They just started using Avalara in November and she pointed this out to me when I was there after that. I went into the customer, changed the tax schedule from Avatax to MN then back again and the exemptions then worked. We did the same thing for this particular customer this morning but I did not go into the ship-to code. We just went in and looked at the exemptions there and yes, they were there but if you don't access it, it doesn't hold. She says she doesn't have that many and will go in and access the ship-to code exemption field for them.
So thanks @DianaLaughner for the tip! Seems odd that the exemption window has to be accessed for them to be recognized though.