I can remember debating with colleagues about the SST exemption certificate form several years ago. The business community was arguing for the acceptance of any number provided on a sales tax exemption certificate as valid. The thought was that if a sales tax exemption certificate is completed and the buyer signs off on the form, they are stating that they have not falsified any of the data and that the state ID number is correct. The completed certificate is presented to the seller who accepts the form in Good Faith. The burden should be on the auditor to prove that it is false and it is the state’s responsibility to go after the buyer for supplying invalid information.
It seems so perfect in SST states, but what about the non-SST states?
We recently completed an evaluation of exemption certificates submitted for a resale purposes for a client. The task was to check the validity of the sales tax exemption certificates on hand. Several states offer web tools that enable you to verify a resale number. We targeted one state and started checking ID numbers on that state’s website. We were surprised to find that about 15% of the forms on hand had invalid numbers. We went an extra step by verifying the numbers with the customers and learned that a surprising number of errors are made when buyers are writing their state ID number on the form. We expanded the review from one state to several states. Some states have an easily identifiable format, so we focused on those. Again, we learned that a significant percentage of customers were supplying ID numbers that were not correct.
Our firm has begun to build a database of state ID formats with the intention of integrating it into our software. In roughly half the states (those with SST) this is really not an important item or process to undertake. In the other states, who knows what you will be up against while under an audit. We have had a staff member reviewing ID numbers on incoming certificates for about two months so we can record how much extra time this takes. On average, this process is doubling the amount of time it takes to process sales tax exemption certificates.
Now that many large companies have implemented systems like Vertex and Taxware, the supplied state ID numbers are in the system as a data element to support the exemption. Auditors have begun reviewing data downloads of just customer state ID numbers and are looking for incorrect formats. My belief is that in a few short years, auditors will be reviewing all certificates with much more scrutiny when it come to state ID numbers, further eroding the seller’s claim of acceptance in Good Faith.
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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