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24 December 2014 • www.CPAPracticeAdvisor.com A YEAR IN THE LIFE: SALT ACCOUNTANT Follow these fve survival tactics and you' ll increase employee eff i- ciency, reduce wasted administra- t ive t i me, a nd lower r isk of aud it fnes and penalties relating to invalid exemption certif icates and inade- quate management practices. The Challenge For c ompa n ie s s e l l i n g mu lt iple products and services into multiple states, the management and storage o f e x e m p t i o n c e r t i f i c a t e s c a n become a n ad m i n ist rat ive n ight- mare. If an exemption certifcate is inva lid, out of date, or missing , a company can be liable for the sales tax not collected. COM MON EX EMPTION CERTIFICATE ER ROR S • Missing a signature or does not include a signature of an accepted signer • Missing an issue date • Incorrect claim type or any certifcate not accepted • Document not recognized by the state authority in the form of a leter, email or government license • Includes name or address other than the direct buyer and seller • Showing State ID applicable to the wrong state Here are just a few of the require- ments of accurate exemption cer- tifcate management: • Understanding the nature of the exemption. • Determine validity of exemption certifcates. • Know the rules. • Determine product and ser v ice- related exemptions. • Automate. Tese fve tactics ofer a com- petitive advantage and lower the risk of audit fnes and penalties: SURVIVAL TACTIC #1 Understand the nature of the exemption Sales can be exempt for many rea- sons including: • Te nature of the use—how or where the goods will be used by the buyer (i.e., resale). • Te nature of the goods or services sold—some states do not tax services and labor. Others do. • Te nature of the buyer—some states exempt nonprofts and government agencies from collecting sales tax. Others do not. As the number of products sold g rows, the l i kel ihood of sa les ta x exempt sales increases, along with t he d i f f ic u lt y of ma nag i ng t hem correctly. TO DO: • Create systems to track changing rules regarding the tax-exempt nature of each transaction. • Track sales tax holidays, product and ser v ice related exemptions, and exemptions based on use. SURVIVAL TACTIC #2 Determine validity of exemption certifcates W hich form? S t a t e s p a r t i c i p a t i n g i n t h e Streamlined Sales Tax Initiative at t he federa l level have access to a unifed exemption certifcate form. In some cases, a company does not have to be registered to use the form, but it depends on the jurisdiction. Complications arise for businesses selling in one of the t went y-three non-member states. Some non-SST states accept out-of-state for ms. Some do not. Track ing individual form requirements in each jurisdic- tion into which you sell is a critical to exemption certifcate compliance. W hat needs to be on the form? • Type of exemption (nature of use of good sold) • Names and addresses of bu yer and seller • Description of goods purchased • Tax registration number • Signature of the purchaser TO DO: • Review exemption certifcates sub - mited and ensuring they contain key elements identifed above. • If the state you're dealing with is an SST state, use the recommended forms. SURVIVAL TACTIC #3 Know the rules Knowing which form to use is only part of the puzzle. For each state in which your company has nexus (a connection that triggers a sales tax requirement), tracking tax-exempt transactions based on use, tax holidays, and source of the transaction requires super human strength and agility. Type of use Based on the nature of the product or service purchased, a transaction may or may not be exempt. A manu- facturer purchasing a durable good for use in the production process might not be required to pay sales tax in some states and, in most cases, those items purchased for resale are not subject to sales tax requirements on that frst transaction. 2015 Sales Tax Exemption Certifcate Survival Guide By Shane Ratigan, JD, LLM (Tax) G etting the right tools for the job: The inevitable confusion regarding tax-free sales isn't for the faint of heart. It takes a sales tax survivor to get it right. With the right game pieces, players, and equipment in place, however, even the most challenged can succeed. Automate Know the rules Understand the nature of the exemption Determine validity of exemption certificates Determine product and service-related exemptions