What Qualifies for an Idaho Sales Tax Exemption?
Understand the framework for Idaho's sales tax exemptions, from determining eligibility to following the correct procedures for a tax-free purchase.
Idaho imposes a 6% statewide sales tax on the retail sale of most tangible personal property and some services. Some local jurisdictions can add their own sales tax, which can result in a higher combined rate. The revenue generated from this tax funds various public services throughout the state. State law provides specific exemptions where a transaction is not subject to tax. An exemption can arise because of the nature of the buyer, the type of product or service being sold, or the intended use of the purchased item.
Exempt Organizations and Buyers
Certain organizations and buyers are permitted to purchase goods and services without paying sales tax due to their status. Government agencies, including federal, state, and local entities, qualify for this exemption on purchases made for their own use in conducting official government functions.
Nonprofit organizations may also qualify, but Idaho law grants exemptions only to specific types, such as qualifying educational institutions, certain health-related entities, and religious organizations. A general nonprofit status is not sufficient. Specific industries also benefit from exemptions tied to their production activities. Businesses in manufacturing, mining, farming, or broadcasting can purchase equipment and materials directly used in their production processes without paying sales tax. This exemption is designed to prevent tax pyramiding, where tax is applied multiple times as a product moves through the production chain. The requirement is that the purchased item must be directly and primarily used in creating the final product that will be sold.
Exempt Goods and Services
Beyond the status of the buyer, certain goods and services are exempt from sales tax for any purchaser. One of the most common exemptions is for tangible personal property that will be resold. Wholesalers do not pay sales tax when purchasing inventory because the tax will be collected from the final consumer at the retail level.
A significant category of exempt goods relates to production and agriculture. Tangible personal property that becomes a component of a finished product, or is directly used to produce goods for retail sale, is exempt. This includes raw materials for a manufacturer, fertilizers and seeds for a farmer, or specialized machinery used on a production line. This exemption also extends to equipment used for controlling pollution at manufacturing facilities.
Medical-related items constitute another major class of exempt goods. Prescription drugs sold by a licensed pharmacist are not subject to sales tax. The exemption also covers durable medical equipment, such as wheelchairs and hospital beds, when purchased or rented for a patient’s home use.
Certain food items are also exempt, though the rules can be specific. Food purchased for home consumption is not taxed, but this exemption does not apply to prepared foods sold hot or food sold for consumption on the premises. Food purchased with benefits from the Supplemental Nutrition Assistance Program (SNAP) is also exempt from sales tax.
Required Documentation for Claiming an Exemption
The primary document required to claim an exemption in Idaho is Form ST-101, the Sales Tax Resale or Exemption Certificate. This form serves as legal proof that a specific purchase is not subject to sales tax. It is the buyer’s responsibility to fully and accurately complete this form and provide it to the seller at the time of the transaction.
To complete Form ST-101, a buyer must provide their legal name and address, the seller’s name and address, and their Idaho seller’s permit number or a similar tax registration number from another state. A clear description of the property being purchased is also required. The form lists various categories of exemptions, and the buyer must check the box that accurately reflects their legal basis for not paying tax.
For example, a farmer purchasing irrigation equipment would select the exemption for production equipment, while a church buying office supplies would select the exemption for qualifying nonprofit religious organizations. The buyer must sign and date the certificate, attesting that the information provided is accurate and that the items purchased will be used in an exempt manner.
How to Use an Exemption Certificate
The buyer must present the completed Form ST-101 to the seller at the time of purchase, as it serves as the seller’s authorization to not collect sales tax. A seller who accepts a fully completed exemption certificate in good faith is protected from liability for the uncollected tax.
The seller has a responsibility to review the certificate to ensure it is complete. This includes checking that all required fields are filled out, the correct exemption reason is indicated, and the form is signed and dated. If the seller has reason to believe the purchase is not for an exempt purpose, they should collect the sales tax.
After the transaction, both parties have record-keeping obligations. The seller must retain the completed Form ST-101 in their records for at least four years as proof of the exempt sale. The buyer must also keep a copy and be able to demonstrate that the purchased items were used as claimed on the form.