Exemption Certificate Management

Presented By: NACM and Tax Technology Services, LLC Exemption Certificate Management

A basic knowledge of what defines a sales tax exemption certifcate. Identify common mistakes that can cost you money. Resources that you can later utilize to get more information. Exemption Certificates Issues and Best Practices This Seminar will Provide:

Exemption Certificates Matthew MacNeil Principal, Tax Technology Services, LLC Former Controller and Accounting Manager with Revenue recognition responsibilities. Designed CertCapture and is responsible for CertCapture Client maintenance and satisfaction. B.A. Purdue , M.B.A. Tulane University Presenter

Exemption Certificates Exemption Certificates Definition Nexus defined Drop Shipments Controlling Certificates Common Problems Regulation Changes Contractors A Look Ahead Agenda

Exemption Certificates “ Everything is Taxable until proven otherwise” An Exemption certificate is a legal document declaring they are using goods/services in a manner that is non-taxable in a specific State. Background

Exemption Certificates Describes your status as a tax agent for the State. You are only required to collect sales taxes and certificates if you have nexus in the State. Be familiar with what it takes to achieve nexus in most states. Based on 1992 Quill Vs. ND Court case. Nexus

Exemption Certificates Common Nexus Indicators Physical Presence Representative Presence Delivery of product in company owned vehicles Affiliated Presence Regular Visits for Solicitation Economic Nexus Nexus is defined as a substantial connection a company has with a state

Exemption Certificates Manufacturing exemption Purchase for resale Purchase by charitable organization Purchase by government/non-profit Direct Pay permits Types of Exemption Certificates

Exemption Certificates Most States have specific certificates Exemption form Resale Special use Streamlined Sales Tax (SST) Multistate Tax Commission (MTC) Pre-Printed or State Issued forms Direct Pay Permits Florida issues annual Resale forms State issued letters of exemption Types of Forms

Pros: Seller is off the hook if all data elements are collected Data can be obtained electronically Cons: State regulations can change rejecting certain sections SST Form

Pros: One form for many states Advantageous for retail solutions Cons: Harder to maintain expiration dates State regulations can change the acceptance of this form Some areas open to interpretation for acceptance MTC Form

Exemption Certificates When a seller accepts an order from a buyer and then the seller delivers goods to a third party. Drop Shipments Seller Buyer Customer Delivery Invoice Invoice

Exemption Certificates Some States assume items for resale and they are automatically exempt Some states require the third party exemption certificate Some states tax based on sellers price, others based on buyers price. Problem States include CA, FL, DC, HI, IL, LA, MD, NV, OK – your Buyer really should be registered or else charge tax. Drop Shipments

Controlling Certificates Audits can occur at regular intervals. Mistakes can turn into costly penalties. Customer short pays after the tax has been reported to the State. Getting money back from the state is not always an easy process. Documents can become lost or expire. You have no proof on hand, but still consider the customer tax exempt. Common Problems

Controlling Certificates Audits becoming more aggressive Regulations are changing – SST and new state regulations Many states are now in a deficit Nexus is being redefined in many areas. Penalty fees are increasing Audit Trends and Regulations

Controlling Certificates FULL SST MEMBERS Arkansas Indiana Iowa Kansas Kentucky Michigan Minnesota Nebraska Nevada New Jersey North Carolina North Dakota Oklahoma Rhode Island South Dakota Vermont Washington Wisconsin West Virginia Wyoming Member states are marked on the map in Yellow. Orange states are associate members expected to join SST in the future. Grey states do not have sales tax on a state level.

Controlling Certificates Forms are incomplete Inappropriate use of forms Outdated/Expired forms Forms cannot be found All these items will cause penalties and interest to be charged to you. Audit rejection of certificates

Controlling Certificates Each state has unique laws. States do not like contractors. Certificates are normally site dependant, not customer dependant. When in doubt get: Exemption certificate with Contractor information Exemption certificate for job site Contractors

Controlling Certificates Standard paper Organize by State, then by company name Spreadsheets Can track expirations Some basic reporting areas Utilize a specialize software Costs are higher Brings special skills to you Ways of handling exemption certificates

Controlling Certificates Be Proactive Consult your tax department Evaluate your customers Determine which states you should be collecting certificates (Nexus) Create an expiration matrix What you need to do first

Controlling Certificates Collect and organize what records you currently have on hand Maintain a simple spreadsheet documenting what you have and important information. Contact your customers that are missing documents as soon as possible Maintain a forms library available for users. Subscription services do exist. Begin at the Beginning

Controlling Certificates Do you have WRITTEN policies and procedures around Certificate Management? Does everyone “who matters” know what a valid certificate looks like? Who actually controls if the exemption happens in your system? Some Questions to Address

Exemption Certificates More complicated, more taxes and exemptions. Sales and use tax audits are becoming more invasive, detailed and electronic Virtual audits The emergence/demise of SST ? Federal Sales Tax (FairTax) replacing income tax A Look Ahead

Exemption Certificates Washington State constantly changing exemption laws. More states are looking into ways to control contractors. Idea of VAT being passed around in California. A Look Ahead

Exemption Certificates Your Tax Department! State Specific Websites Salestax.Wordpress.com NACM/CRF Courses and brochures Resources

Exemption Certificates www.CertCapture.com Free Forms for each state Quarterly newsletter with regulation updates and reminders Resources

Exemption Certificates Questions?

THANK YOU! For more information: Matthew MacNeil [email_address]

Exemption Certificate Management

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