Definition
A tax-exempt sale is one on which no sales tax, VAT, or GST is charged because the buyer, the product, or the transaction qualifies for an exemption. Examples include sales to nonprofits with exemption certificates, resale purchases, exports, and certain essentials. The invoice should state the reason for the exemption.
Also called: Exempt sale, Zero-rated
Tax exempt in practice
Keep the buyer's exemption certificate on file. If you are audited, you must prove why tax was not charged. Zero-rated is a related VAT concept: the sale is taxable at 0 percent, so the seller can still reclaim input VAT.
Frequently Asked Questions
How do I show a tax-exempt sale on an invoice?
Show tax as 0 and add a note such as "Tax exempt: resale certificate on file" or "Zero-rated export". Include the buyer's exemption or VAT number if applicable.