Posted on September 10, 2019
If preparing, issuing, collecting, verifying, and storing exemption or resale certificates for exempt sales made in the US was not a daunting task previously, it most certainly is now. Just over a year after the Wayfair decision that rocked the sales tax world, businesses are now faced with a myriad of resulting dynamics that will affect their time, profitability, and compliance. How a company manages those changes can have a positive effect on their state and local sales tax compliance as well as their profit margin if done well.
Now that not only physical nexus but also economic nexus are enough grounds for a company to register for sales tax in a multitude of additional US states, companies are faced with the administration and responsibility of properly obtaining, verifying, and storing exemption certificates received or solicited from exempt customers. Additionally, the same companies are tasked with issuing exemption certificates to suppliers for exempt transactions.
While a company’s sales tax footprint may have been in only a few states pre-Wayfair, that footprint is now enlarged to encompass multiple states not previously requiring sales tax registration given only an economic presence. Managing such magnitude of certificates both outgoing and incoming can create a sizable burden on internal tax departments of such companies not poised for it.
Companies may not be staffed appropriately, have access to software to maintain and store certificates, or have staff trained in the issuance, acceptance, and review of such certificates for the purpose of compliance. The potential for increased sales tax audit liabilities is directly related to having valid documentation on hand during an audit to satisfy the exempt sales.
One only needs to consult this map and chart to see the diversity of economic nexus post-Wayfair on a state by state basis.
While a number of states accept a common, standard multi-jurisdictional exemption certificate, many states continue to utilize their own forms for resale and exemption certificates.
The state of Florida issues a certificate that is valid and renewable annually, while other states have longer periods of validity. Numerous states provide that a certificate of exemption does not expire while others often have validity periods of 3, 4, 5, or 10 years. Some states allow for certificates to be valid unless or until revoked. In Colorado, a certificate of exemption for contractors expires on the project end date listed on the certificate, whereas there is no expiration date for an organizational exemption license.
As validity periods differ from state to state so does the acceptance of a home state’s exemption certificate for a multi-state transaction such as a drop shipment. Researching the nuances of the acceptance of exemption certificates not only for format and form but also for substance can be a cumbersome project requiring multi-state knowledge and expertise as well as ability to apply the statutes to the circumstances.
Some areas proven worthy of consideration include vendors who are charging sales tax erroneously. A vendor may default to charging sales tax in all states regardless of economic or physical nexus requirements and may not have a strong internal process to determine its true nexus footprint. This could result in an overpayment of sales tax or potentially underpayment if incorrect rates were charged.
Another risk could be that the supplier you provide your properly executed exemption certificate to may not have the means to store it until the time of state sales tax audits. Will this leave your company on the hook for sales tax under audit?
Typically, businesses prefer to spend their time focusing on items critical to their business and increasing their margins not on advising regarding the administrative burden of sales tax, registrations, and exemption certificate management. The area of sales tax may not be a priority for some businesses until such time as tax is due under audit resulting in additional penalty or interest because of an improperly executed exemption certificate.
The cost of staff to validate exemption certificates and the high cost of software to store these certificates received by your company may be too significant to manage with in-house operations. Third-party providers and tax professionals may be engaged in the course of the sales tax administration in any part of the process and may result in efficiencies but may not be optimized without an end-to-end process managed by one company of tax professionals.
Allyn is committed to promoting the success of our clients. We allocate our resources to ensure that no potential value is left unrealized while our clients focus on their core business. Exemption certificate management is just one of the services that Allyn offers to ensure our clients’ success.
Allyn tax professionals are armed with the experience, knowledge, and systems required to administer the entire sales tax process from start to finish. Allyn employees work diligently to ensure nexus is properly identified, sales tax registrations at the Secretary of State and Department of Revenue levels are executed, sales tax returns are timely and accurately filed and paid, exemption certificates are expertly managed, and sales tax audit liabilities are minimized. Allyn also identifies compliance and process improvement opportunities and offers solutions to tax issues facing your company.
Allyn’s tax and IT specialists worked together with input from our clients to design a unique and adaptable exemption certificate management system. TIMS (Tax Imaging Management System) is web-based software that electronically stores exemption certificates and key certificate data. Allyn works with you to tailor TIMS to your company’s needs. The system takes a proactive and interactive approach by reducing audit exposure through improved compliance structures, creating a centralized database accessible by your business or other delegates through a secure online web portal.
Allyn tax professionals review every certificate upon receipt and validate each for accuracy and completeness. Allyn requests renewal certificates from your customers before they expire. Allyn also issues exemption certificates on behalf of your company for transactions that should be exempt from tax whether for resale or other exemption. Allyn manages the entire exemption certificate process end to end.
Tips for the Taxpayer
In a post-Wayfair tax world, more vendors than ever may potentially be charging sales tax due to relaxed nexus and registration requirements. These new vendors in the tax arena may or may not be critically examining their determinations on when to charge state and local sales tax. This potential uncertainty can give rise to mistakes which in turn can result in over-appropriation of sales or use taxes to states.
It is important to understand what is taxable in all the states in which you operate or make purchases in and to know if any exemptions exist for your business and such items being purchased. Confirm your sales tax process and ensure your company is consistently reviewing both outgoing and incoming exemption certificates for validity and accuracy.
Determine whether you have the manpower, expertise, and time to manage multi-state exemption certificate issuance and receipt offering 100% review of all certificates and consciously make the decision to select an expert resource who can manage the entire process for you and maximize your sales tax compliance while reducing your potential sales tax liabilities. Affirm that your company has the tools or software needed to electronically store certificates until needed for audit. Decide whether you can afford to overpay sales tax or whether you will take immediate actions to ensure compliance and seek tax savings opportunities.
How Can We Help?
Allyn’s tax team is staffed with seasoned tax professionals experienced in all aspects of Federal, multi-state and local tax compliance and consulting for large US and global corporations. Allyn performs compliance audits routinely for businesses located or paying sales tax throughout the US. Allyn tax professionals are well-versed in technical sales tax regulations, exemptions, procedures, and practices. We use that experience to your advantage.
Allyn identifies issues within the sales tax process and reports our findings to you. We provide options for solutions to tax issues and minimize repeat errors. We are dedicated to seeing the entire process through to completion.
It is very simple and easy for a company to engage Allyn in exemption certificate management. Just reach out to us, and we will only require minimal data from you to get us started. We minimize the time that you will spend on sales tax issues while we focus on the details and keep you apprised of the progress and findings.
Contact us and we can provide a customized cost-effective solution to meet your company’s needs. For further information on Allyn Tax services, please contact: firstname.lastname@example.org.
For More Information
If you are interested in learning more about this topic or other tax topics, please visit our Tax Publications under News and Events at www.allynintl.com.
Contributor: Trisha Davidson
About Allyn International
Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China, Prague, Czech Republic, and Dubai, U.A.E. For more information, visit www.allynintl.com.