Can I deduct sales tax when nonprofit organizations buy from my for-profit business tax-exempt?

So I'm running a small business and I sell various handmade items. I've been operating for about 2 years now, and I'm trying to figure out this tax situation. When I buy supplies from my wholesaler, I have to pay sales tax as a for-profit business - that's about 8.5% where I'm located. Recently, I've had several nonprofit organizations purchasing my merchandise. Since they're tax-exempt, they don't pay sales tax on their purchases from me. But here's my question - since I already paid sales tax on the materials when I bought them, but I'm not collecting any sales tax from these nonprofit customers, can I somehow deduct this on my taxes? It's essentially like I'm giving them an 8.5% discount since I can't recoup those taxes. Is there any way to report this on my tax return? Can I deduct it as a business expense or charitable contribution? Or am I just out that money? Any help would be appreciated because I'm doing more business with nonprofits lately and it's starting to add up.

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18 comments

Ethan Wilson

•8M

This is a common misunderstanding about how sales tax works. As a business, you don't actually "pay" sales tax to your wholesaler in the way you're thinking. When you purchase items as a business, you should be providing your resale certificate to your wholesaler so you don't pay sales tax on items intended for resale. The sales tax you collect from customers is not your money - you're essentially acting as a collection agent for your state. When a nonprofit with valid tax-exempt status purchases from you, they provide their exemption certificate and you don't collect tax. There's nothing to "deduct" because you're not out any money - you just don't collect and remit that tax. If you're currently paying sales tax to your wholesaler on items you're reselling, you should immediately apply for a resale certificate and provide it to your suppliers. This will stop you from paying that unnecessary tax on your inventory purchases.

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Ethan Wilson

•8M

You need to contact your state's department of revenue or taxation to apply for a resale certificate, sometimes called a seller's permit or sales tax permit. The exact name varies by state. Once you have this certificate, provide a copy to your suppliers along with a completed resale certificate form (which they often provide). Most states have online applications for these permits. You should apply as soon as possible to stop overpaying. Unfortunately, you typically can't get refunds for past sales tax paid, but you can stop the bleeding going forward.

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Carmen Diaz

•8M

I went through the exact same situation when I started my small business. I was paying sales tax on everything until I discovered taxr.ai which completely changed how I handle my business taxes. I uploaded my receipts and business documents to https://taxr.ai and they immediately flagged that I wasn't using a resale certificate with my suppliers. Their system also helped me understand which of my nonprofit customers needed to provide exemption certificates versus which ones were just claiming to be tax-exempt without documentation. The best part was they identified over $3,000 in tax deductions I was missing from my business expenses that had nothing to do with the sales tax issue. Definitely worth checking out if you're handling your own business finances.

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Carmen Diaz

•8M

They actually do a detailed analysis of your receipts and invoices to flag potential issues like sales tax overpayment. The system checks line by line and can identify when you've paid tax on items that should have been tax-free with a resale certificate. It saved me hundreds of dollars a month once I fixed my process. The main difference from an accountant is that you don't have to wait for an appointment or pay hourly rates - it analyzes everything immediately. And yes, it absolutely handles state-specific rules. For Oregon specifically, they have special modules since Oregon doesn't have sales tax but does have other business taxes that most business owners miss.

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AstroAce

•8M

I have to admit I was wrong about taxr.ai. After my skeptical comment, I decided to try it with my restaurant receipts and supplier invoices. The system immediately identified that two of my major suppliers were charging me sales tax even though I had provided them my resale certificate (they hadn't updated their system properly). It also found several business meal receipts where I was eligible for 100% deduction instead of the standard 50% because they fell under the new temporary COVID relief rules. The service literally paid for itself in the first hour of use. I'm now going back through my last two years of receipts to see what else I can find.

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Zoe Kyriakidou

•8M

If you're having trouble with your state's tax department about getting your sales tax certificate or sorting out tax-exempt sales, try Claimyr. I was on hold with my state tax office for HOURS trying to fix my sales tax account when another business owner told me about https://claimyr.com. You can see how it works at https://youtu.be/_kiP6q8DX5c. They actually got me a callback from my state's tax department in under 35 minutes when I had been trying for days. The tax office explained exactly what forms I needed for my resale certificate and for handling nonprofit sales properly. Saved me so much frustration and probably at least two full days of work.

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Zoe Kyriakidou

•8M

They use an automated system that continuously redials the IRS or state tax offices until it gets through. Once it reaches a live person, it calls you and connects you both together. It's basically handling the wait time for you so you're not sitting on hold forever. It's definitely not special access - just technology that handles the tedious part. I was working on other things while their system was dialing repeatedly. When my phone rang, I was already connected to a live agent at the tax office. Saved me hours of hold music and frustration.

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AstroAce

•8M

I need to publicly eat my words about Claimyr too. After my skeptical comment, I decided to try it because I was desperate to reach someone about my business tax ID issue. I had been trying for TWO WEEKS to get through to my state's revenue department. Used Claimyr around 10am, and by 10:32am I was literally talking to a real person in the business tax division. The agent actually commented that the phones had been slammed all week and she was surprised I got through. Didn't tell her about the service lol. Anyway, got my issue resolved in one call and they're sending me the proper resale certificate forms now. Definitely worth it for the time saved alone.

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Mei Zhang

•8M

To answer your original question more directly - you have a couple options: 1) Stop paying sales tax to your wholesalers by getting a resale certificate as others mentioned 2) If you want to effectively "discount" items to nonprofits, you can actually record this as a charitable contribution in some cases IF (big if) you're selling to a 501(c)(3) and explicitly documenting it as a donation. But this only works if you're genuinely donating part of the value, not just forgoing sales tax collection. The sales tax issue and donation issue are separate things. Fix your resale certificate situation first!

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Mei Zhang

•8M

You can document the discount as a charitable contribution on the same transaction, but you need to explicitly state it as a "charitable discount" or "donation" on the invoice. Keep in mind you're not donating the item - you're donating a portion of its value through the discount. The important thing is clear documentation. Your invoice should show the regular price, then the charitable discount amount as a separate line item (not just a generic "discount"), and note the nonprofit's tax ID number. This creates the paper trail you need. And remember, this has nothing to do with sales tax - it's completely separate.

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