Tax exempt is a situation in which a business is not required to pay income taxes to certain government entities. Tax exemption is one of the chief reasons why organizations apply for nonprofit status. This status is usually given by governments as an inducement for a business to locate a facility within the boundaries of the government entity; the exemption is for a specific period of time, such as 10 years from the grant date.
Tax exempt status can also be given to certain securities to make them more attractive to investors. For example, when bonds are issued by a municipality, any interest earned on these bonds is tax exempt on the state and federal tax returns of these individuals.