Rozes, Gouveia & Company, LLP

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Brian Clavet, CPA

SALES & USE TAX AND RELATED - EXEMPTION CERTIFICATES

 

Our firm's June alert bulletin dealt with overall compliance with sales and use tax.  This alert bulletin focuses on a segment of sales tax compliance - exemption certificates.

 

For manufacturers and distributors selling to retailers or other resellers, collecting sales and use tax exemption certificates from customers is an essential part of doing business.

 

These certificates serve as proof that your sale of taxable goods or services to a qualifying customer is legitimately exempt from sales tax. Without these exemption certificates, you have no way to show that you were not required to collect sales tax on a transaction if you are audited.

 

However, collecting these certificates and keeping them updated can be difficult. Each state has its own certificates and rules about how they should be completed and used. For example, some states exempt sales to not-for-profit organizations and government agencies while others don't. 

 

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Audits on the Rise

 

Sales and use tax audits are on the rise, and state auditors are taking aggressive positions. In almost every audit, customer exemption certificates will be reviewed. To ensure that your company is doing all it can to comply with the law, follow these five steps regarding exemption certificates:

 

1.  COLLECT THEM. This sounds like a no-brainer, but many companies simply don't collect exemption certificates from their customers at the time of sale. Yes, your customer must generate the certificate, but you're the one who must have it in your possession during an audit.

 

If you are having a tough time getting a certificate, go ahead and charge sales tax on the invoice. (In fact, your default should be to charge sales tax unless a properly completed certificate is on file from a customer.) The threat of this charge will likely motivate your customer to provide the documentation.

 

2. BE TIMELY.  For sales in states that are members of the Streamlined Sales and Use Tax Agreement (SSUTA), exemption certificates must be collected within 90 days of sale. If this deadline is missed, the auditor will allow 120 days to provide a certificate. However, during this time, the auditor can argue that the certificate isn't valid because it couldn't be accepted in "good faith."

 

Don't put your company at the mercy of such a subjective call. Stay on top of certificate collection.

 

3.  REVIEW CERTIFICATES FOR ERRORS. Auditors can disallow incomplete or incorrect certificates. It is the seller's responsibility to ensure that certificates are signed and dated and that they provide all required information and claim the correct exemption.

 

4.  GET UPDATED CERTIFICATES. In some states, certificates expire and must be renewed. And some states require certificates for just the first purchase while others issue them on a continuous basis. To cover all the bases, implement a process to update certificates regularly.

 

5.  EDUCATE YOUR TEAM. It's not enough to just make sure accounting personnel are aware of the rules. Your sales and customer service employees should be up to date as well so that everyone understands the importance of sticking to an established collection process without exception. 

 

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Implement a Coordinated Effort

 

Remember that you not only have to collect certificates, you also must have them available in case of an audit. If you don't have a coordinated effort in place to manage exemption certificates, now is the time to implement one.

 

Contact us with any questions are (401) 941-0202 or toll free (outside RI) 888.286.2918.

 

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Contact Us With Questions

401.941.0202 or toll free (outside RI) 888.286.2918

 

Steven D. Gouveia, CPA, ext 203     

Richard M. Chouinard, CPA , ext 202     

Brian S. Clavet, CPA, ext 205   

Rebecca L. Slaoui, ext 208          

Brittanie A. Rotondo, ext 206          

Donna L. Langevin, ext 201          

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Remember, when you can't afford to make a mistake, good advice is priceless.

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