can be like pulling teeth. I can’t tell you how many times I have had to explain to a federal employee why they had to provide documentation. Since we can end up having to prove that the items were, in fact, used by the government during a sales tax audit, we need proof.

Most states have a designated exemption certificate for the federal government. Some are easy to identify, such as the states that use the SST form. For others, like Virginia, you may have to dig for that specific certificate and then have it completed.

One possible exception to needing a certificate when selling to the federal government is when a federal employee is purchasing with an official government-issued credit card or paying with a government-issued check. This is proof that the purchased items are being used by the federal government and documenting the transaction can help protect you during audit.

Have you seen or heard of the General Service Administration SmartPay Cards? There are four cards that federal employees can use for official government business. You should obtain all the relevant information from the card and document the exemption in order to exempt the transaction. These cards can be used when employees travel and can only be exempted when the sixth digit of this card is a 0,6,7,8 or 9.

Do you have trouble obtaining documentation for government exemptions, or is it just me?

Note: Silvia Aguirre is no longer accepting new comments nor questions. More recent "Exemption Certificate Mgmt" posts by Michael Fleming (of Peisner Johnson) are still active. Also use the Site's SEARCH bar to locate other helpful information.

Other recent “Exemption Certificate Mgmt.” posts by Silvia Aguirre:

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Comments

Note: Silvia Aguirre is no longer accepting new comments or questions.  More recent "Exemption Certificate Mgmt" posts by Michael Fleming (of Peisner Johnson) are still active.  Also use the Site's SEARCH bar to locate other helpful information.

9 Responses to Exemption Certificates for Federal Government Purchases

  • Posted by Duraid on November 16, 2014 9:41pm:

    We are a small business general contractor (construction) and we have been performing construction projects work on government/military facilities for many years in Michigan.
    All along, we have been informed by our government contacts that taxes must be included in our cost proposals.
    Lately, there has been a push back from one of our subcontractor insisting that all of our government construction projects are local/state/federal tax-exempt.
    According to the State of Michigan government's website, we are exempt from paying Common Sales and Use tax.
    what's you opinion.

    • Posted by Author photo of Susan JaegerSusan Jaeger on December 5, 2014 6:53am:

      Thanks for your question! While Silvia Aguirre’s very helpful Exemption Certificate blog information is still available – she is no longer posting new items or responding to new comments or questions.
      However – some good news…
      Andy Johnson and Michael Fleming of Peisner Johnson & Company have taken over the Exemption Certificate blogging activity. If you would like to post an Exemptions Certificate related question – feel free to submit through the comment section in the newest/latest post(s) listed on this linked page.
      http://www.salestaxsupport.com/blogs/sales-use-tax/author/mikefleming/
      Another option to consider is our "Construction/Contractor" blog category hosted by Dan Davis of McClellan Davis. You can submit a question through the COMMENT section on any of his posts that are listed on the linked page:
      http://www.salestaxsupport.com/blogs/industry/construction-contractor-tax/
      Thanks!
      SalesTaxSupport.com

  • Posted by Barb on January 30, 2014 2:31am:

    We are a value-added reseller and do business with the Federal government. Many times we are re-selling to a go-between company who then re-sells to the Federal government (for security reasons). We order products that are shipped to the actual government location/office but we bill the go-between company (who then invoices the government). What is our responsibility in regards to tax certificates? We've been told by some vendors that if the final user is the Federal Government then everyone in the chain is tax-exempt. Is that true? Do we have a responsibility to collect a resale cert from the go-between company, and do we also have a responsibility to provide a resale cert to the company we are purchasing the product from? There seems to be a lot of confusion and different opinions on how to proceed. Thank you.

    • Posted by Author photo of Silvia AguirreSilvia Aguirre on January 31, 2014 3:06am:

      Barb, thank you for your questions. Let's start with 'Do you have a responsibility to collect certs' - yes if you have nexus in the states you are delivering your product. If you are to collect tax and the purchaser does not want to pay it, then you need a certificate to explain why they don't want to be charged tax. 'Do you have a responsibility to provide a resale cert to the company you are purchasing from' - well, not really a responsibility, but if you are buying product to resell, and you are being charged tax, you could provide a certificate to not pay the tax, explaining that you are reselling. If truly the federal government is the final user, then it could be that the transaction is exempt but between the federal government and the vendor (your go-between). If you selling directly to the federal government, then you could request an exemption certificate from them. If your go-between company is reselling to the federal government, then they could give you a resell certificate. If the go-between is not reselling but using the product to benefit the federal government, they need to get an exemption certificate from the federal government and in some cases can pass-through the exemption to your company. I hope this helps.

  • Posted by A on November 18, 2013 3:18am:

    Here's a slightly different situation. We are selling to an out of state contractor as a set-aside who is then reselling to a federal agency. We are obligated to charge tax and the set aside it ouf of our state and does not qualify for resale. Can't the federal agency issue a letter of exemption for our records? My state says we much charge it. Now what?

    • Posted by Author photo of Silvia AguirreSilvia Aguirre on December 2, 2013 1:18am:

      Hi! There are pass through contractor certificates when dealing with the federal government but it depends on the state. alternatively, some contractors can be registered as retailers too.. also depends on the state. What state are you referring too?

  • Posted by Milton on August 5, 2013 7:16am:

    When contracted with a government agency and purchasing items for that agency which is tax exempt, how can I obtain a tax exempt certifercate for the items that I have to purchase for that government agency. we are not a non-profit organization.We're spending hundreds of dollars on items that we have to pay taxes on for government agencies that will not reimburst us for funds we have already paid in taxes...

    • Posted by Author photo of Silvia AguirreSilvia Aguirre on August 11, 2013 2:27am:

      Milton, interesting question. I am not sure what kind of business you are in, but if you are reselling to the federal government or anyone else, certainly providing a resale certificate to your vendor should suffice. However, if you are "using" what you are purchasing and then selling to the federal government or anyone else, you would have to pay taxes. Some states, mainly in contractor work, have a "pass through" certificate where you can attach the federal cert along with the state cert to reflect the items being purchased are in fact for federal work.

  • Posted by Are on July 14, 2013 11:01pm:

    [...] Aguirre provided some useful information in her most recent post on Sales Tax Support about federal government exemptions. One handy tip she shared: when a General Service Administration SmartPay Card has a 0,6,7,8 or 9 [...]

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