How do use-based exemptions work?

The exemptions provided offer alleviation from sales taxes on items used for specified economic purposes, such as manufacturing, agriculture, industrial processing, and pollution control.

For instance, to support agriculture, many states provide preferential exemptions on the sale of products and equipment needed for food production. In contrast, exemptions to stimulate manufacturing may be offered on the sale of machinery and equipment used at first hand in the manufacturing process.

Each state has its own distinct set of exemptions from sales tax. Generally, certain categories of items, such as food and medicine, are exempt from sales tax or taxed at reduced rates in every state.

For example, under Ohio law, the agricultural sales tax exemption applies to most items that will be directly used, consumed or incorporated
in the production of agricultural products for sale. Because
of the diverse nature of products and their uses, there is no extensive list of items that qualify for the exemption. Nonetheless, some examples of the exemption items are tractors, plows, seed, fertilizers, insecticides, pesticides, and more. 

To claim the agricultural sales tax exemption, the buyer must fill out an exemption certificate. Retailers who regularly sell farm inputs or agricultural equipment usually have exemption certificates available in-store. These certificates can also be obtained online from the Ohio Department of Taxation.

Managing exemptions can be difficult, and relying on a manual filing system can make this process even more tedious. To streamline the process and facilitate compliance, reach out to Taxually, we’re here to help!

FAQ

What are sales tax exemptions?

How do product-based exemptions work?