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Exemption Certificates: How Georgia's Good Faith Standard Burdens the Seller

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If your company is making exempt sales…is having exemption certificates from your customers enough?

Unfortunately, the bar is set higher in Georgia. Having exemption certificates on file is required, but the state says you have to accept these certificates in good faith. In other words, if the state determines that you accepted an exemption certificate from a company that was not entitled to the exemption, the DOR could hold you liable for the payment of taxes.

What is the Good Faith Standard?
The good faith standard places the burden on the seller to determine whether or not an exemption certificate is appropriately used by the purchaser.

In other words, as a seller in Georgia you can’t be relieved from your obligation to collect tax simply by having a properly completed exemption certificate from your customer. The exemption claimed must also be reasonable.

For example, a customer provides you with a properly completed certificate of exemption stating that the item purchased will be used as machinery and equipment…however, they are purchasing an office desk from your company. You should not accept this certificate in “good faith” because you know that item does not qualify for a tax exemption.

Another reason that you may not be able to accept a certificate in “good faith” is if the purchaser is claiming a resale exemption; but you know they do not sell that type of item. For example, a restaurant does not purchase computers and office supplies for resale.

Some states have less strict standards. As long as the seller collects a valid exemption certificate the burden of proof is off their shoulders. Georgia is not one of these states.

  • Online Verification: The Georgia Department of Revenue’s website has a portal that allows you to verify if a customer is actually a registered taxpayer. But that verification is not enough to satisfy the state’s good faith standard.
  • Tips to Avoid Exemption Certificate Conflicts: The best way to avoid facing an unexpected sales tax bill is to have a system in place to authenticate exemption certificates. To learn more about exemption certificate management, view our recorded webinar, SALES TAX EXEMPTION CERTIFICATES: GETTING PROACTIVE WITH A PROCESS, featuring three former state auditors discussing their recommendations for managing exemption certificates.

Questions? Comments? If you have you been held liable by the Georgia DOR to pay sales tax due to a violation of the good faith standard - OR if you have received "creative" explanations from vendors requesting a sales tax exemption - we'd love to hear from you...

About the Author: Lauren Stinson,CMI, is Principal and National Leader - Sales & Use Tax at Cherry Bekaert LLP; a national CPA and consulting firm ranked as one of the top 25 in the country. Previously, Lauren was Owner and President of Windward Tax, a sales and use tax consulting firm. She has more than 25 years experience working with manufacturers on sales and use tax issues. Lauren is pleased to share her expertise with SalesTaxSupport readers as the Manufacturing contributor in SalesTaxSupport’s Industry blog, as well as the Georgia Sales Tax contributor in the States blog.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. More specific questions or requests may be sent to Lauren directly using the orange "REQUEST" link on Lauren's Firm Profile page.

Other recent “Georgia (GA)” posts by Lauren Stinson, CMI:

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