Wednesday, September 12, 2007

Get Exemption Certificates! Always!

Part of a series on essential actions you need to take

This should be the standard policy in your company:

We will always charge tax unless we have the resale or other exemption certificate, or other necessary paperwork IN HAND prior to shipment.

The benefits of doing this are:

1. You assure that the sale really is exempt from tax. You're not making any assumptions (and we all know what happens when you assume, don't we?).

2. You won't have to deal with trying to collect the money later when you get audited and find out that the sale was taxable.

3. You don't have to rely on the customer to send you one when you get audited. And depending on the state, you may have a limited amount of time to get those certificates.

4. You avoid problems with customers that vanish (go out of business), and therefore won't be able to send you a certificate two or three years later when you get audited.

If you stick to this policy, you'll have to do more "credit memos", but people who do this tell me it works well and they are happy with the results. You owe it to yourself to give this a shot.

The Sales Tax Guy


Anonymous said...

In regards to certificates. We often charge tax when we don't have a certificate on hand.

However our customer then gives a certificate after we have remitted the tax to the state. Sometimes our customers short pay our invoices by the tax and send the certicate along with payment.

Now we have paid the tax to the state and we have credit the tax back to our customer. So we are out of the money.

One idea I had is to make our customer apply for refund to the state instead of looking at us for compensation. But this solution may jeopordize our relationship with our customer. Do you have any suggestions?

Jim said...

You have the legal responsibility of refunding the money to the customer. Most companies just refund the money to their customer and then adjust their return in whatever month they give the return. Why not just do that?