Sales tax exemption certificates serve an important role in company’s sales & use tax process. There are two kinds of exemption certificates most of the companies have: customer’s exemption certificates and vendor’s exemption certificates. Customer’s exemption certificates are collected from customers on any exempt sales or to wholesaler, retailer, distributor. manufacturer, or government etc. They are issued for several reasons such a resale, further manufacturing, direct pay permit, importation or organization exempt status.
If during sales tax audit it is discovered that certificate is missing or invalid your company may be responsible for sales tax you did not collect. Vendor’s exemption certificates are provided to vendors in support of your exempt sales. Companies commonly make mistakes on paying tax to vendors on their exempt purchases and not paying tax on taxable purchases. Many do not have a clear policy about application of exemption certificates to their sales and do not keep up with exemption rules and proper exemption forms in states across US. It it also common for companies come under scrutiny by audit reviewing your exemption certificates that you provided to customers and triggering state audit.
Exemption certificates rules and regulations vary by state. In some states you have to be registered to use exemption privilege, some states will allow you to use your home state registration on their exemption form and some do not require exemption certificate at all if you drop ship product. Streamlined Sales Tax Agreement was created by the National Governor’s Association (NGA) and the National Conference of State Legislatures (NCSL) in the fall of 1999 to simplify sales tax collection.
You are allowed to use one uniform exemption certificates for the states that become members of the agreement. In other states you are required to download and fill out specific state exemption form. Some states issue their standard exemption certificates to their registrants for year to three years and then reissue them upon expiration. We maintain a database of exemption certificate forms here. They are only updated from time to time. It is the best to check state website for the latest version of the forms.
We provide services on reviewing and streamlining your customers and vendors exemption certificates processes. This goes hand in hand in with taxability study service where we determine what products and services taxable or exempt. We can set up digital access solutions for your certificates where they can be categorized, searched and quickly pulled in case of audit. Reduce your potential exposure – talk to Sales Tax Accountants about exemption certificate services.
Sales Tax Accountants Inc. All Rights Reserved 2011
Legal Disclaimer: This publication is designed to distribute general tax information as a free service to clients and friends of Sales Tax Accountants. The information contained herein is not for resale. Applicable laws and regulations may vary by state and your specific facts or circumstances. Due to the ever-changing nature of laws and regulations, there may be omissions, delays or inaccuracies in the information contained in this article. Therefore, the information herein is not to be considered tax advice nor a substitute for consulting with professionals who are familiar with your particular factual situation. No client, advisory, fiduciary or professional relationship is implied or established. Please contact Sales Tax Accountants consultant to discuss the impact of this information on your particular situation.