No, if an entity is tax exempt, you do not need to collect sales and lodging taxes. In order for a governmental entity to take advantage of the tax exemption, the purchase must be paid directly to the seller by governmental funds, for example, with a credit card in the name of the exempt governmental agency. When using a credit card, verification that the purchase is for governmental purposes and will be paid for by the governmental entity is required. Evidence of this must be retained in the seller’s records. A purchase by a government employee using cash or personal check, even if the employee presents a tax exemption number and plans to be reimbursed, is not tax exempt.
If the entity is charitable or religious, the federal or state tax exemption number must be presented to the seller. For each sale, the vendor must record this number, date of sale, and name of organization. Keep this record in your permanent files for audit purposes. In addition, in order to be tax exempt, the organization must be conducting regular religious, charitable, scientific, literary, or educational business. For example, a church that has tax exempt status would have to pay applicable sales and lodging taxes to a hotel if church members are on a ski vacation, even if the lodging services were paid with a church check.