I'm assuming you have all the necessary exemption certificates from your customers. That's a big assumption, of course. Most of you don't. But if you do, then the next problem is making sure that the certificates you have are still valid.
Depending on the state, certificates may expire. So you need to make sure you refresh them. There are four options:
1. Carefully pay attention to the expiration rules for each state where you need certificates and then do the necessary requests, and follow-ups to keep your files up-to-date. This is lots of work and requires regular research.
2. Refresh one third of all your certificates every year. That way, you get a completely new set of certificates every three years which meets the requirements of just about all of the states.
3. Refresh all of your certificates every year. This is overkill, but it certainly is safe and will meet the requirements of every state. In both items 2 and 3, we're basically talking about sending out a form letter to your customers. It means a couple of spreadsheets, some mail-merges, a little annoyance for your vendors, and the time of a summer intern. We're not talking about a major investment.
4. Invest in some software. There is software out there that will manage your certificate process for you. The software will determine what forms you need, store the imaged documents, and tell you when you need to refresh. It's item 1, but automated. I've met folks from these companies and they even appear as advertising on this blog - in fact I saw one this morning when I posted this. So they're out there. In fact, I just did a quick Google search for you. You may want to check them out. This method is expensive, but safe.
Regardless of the method you use, get your exemptions certificates and keep them up to date.
Aside from being safe, if you've got this under control, the auditor will be impressed. So you've got that going for you. Which is nice.
Sales Tax Guy
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Picture note: Yes, it's the Frazier family milk jug. Had to. Sorry. ;-)