Automating Exemption Certificate Management
Exemption certificates are documents that a buyer provides to a seller to prove that a sales transaction is exempt from sales tax. Sounds simple enough, right? The trouble is that exemption certificate management can be complex due to the range of exemptions available and the need to renew or validate exemption certificates regularly. To make things worse, auditors are more likely to fine you than they are to fine the buyer if you mishandle exemption certificates.
Avalara Exception Certificate Management (ECM) is Here to Help
There’s more to exemption certificate management than meets the eye — and no business is exempt from the rules. That’s why Avalara ECM software should be an essential part of your compliance strategy. Here’s a look at the common challenges businesses face surrounding exemption certificate management, some simple compliance steps to follow, and how Avalara ECM can help.
There Are Few Exemptions Surrounding Exemption Management
The management of exemption certificates is crucial for businesses to avoid audit risks. The impetus is on you. Without a proper system in place, your company can be liable for unpaid taxes on transactions where you incorrectly accepted an exemption certificate or failed to collect a valid certificate.
Mismanaging exemption certificates can lead to financial penalties, interest on unpaid taxes, and even reputational damage to your business. While specific instances of named companies getting into trouble solely because of exemption certificates might not make the news — like larger tax evasion cases or corporate scandals do — it’s very common for businesses to face fines or penalties during sales tax audits as a result of mismanagement of exemption certificates.
Ramifications of Non-Compliance
Below are some very real consequences that businesses can face:
- Financial Penalties
If you can’t produce a valid exemption certificate during a sales tax audit, your state may assess taxes owed, plus penalties and interest. The fines can be substantial, especially if the oversight has been going on for a long time.
- Reputational Damage
News of tax mismanagement can hurt your company’s reputation, especially locally or within your industry. Clients and partners may question your company’s competence or integrity.
- Operational Disruptions
Responding to audits or addressing tax discrepancies can zap significant resources, both in terms of time and money. It can lead to operational disruptions, especially for small and medium-sized businesses.
- Loss of Business
In some cases, you may lose out on contracts or opportunities due to a lack of proper tax compliance — or the reputational damage that comes from bad press.
It’s worth noting that even minor missteps can get amplified on social media or in your local news, leading to a more significant impact than your business might expect. Maintaining strict compliance, including proper management of exemption certificates, is the best preventive measure.
Steps To Help Ensure Compliance
We encourage our clients to take the following steps to help meet their compliance obligations:
- Establish a process and procedure to collect, review, validate, and store exemption certificates. For example, request exemption certificates from customers as part of the onboarding process.
- Validate all certificates by reviewing for completeness, accuracy, and timeliness.
- Monitor and update expiring certificates regularly.
- Leverage technology (like Avalara ECM) to automate requests, manage certificates, and better respond to audit requests.
Avalara published a comprehensive state-by-state guide to exemption certificates that you may find helpful.
How Avalara ECM Helps
Avalara ECM streamlines and simplifies the tedious process of collecting, storing, accessing, and managing your customers’ exemption certificates. Among its capabilities are:
Avalara’s solution provides a secure, central repository for your business to store, organize, and access exemption certificates. It simplifies the process of keeping track of many certificates, especially for companies with many tax-exempt customers.
The software helps validate the certificates to ensure that they are correct and up to date — and can alert you to expiring certificates.
Avalara ECM can automate the process of collecting, validating, and storing certificates, which can help reduce the manual workload for staff.
Avalara integrates with many popular business management and eCommerce systems—Sage 100, included, of course.
- Renewals and Expirations
Avalara can send notifications when certificates are nearing expiration, helping your business remain compliant.
Avalara offers robust reporting capabilities to allow you to review your exemption certificate status and ensure continuing compliance.
Sales tax exemption management is essential to doing business — but it’s nobody’s idea of fun. Avalara ECM simplifies and automates the process, helping ensure compliance while minimizing the time and effort involved. Plus, it integrates fully with Sage 100. Contact us to learn more, watch the on-demand webinar: How to Automate Exemption Certificate Management, or visit our Avalara solutions page.