I am often asked if there is a complete list of state exemption certificate expiration periods. When looking across all the states and the variety of forms – the quick answer is NO.
Thankfully, we can make an estimate of the forms being used today and say that more than 80% have clearly defined expiration dates. What about the others? Sometimes you can compile a small list of states and forms where you can accurately predict when sales tax exemption certificates should expire. Otherwise, you have to carefully read the form in your hands and determine the expiration date.
Most sales tax managers utilize resources to help them perform their jobs efficiently. I have helped clients produce internal memos to document sales tax exemption certificate expiration periods. Sometimes my list will be the same as CCH or Thomson research. Sometimes it will be different. The key is to start with an understanding of state regulations and an even better understanding of what products and services your company sells. With that in mind, you can create a customized list for your company.
The next step is to decide how conservative you need to be as the person who has to deal with the audits. States regulations do not always offer crystal clear guidance. The Commonwealth of Pennsylvania states in their regulations that sales tax exemption certificates “should” be renewed every 4 years. Does that mean we must renew certificates every 4 years or is this just a nice recommendation from the state? You get to make that decision and then see how well it works out on the next audit.
The final step is to follow the current political games the Department of Revenue is playing. For example, Illinois is in a battle with hospitals over exemption certificates. Their Supreme Court decision Proven Covenant Medical Center v. Department of Revenue (236 Ill.2d 368) has put the expiration of their exemption certificates on hold. Previously, a hospital was a recognized exempt group and was issued a letter from the state that was valid for 5 years. Since this decision, if you were to contact one of these hospital to ask for an exemption certificate you would most likely receive a copy of their older, expired letter from the state and a copy of a letter discussing the court case and explaining that no decision has been made on the true expiration of hospital exemption certificates. We have contacted the DOR and they are saying that documentation is sufficient until a final ruling has been made. Do you think they will alert us when a decision has been made and we need to acquire all new certificates? When we accept all these incoming hospital exemption certificates what kind of expiration date should we assign them?
Hopefully, you can compile an accurate sales tax expiration matrix for your own business. Even after you have created your list based on the rules above, you may just want to throw it all out the window depending on your audit circumstances. I have known tax managers who have dealt with some very aggressive state auditors and renew their sales tax exemption certificates on a regular basis, say every four or five years, even though the state says the forms are valid forever. The ultimate decision of what you can defend under audit is yours. Good Luck!
Need more information to create your own "LIST of Sales Tax Exemption Certificate Periods"? If so, feel free to submit a question or comment to Silvia below or consider these other helpful resources:
List of Silvia Aguirre’s Exemption Certificate Management blog posts
Sales Tax Questions (and Answers) regarding Sales Tax Exemptions
Other recent “Exemption Certificate Mgmt.” posts by Silvia Aguirre:
- Exemption Certificates for Federal Government Purchases
- Marketplace Fairness: What Does It Mean For Exemption Certificates?
- Will Oregon Start Charging Sales Tax? If So - Are You Ready?
- Canada is Bringing Back Exemption Certificates!
- Louisiana Changes State Forms to Include Parish Exemptions
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