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How do we handle tax exempt customers?

My husband has been a contractor who just opened up his own lumber yard and metal roofing sales. A farmer who is tax exempt just came in and purchased some material. He gave us his tax exempt number, but I’m new at this and I don’t know what to do with it. We had to pay taxes on the lumber & metal, so if we don’t charge for that, that cuts deeply into our profit because my husband (as the newest sales biz) is charging so little in order to draw in customers. This is not my thing, somebody please help.
We are located in Tennessee (USA).

This is your state tax site: http://state.tn.us/revenue/tntaxes/salesanduse.htm
You will find all your information there. You purchase without paying tax – your add a profit to the cost of material and sell to your customers, collecting sales tax at that time. At the end of the month or quarter you must pay the state the tax you have collected. You would also pay use tax on any items that you purchases tax free for your own use such as office supplies and such (these you should have paid tax on when you purchased them since they are not part of your inventory for resale. The farmer would fall into that same category – except he is trying to fly under the radar. When he purchases supplies (seedlings, plants, fertilizer etc) he would be tax exempt until he sells the end product. He is not selling his barn – he should pay tax – but to avoid a pissing match with a new customer just take his certificate and call the tax department and ask them. They should discover the error if and when they audit his books. You will create a tax exempt sales account in your books which will be substantiated with the exempt certificates you collect from those customers who have them. Your tax forms should have a place for that information. Ain’t being in business for yourself FUN?

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