Core Concepts

Managing Tax Exemptions

Tax-exempt transactions are a critical part of sales tax compliance. In TaxCloud, these are supported through exemption certificates, which are digital records that validate a customer’s exempt status for one or more states. This guide walks through how to create, manage, and apply exemption certificates using the TaxCloud API, with best practices to help maintain accurate reporting, audit-ready accuracy, and avoid downstream filing issues.

Product-Level Exemptions (TICs)

Exemption certificates cover customer-level exemptions (e.g., nonprofits, resellers, or government agencies). If you need to exempt specific products or services, this is managed separately using Taxability Information Codes (TICs). TICs classify items so TaxCloud can determine whether they are taxable or exempt in each state.

For a full walkthrough of assigning TICs to products, see our TICs guide.

When to Use Exemption Certificates

Some customers, such as nonprofits, government agencies, or resellers, may be exempt from sales tax in specific states. TaxCloud allows you to flag these transactions as exempt at the time the order is created, even if the customer’s exemption certificate is uploaded later.

Using exemption certificates helps:

  • Ensure accurate exemption reporting across state jurisdictions.
  • Reduce manual filing clean-up.
  • Maintain compliance in the event of audits or reviews.

Creating Exemption Certificates

You can create exemption certificates either in the TaxCloud web app or via the API using the Create Exemption certificate endpoint.

NOTE

Each exemption certificate is tied to a specific integration connection. When adding a certificate, ensure you select or pass the correct connectionID as this determines which integration or store the certificate applies to.

Each certificate includes:

  • A customerID and connectionID.
  • Customer’s name and address.
  • Customer’s business type.
  • A list of destination states where the exemption applies.
  • Exemption type, reason, and any supporting description.

Multi-state coverage

A single certificate can cover multiple states. Make sure to list all applicable states when creating the certificate to avoid future mismatches during auto-matching.

Applying Exemption Certificates to Transactions

Once a valid certificate exists, there are two primary ways to apply it to a transaction:

With the certificateID, set the exemption directly on the order using the exemption object in your request. This ensures a guaranteed match and an auditable exemption record.

1curl -X POST https://api.v3.taxcloud.com/tax/connections/25eb9b97-5acb-492d-b720-c03e79cf715a/orders \
2    -H "X-API-KEY: <apiKey>" \
3    -H "Content-Type: application/json" \
4    -d '
5    {
6  "connectionId": "25eb9b97-5acb-492d-b720-c03e79cf715a",
7  "currency": {
8    "currencyCode": "USD"
9  },
10  "customerId": "200",
11  "deliveredBySeller": true,
12  "destination": {
13    "city": "Minneapolis",
14    "countryCode": "US",
15    "line1": "323 Washington Ave N",
16    "state": "MN",
17    "zip": "55401-2427",
18    "line2": "Washington Ave"
19  },
20  "excludeFromFiling": true,
21  "exemption": {
22    "exemptionId": "91929433-22ee-ef11-88fa-c57109cdeeb1",
23    "isExempt": true
24  },
25  "lineItems": [
26    {
27      "index": 0,
28      "itemId": "item-1",
29      "price": 10.75,
30      "quantity": 1.5,
31      "tax": {
32        "amount": 1.31,
33        "rate": 0.08125
34      },
35      "tic": 0
36    }
37  ],
38  "orderId": "my-order-1",
39  "origin": {
40    "city": "Minneapolis",
41    "countryCode": "US",
42    "line1": "323 Washington Ave N",
43    "state": "MN",
44    "zip": "55401-2427",
45    "line2": "Washington Ave N"
46  }
47    }

This is the preferred method when integrating directly via API. It guarantees clarity and minimizes post-processing.

Option B: Auto-Match via is_exempt

Alternatively, you can flag a transaction as exempt by setting:

1{
2  "isExempt": true
3}

TaxCloud will attempt to auto-match this transaction to an existing exemption certificate using:

  • The customerID.
  • The connectionID.
  • The transaction’s destination state.

If a valid certificate is found, it will be applied. If no match is found, the order will still be marked as exempt, but no certificate will be associated resulting in a reporting gap that must be resolved before final filing.

CAUTION

Use auto-match with caution. It is useful for import or migration workflows, but we recommend avoiding it in production applications unless you’ve confirmed all customer certificates are loaded and current.

Viewing Applied Certificates

Once a certificate is attached to a transaction (either directly or via auto-match), you can view this association by retrieving the order object.

  • Look for the exemption field in the order payload.
  • You can then use this endpoint to inspect certificate details.

This allows full traceability for debugging and audit purposes.

Managing Certificates

You can view and manage existing certificates using the following endpoints:

When working with exemption certificates via the TaxCloud API or dashboard, it’s important to understand that deleting a certificate does not remove it from the system. Instead, it disables the certificate, marking it inactive and preventing its reuse.

Key behavior to be aware of:

  • Existing orders remain valid: If a certificate was used to mark an order as exempt, disabling the certificate does not retroactively affect that order. The exemption status and certificate metadata are preserved for filing and compliance purposes.
  • Disabled certificates cannot be reactivated via the API or app. If a previously deleted (disabled) certificate needs to be reinstated, users must contact TaxCloud support.
  • Compliance-driven behavior: Exemption certificates, like most tax-related data, are retained in the system to satisfy audit and compliance requirements. Certificates are never permanently deleted, even if marked as “deleted.”

Best Practices

  • Create certificates before processing exempt orders. Delayed certificate creation leads to filing exceptions and manual remediation. Merchants are responsible for ensuring certificate data is accurate and up-to-date before attaching it to an order.
  • Use direct attachment wherever possible. Avoid reliance on auto-match except for imports.
  • Include all applicable states in each certificate. A certificate only applies to the states explicitly listed.
  • Avoid leaving exempt orders unbacked. Orders marked exempt but lacking valid certificates will require manual review before submission.
  • Ongoing validity. Certificates remain active until you disable or delete them. Schedule periodic reviews to keep expirations current.
  • Use dedicated TIC for item or product-specific exemptions. Avoid mixing exempt and taxable items in the same order when possible.

Conclusion

Managing tax exemptions effectively requires a proactive approach, one that prioritizes accuracy, transparency, and compliance from the start. By creating exemption certificates early, applying them explicitly when possible, and staying vigilant about state coverage and expiration, you minimize audit risks and avoid filing disruptions.