How should sales tax be handled for tax-exempt rentals according to the guidelines?

Sales tax for tax-exempt rentals should typically be handled by removing sales tax from transactions. This means that if a rental is deemed to be tax-exempt due to certain qualifying criteria (such as specific uses of the rental property or the status of the renter), the sales tax should not be applied to the cost of the rental service.

Removing sales tax ensures that the tax-exempt status is respected and that organizations or individuals that are legally exempt from paying sales tax are not overcharged. It aligns with tax regulations that are designed to support certain groups (like non-profits, government entities, or charitable organizations).

In contrast, the other responses imply different approaches to managing sales tax that do not apply to tax-exempt scenarios. For instance, applying a flat tax rate or charging tax irrespective of exemption would not comply with tax-exempt status conditions. Moreover, charging tax and issuing a refund complicates the transaction process unnecessarily when the tax can simply be excluded upfront for tax-exempt rentals.