Retail Sales Exemptions
Income from the following sources is exempt from the tax on retail sales:
Sales to a person regularly engaged in the business of selling or renting
When you sell an item to someone who plans to rent or resell it, you do not
owe tax on that sale. But you must have clear and complete records of these
sales or you will be taxed as if all your sales are taxable. Your records
must separately show figures for retail sales and sales for resale. For each
sale for resale, you must record the property sold, the buyer's name and
address, the buyer's transaction privilege tax license number and a signed
statement by the buyer saying that the goods will be resold in the ordinary
course of business.
Out of state sales
When an item is ordered by a non-resident and is delivered to the buyer at a
location outside the state, and the item is purchased for use outside the
state, you do not owe tax on that sale. You must keep adequate records to
prove that the transaction was an out of state sale.
Charges for delivery and installation
When you charge for delivery or installation labor on items not becoming
permanently attached to realty, you don't have to pay tax on the charges if
you clearly show them separately on customer invoices and in your records.
If you operate a service business, income from that business is generally
exempt from retail transaction privilege tax. However, this is true only if
sales of tangible items are an incidental part of your business. If you
regularly make sales of tangible items to your customers and/or maintain an
inventory of tangible items available for sale to customers, you are engaged
in retail business and are liable for tax on those sales. Examples of
service businesses include landscape maintenance, pool maintenance, doctors,
attorneys and accountants.
A deduction is allowed for bad debts previously reported as taxable sales.
Cash & trade discounts
Cash discounts allowed for timely payment by customers are not included in
gross income. When coupons issued by a vendor are accepted as a discount
against a transaction, the discount may be excluded from gross income.
However, discount amounts for coupons issued by any person other than the
vendor, such as a manufacturer, may not be excluded from gross income.
Refunds on returned merchandise
A deduction is allowed for refunds on amounts previously reported as taxable
Sales of warranty, maintenance, and service contracts, when separately
charged and separately maintained in your books and records
Sales of prosthetics
These include medically prescribed drugs, eyeglasses, contact lenses,
hearing aids, hospital beds, wheelchairs, corrective shoes, crutches, braces
for neck, back, arm or leg, and artificial limbs or teeth.
Sales of income-producing capital equipment
When you sell an item to someone who will use the equipment primarily for
the purpose of directly producing income in the normal course of business,
you do not owe tax on the sale. In order for the sale to qualify as exempt
from tax, the purchaser must be engaged in a business that directly uses the
item to produce income and the item is to be directly used in the production
of income. Manufacturing equipment and job printing equipment qualify as
income-producing capital equipment.
Custom computer software
When a sale is made of custom computer software which is prepared
exclusively for a customer, the charges are considered direct customer
services and are exempt from transaction privilege tax. However, a sale
which is not custom computer software is taxable as a retail sale.
Sales of mining and metallurgical supplies
However, the sale of sand, rock, and gravel extracted from the ground is
considered a taxable retail sale and not mining or metallurgical activity.
Sales of motor vehicle fuel
Sales of construction materials to a contractor who holds a valid
Transaction Privilege Tax License for engaging in the business of
construction contracting where the materials sold are incorporated into the
The vendor must secure a statement from the contractor stating the materials
purchased will be incorporated into a construction project in fulfillment of
a contract, and is not for personal use. The vendor must also have the
contractor's Transaction Privilege Tax License Number.
Sales of items that become ingredients of a product sold in the regular
course of business of job printing, manufacturing, or publication of
newspapers, magazines or other periodicals
However, items which are not ingredients but are used up in a manufacturing,
job printing, or publication process are subject to transaction privilege
tax when sold.
Sales made directly to the federal government as follows:
||One hundred percent (100%) of the gross income derived from retail sales
made by a manufacturer, modifier, assembler, or repairer.
||Fifty percent (50%) of the gross income derived from retail sales made
by any other person.
Sales of stocks, bonds, options, or other similar materials
Sales of platinum, bullion, or monetized bullion, except minted or
manufactured coins transferred or acquired primarily for their numismatic
Food sales to eating establishments
Sales to hotels, bars, restaurants, dining cars, lunchrooms, boarding
houses, commercial airlines or similar establishments, of articles consumed
as food, drink, or condiment, whether simple, mixed, or compounded, where
such articles are customarily prepared or served to patrons for consumption
on or off the premises, are exempt from transaction privilege tax. However,
the purchaser must be properly licensed and paying tax to the City on sales
to customers. Also, sales of paper (and similar products, such as plastic or
Styrofoam) cups, lids, plates, bags, napkins, straws, knives, forks, etc.,
to eating establishments are exempt from transaction privilege tax
Sales of items to a qualifying hospital or health care organization
Food for home consumption
Certain sales to persons engaged in the business of farming, ranching, or
feeding livestock, poultry or ratites
If you make sales of seed, fertilizer, fungicides, seed treating chemicals,
feed for livestock or poultry, including salt, vitamins, or other additives,
and livestock, poultry, or ratites purchased for slaughter, you do not owe
transaction privilege tax. However, you need to pay tax on sales of
livestock to be used for production or use, and for sales of machinery,
equipment and fuels used in the business of farming, ranching, or the
feeding of livestock, poultry, or ratites.
Sales of groundwater measuring.ces
Sales of paintings, sculptures, or similar works of fine art sold by the
However, sales of items such as jewelry, macrame, glasswork, pottery,
woodwork, metalwork, furniture, and clothing, when such have a dual purpose,
both aesthetic and utilitarian, are not exempt, whether sold by the artist
or by another.
Sales of aircraft acquired for use outside the state
Sales of goods consisting of manufactured items destroyed by being subjected
to destructive stress, strain, or similar testing, for the purpose of
developing engineering information or for the purpose of quality control
Sales of printed and electronic materials to publicly funded libraries
Cleanrooms used for research and manufacturing of semiconductor products
Personal hygiene items sold to hotels and motels for use by guests
Sales to Native Americans
Sales to Native Americans by vendors located within the City are not taxable
if all of the following exist:
- solicitation and placement of the order occurs on the reservation
- delivery is made to the reservation
- payment originates from the reservation