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Exploring what's new, relevant and upcoming in the ever-changing world of sales tax.

Sales Tax Exemption Certificates: Timing

 Oct 03, 2018 Sales Tax DataLINK


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Exemption Certificate Guidelines

 Jul 25, 2015 Sales Tax DataLINK

Exemption certificates are documents issued to a purchaser that provide documentation to show the sale is exempt from sales tax. Typically certificates are issued by a state agency, such as the Department of Revenue, proving that a certain buyer is recognized by the state as exempt from paying sales tax on their purchases of particular goods or services. Exemption certificates protect sellers in a tax audit showing that they have not incorrectly collected sales tax, but the wrong forms won't protect you. In the event of an audit invalid exemption certificates are just as bad as undocumented exemptions. Your company becomes liable for the uncollected sales tax. That is why it is so important for companies operating in multiple states to do their due diligence and fully understand which forms will hold up to an audit and which ones will leave you crying foul. So how do you know what constitutes as a good exemption certificate? The following guidelines can help answer that question and give you a better idea of what to look for when accepting exemption certificates.  Exemption Guidelines: Accept No Substitutes, While it may be tempting to accept alternative forms of documentation, such as a seller's permit, in lieu of an official state exemption certificate it isn't advised. The best practice is to only accept documents that the state has provided as proof of sales tax exemption. While some states may honor seller's permits as proof of exemption going by the book can save you time during an audit and remove any doubt from an auditor's mind that you are making an effort to comply with formalities. Understand Multi-Jurisdiction Certificates: Exemption Certificates that are valid in multiple jurisdictions eliminate the need to issue dozens of certificates to a single vendor, saving businesses time. Examples of such certificates include the Uniform Sales & Use Tax Certificate, Multi-jurisdictional, and the Streamlined Sales Tax Multi-state Certificate. However, while multi-jurisdiction certificates are more convenient, they may not cover all types of exemptions. That means that research to make sure they supply for your needs and that your business is protected is still necessary. Collect Complete Certificates: Not only is collecting the right forms necessary, but making sure that the forms are filled out correctly is also key. Businesses get into just as much trouble for accepting forms that have incomplete or incorrect information as they do for accepting incorrect form types. Common errors you may encounter when documenting exemptions, Missing or unauthorized signatures, Missing issue dates, Addresses other than the direct buyer and seller are present on the form  It is important to include all of the necessary details when handling exemption certificates. You could owe a hefty sum if you don’t have a process in place for ensuring your certificates are accurate and complete.

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A Quick Guide to Sales Tax Exemptions

 Jan 07, 2015 Sales Tax DataLINK

In each state, there are certain types of items that are exempt from sales tax or taxed at a lower rate. Food and medicine are often non-taxable, but the specifics can be very complex.Once you’re clear on taxable items, though, you may still have other exemptions to think about. Some sales transactions are exempt from sales tax not because the item is nontaxable, but because of some characteristic of either the buyer or the seller.

The general rule is that each retail sale of tangible personal property is presumed to be taxable. Put another way, if you make retail sales, you generally must collect or pay sales tax with respect to each sale unless you can show that the sale was somehow exempt from tax.

Each state offers its unique exemptions from its sales tax, but in general exemptions are provided on three aspects of the sale:

  • the type of property being sold
  • the identity of the purchaser
  • the use to which the property will be put

For exemptions based on type of property sold, every state recognizes that there are certain commodities that individuals must purchase to survive, and most don’t tax essential purchases, or tax them at a lower rate. Most states offer product-specific exemptions like food, clothing, prescription medicines, and medical (prosthetic) devices. Those states that don’t provide exemption usually impose a lower tax rate.

Exemptions based on the type of purchaser usually apply to specific organizations. Under federal law, states cannot tax sales that are made to the federal government. Similar exemptions exist in most states for sales to the state, its cities, counties, and other local jurisdictions. Also common are exemptions to non-profit charitable, religious and educational organizations.

Exemptions based on types of use are those that are provided to support certain industries such as agriculture, manufacturing, or industrial processes. They can also be used to encourage certain activities for the public good, such as pollution control. Similarly, most states offer exemptions for sale of machinery and equipment used in manufacturing a product for sale.

Keep in mind, however, for both purchaser-based and use-based exemptions the onus is on the purchaser for proving that a particular purchase is exempt from tax. Or, looking at the transaction from the other side, a seller cannot refrain from collecting or paying tax on a sale unless the seller believes in good faith that the sale is exempt. Meeting the required level of proof is generally a matter of the purchaser providing the seller with an exemption certificate that documents the exemption the purchaser is claiming, or a direct payment certificate that shows the purchaser is permitted to pay taxes directly.

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