Exemption Certificate Management – The Need for Automation

Tim Roden
October 31, 2017

Congratulations! Your business is expanding. Sales are up and in order to meet the client demand, you’ve opened new facilities and distribution centers in new locations. You are starting to enter different product lines and offer implementation services. You’ve even started a reseller program so you can reach new markets. 

The downside is that now you’ve made your sales tax situation more complex. New locations and products will introduce additional taxing jurisdictions and variable taxability on the products and services that you offer making the exemption certificate management process that much more difficult.

Think you’ve got that covered? Let’s talk about your reseller program. Sales for resale introduce two scary words for manufacturers: Customer Exemptions. Why so scary? Let’s take a look at some of the common challenges in what Aberdeen Group defined as the “Top drain on manufacturers” in their 2017 Benchmark report, “Sales and Use Tax Compliance for Manufacturers: Boost Confidence, Ensure Accuracy.”

Exemption Certificates – Customer Setup

New customers are great, but what do you do when they tell you they are exempt from tax? Is your system setup to appropriately flag them as exempt? For specific products and/or locations? When you charge sales tax to an exempt client you create both a customer relationship problem as well as internal inefficiencies in trying to credit back the tax. Fail to collect sales tax on a taxable order and your organization is responsible for the payment of that tax. Often, multiple internal groups touch the sale, from the quote all the way through fulfillment. How can you ensure that you’re charging or exempting tax correctly on this sale?

Exemption Certificate Collection

Knowing when to exempt the sale is one thing, but collecting and storing the document so that you have proof of exemption can be a challenge unto itself. Depending on your sales channels, these may be collected at the point of sale, by sales representatives or by your finance team. Is there a standard protocol in place for collection? How can you ensure that the certificate is valid or applicable to the sale? The inability to standardize collection can lead to compliance nightmares!

Exemption Certificate Management

Some exemption certificates expire after one year, others after three years and some states recommend that certificates be renewed every four years. Assuming you’ve been able to collect and store your customer’s exemption certificates, do you have an easy way to report on them, especially those that are either due to expire or incomplete? Once that’s done, how do you go about asking the customer for an updated certificate? Lack of visibility into exemptions will open up an organization to challenges under audit. Knowing this, many companies attempt to leverage their ERP for this function but end up consuming valuable IT resources with system modifications and custom queries.

Audit Support for Exemption Certificates

It’s not a question of if, but when your organization will need to respond to a sales tax audit, and exemption certificates are the low hanging fruit. When asked to produce copies of certificates in support of exempt sales, how do you respond? Some manufacturers reach out to their distribution centers to fax or email copies in, others scour their ERP or network drive for certificate images. Wouldn’t it be nice to be able to produce electronic certificate images for all customer exemptions in a given jurisdiction with the click of a button?

Join our solution experts for a March 27, 2018, Webinar, “Automating Tax Exemption Certificate Management to Confidently Defend Against Audits.” Save Your Seat.

Take Action

Fortunately, we’re here to help. Contact Sovos to understand how we streamline your certificate management process to ensure you’re always compliant.


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Tim Roden

Tim Roden is Sales Engineer, SME (Subject Matter Expert) for Indirect Tax. He and his group specialize in solving complex business and systems challenges around Indirect Tax for Global and Enterprise businesses. Tim has been providing expertise in these areas for Sovos since 2014. Prior to his time at Sovos, Tim worked as a Senior Solutions Engineer for ACI Worldwide, supporting SaaS-based electronic payment solutions for Global and Regional Financial Institutions. Tim has a B.A. in History from Wake Forest University.
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