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Instructions for using the state sales tax exemption forms

     Sales Tax Exemptions For Homeschool Purchases. To make sales tax exempt purchases, the homeschooler simply fills out Form ST3, Certificate of Exemption, and presents it to the merchant at the time of purchase. The form does not have to be filed with the Department of Revenue by either the purchaser or the merchant. The merchant just has to maintain the record for four years in case they are ever audited for sales tax payments.

     Do I need a sales tax exemption number? The Department of Revenue strongly suggests that you obtain a sales tax exemption number (ES#). A homeschooler can obtain an ES# by simply filling out the Form ST16, "Application for Certificate of Exempt Status" available from the State Department of Revenue, on the Department web site in Adobe Acrobat reader format at http://www.taxes.state.mn.us/taxes/sales/forms/st16.pdf. Under type of organization, check other and write in home educator. Because the law was created to benefit mostly organizations, an individual homeschooler has to fill out and sign an affidavit stating that they are in fact educating their child(ren) at home. This replaces the obligation to provide articles of incorporation which is required for educational organization. The affidavit should also state the homeschooler will use the tax exempt status to purchase educational materials and supplies. Note: the Department has worked with MACHE on developing this affidavit form. (Microsoft Word document)

     Though the Department encourages you to get a number, their own instructions state specifically "churches, schools, scouts, youth groups, etc., operating exclusively for religious or educational purposes can use Form ST3 without an exemption number or may apply for ES# from the Department of Revenue." Therefore, you can use Form ST3 without applying for a number. When filling out the form at the question "circle the exemption reason code", circle letter "C". Reason code "C" reads "Exempt organization. Enter ES# or type of group". Write in the words "educational" in the blank instead of an ES#. The Department discourages this because merchants are accustomed to recognizing ES# as authorization to get a sales tax exemption. If the merchant doesn't see an ES# they often question whether the purchase can be made exempt from the sales tax. Therefore, it is easier for the merchant and reduces the number of questions from confused merchants the Department has to deal with.

     Filling out Certificate of Exemption, Form ST3. Form ST3, Certificate of Exemption, is available from the State Department of Revenue, on the Department web site in acrobatic reader format at www.taxes.state.mn.us/forms/st3_03.pdf.

     The form is a simple one-page form that takes about two minutes to fill out. The form is designed for an organization to fill out. Therefore, it is a little tricky to fill out when using it simply for homeschool purchases by an individual. There is a question that states "describe the nature of your business or organization." Write "home educator purchasing educational materials and supplies exempt from sales tax". The next question is "describe the items for which you are claiming exemptions." State that the exemption is "supplies and materials necessary for educational curriculum exempt under state law". The next question is "circle the exemption reason code". Circle letter "C" and in the blank write in your ES# if you have one or the word "educational".

     After completing the form, present it to the merchant at the time of the purchase; the law requires the merchant not to charge sales tax. This form does NOT need to be sent to the State Department of Revenue by either the purchaser or the merchant. It simply needs to be kept on file at the store for a period of four years in case the store is ever audited for sales tax receipts. At the top of the form you can check the box for a single purchase. If you frequent a particular merchant, you could check the box at the top of the page "blanket certificate". You'll have to talk with the specific merchant on what procedures they use for proof of exempt status when you have a blanket certificate on file with the store.

     What can I use the sales tax exemption for? The Department of Revenue opinion specifically states:

"The item must be used to perform the educational functions of the homeschool. This includes items such as books, pens, pencils, paper, school supplies and furniture or fixtures used for educational purposes. The exemption does not apply to purchases of meals, lodging or to purchases or leases of motor vehicles. Also taxable are general home furnishings such as kitchen tables and chairs, beds, sofas, and fixtures. Utilities and telephone services are also taxable since these items are needed for the home regardless of whether or not the family has a homeschool. Purchases of items such as computers, software, VCR's and TV's, by a homeschool for use in its educational functions are exempt. However, if these items are purchased for personal or recreational use by the family, these items are taxable."

     The tricky items are things like computers, VCRs, DVD players and TV's that will have the potential of being used for education and other purposes. Because we don't fit cleanly under the rules, there is no clear test on when an item is for educational use (exempt from sales tax) vs. personal (taxable). This is where we would strongly encourage that you avoid abusing this privilege and use a strict interpretation. We want to preserve this privilege for the future.

     For example, if you are a family that watches TV for recreational purposes and also happen to watch an occasional educational video, don't claim your television purchase as exempt. If you are a family that doesn't have a television in your home for recreation or you have a specific set you use in the instructional area to provide video curriculum, then use your tax-exempt status. The fact that your children occasionally watch a Veggie Tales video on the "school TV" while you're fixing supper is no concern to the tax collector. They stated to me that they will not get into that level of detail.

     Simply put, there is no hard and fast rule as to when it's considered personal vs. educational in the homeschool setting. I would suggest a rule of thumb that if the purchase would not have been made "but for" your homeschool needs and the item is used only occasionally for non-educational reasons, it would qualify for an exemption. By comparison, traditional schools that qualify for this exemption lawfully allow their students and teachers to occasionally send e-mails over their computers or to write a note on school paper for personal reasons. Just don't abuse the privilege.

     If I purchase an item using the sales tax exemption, can I still use the purchase price of the item to receive an educational income tax deduction/credit? Some have questioned whether this would be double dipping. The Department specifically stated that it technically is not double dipping. The sales tax and income tax are two totally different taxes. Say you bought a textbook for $10. By providing the merchant with the appropriate form and your sales tax exemption number, you don't have to pay the merchant the 65 cents more which the merchant would have passed on to the state government.

     To further encourage families to make educational expenses, the government allows us to reduce our income tax liability (tax credit) or our gross income (tax deduction) by the $10 actual expense incurred for that textbook. Obviously, the tax credit is of more value and is only available to those of lower income status. Therefore, it is a double benefit for that single purchase, but not double dipping.

     The sales tax exemption is open to a broader array of purchases. In order to receive a sales tax exemption, you just have to show that the purchase was made for educational purposes. The purchases can even be religious in nature. For example, churches benefit from the same tax exemption. Unfortunately, the income tax credit/deduction is narrower in scope. The instructions for the income tax credit/deduction specifically state that it cannot be used for "Fees paid for any materials and textbooks purchased for use in a program that teaches religious beliefs". Also, income tax fact sheet #8a states that encyclopedias and reference materials are not allowed to be used for the income tax credit/deduction.

     Therefore, all your nonsectarian material and textbooks can receive a double tax benefit of a sales tax exemption and the income tax credit/deduction.

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