DepartmentDepartment of of RevenueRevenue

Exemptions from Sales

Tax

What

Who

Why

Documentation

Examples of Exempt Products or Services

• Agricultural products • Agricultural services• Warranty Goods• Food Stamps (SNAP)• Water Supply System• Trucking Services• Trade-in Allowance• Mini-Storage

• Prescription drugs for humans

• Prescribed medical devices

• Healthcare Services• Financial Services• Social Services• Travel Agent Services• Advertising Services

• Government ~ RG xxxx-xxxx-RG– Not all government agencies have an RG number.

• Tribal Governments

• Public/Private Schools ~ RS or RE

• Relief Agencies ~ RA

• Nonprofit Hospitals

EXEMPT PURCHASER

• Purchasers that are NOT exempt:

• Churches– Purchases by churches are subject to sales tax.

• Non-profit civic organizations– Such as PTA, Service Clubs (Rotary), Veterans

clubs etc. Their purchases are subject to sales tax. – Their dues are exempt from sales tax as are

services provided by them.

TAXABLE PURCHASER

• Sales for Resale• Goods sold are shipped outside the state

– Documentation is shipping address

• Goods are leased outside the state• Services are received by customer outside the state

Examples of where tax is sourced (or due): Repair Service – keep documentation where customer takes receipt of

the repaired item Consulting service – keep documentation where report is sent Online service – documentation is customer’s address Use Tax is due where the service is used. This may differ from where the receipt is.

WHY IS IT EXEMPT

RESALE PURCHASES OF PRODUCTS

• Tangible personal property purchased to be resold

• Tangible personal property purchased to be leased

Note: Tangible personal property used by service providers cannot be purchased exempt for resale unless there is a specific exemption. Example: Chemicals used by lawn care providers can be purchased for resale.

DOCUMENTATION FOR EXEMPT SALES IS REQUIRED

Using the

Exemption Certificate

•Purchaser must provide to Seller

•Good for only ST, WT, MT licenses

•No requirement to update, but DOR advises to updated every 3 years

•Invalid Certificates - Issuer may be held responsible for tax plus up to 50% penalty, and may be guilty of Class 1 Misdemeanor.

• Federal government • State or local government (see next slide for out-of-state governments)

• Tribal government• Foreign diplomat• Charitable organization - SD Relief Agency permit

required• Religious or private educational organization - SD permit

required (only SD religious or private schools are exempt)

• Resale• Agricultural (item or service must be specifically exempt)

• Direct pay permit • Direct Mail

REASON FOR EXEMPTION

• The governments from other states or the District of Columbia are exempt from SD sales tax if the law in that state provides a similar exemption for SD governments.

• Governments providing a similar exemption: Colorado, Indiana, Iowa (lodging is not exempt), Minnesota (lodging and meals are not exempt), North Dakota, Ohio, and West Virginia.

• The governments from states without a sales tax are exempt from South Dakota sales tax. These states are Alaska, Delaware, Montana, New Hampshire, and Oregon.

EXEMPT GOVERNMENTS

ADVERTISING SERVCIES

If ad is prepared and placed in the media by the service providerthe service is exempt.

Media: Newspaper, radio, TV, Internet, magazine etc.

If prepared by service provider and given to the customer it is taxable.

EXEMPT SERVICES

Tangible personal property can be purchased for resale if it becomes part of the final product

Examples of purchases for resale by manufacturer: SteelScrewsTiresEngine GlassShipping container

MANUFACTURERS

MANUFACTURERS

•Raw materials sold to manufacturers, processors or fabricators are exempt from sales tax as a sale for resale.

Raw materials include:

containers labels packing cases

wrapping paper twine bags

bottles tape casings

and similar articles and receptacles if they become part of other tangible personal property to be sold ultimately at retail.

COMPONENT PARTS - CONTAINERS

PACKAGING AND CONTAINERS

Retailers can purchase certain containers exempt from

sales tax as a sale for resale even if the retailer – Furnishes the container free of charge to a customer,

as long as the container hold products the retailer sold

to the customer

•Containers include: bags, boxes, wrapping paper, twine, tape, cups, food wrappers, and similar articles.

Containers the retailer reuses cannot be purchased for resale.

Services as a component part of a manufactured product

Example of services that might qualify for resale for manufacturer, fabricator or processor:

WeldingPainting

Design service does not qualify as

a service for resale

Two criteria must be met for service to be purchased for resale:

1. Service is not used in any manner by the seller and

2. Service is delivered or resold to the ultimate customer without any alteration or change.

SERVICES FOR RESALE

Is the service used to develop a product or does it become an actual physical part ofthe product?

Attaching components - becomes part of the product.Resale allowed.

Designing - does not become actual part of product. Resale not allowed.

SERVICES FOR RESALE

A service provider can purchase another service for resale if the service is delivered to a specific customer in conjunction with the services contracted to be provided to the customer.

3 criteria must be met in order to purchase the service for resale:

1. Purchased for or on behalf of a current customer;

2. Purchaser of the service does not use the service in any manner; and

3. Service is delivered or resold without any alteration or change

SERVICES TO OTHER SERVICE PROVIDERS

RESALE EXAMPLES

Veterinarian Services: •Laboratory services for a specific customer can be purchased for resale

•The veterinarian’s service is subject to sales tax, but they can purchase medications as a sale for resale

•Products placed in or on the animal can be purchased by the veterinarian for resale

RESALE EXAMPLES

#1 - A computer software company hires a programmer to develop customized software for a specific client. Is this resale?

Yes, it meets all 3 criteria.

#2 - The software company hires a programmer to develop a new app to scan products and compare prices. The software company then copies and markets this plan to the public. Is this resale? No, not developed for specific client.

ARCHITECTS, ENGINEERS, SURVEYORS

Exception to the rule that it “must meet the 3 criteria”

Any service purchased by an architect, engineer or surveyor on behalf of a client in performance of a contract for that client may be purchased for resale.

• Internet Publications– Exempt Entities– Exemption Certificate

• Statistics– List of Relief Agencies

• Coming January 2012

You can request a tax seminar for your specific business orindustry.

Sources

Questions?Need Information?

Visit our Websitewww.state.sd.us/drr2

Toll Free Number: 1-800-829-9188

Visit our Geographic Information Systems (GIS)

http://www.state.sd.us/drr2/GIS/index.htm

Email the Business Tax Divisionbustax@state.sd.us

Check out our Quest Program (E-file)