Exemption Certificate Spot Check Review

Missing, incomplete, or invalid exemption/resale certificates are some of the leading causes of large sales tax audit assessments. Many companies are under the mistaken belief that they have a system in place and that they are protected. Unfortunately, this is not true for many of these companies. If it was true, then exemption/resale certificates would cease to be an audit issue. 

It continues to be an issue because it is not enough to just collect a certificate. Someone must be validating those certificates to make sure the correct form is being used, it is completely filled out, and it passes the common sense test. Sometimes a company has a great policy, but it is not being followed or too many exceptions are being made. Because audits are done on a sample basis, it is not just the tax on a few invoices at stake, but rather an outsized amount when the errors are extrapolated across the population. We have seen a single missing certificate equate to a $270,000 plus error.

It’s not just large assessments that companies need to be worried about either. If employees look the other way when they know an exemption is not valid, or worse yet, when they coach a customer on how to evade tax, criminal issues come into play. We would like to say this is rare, but it is becoming a bigger issue as companies are facing tough times.

As states try to refill their COVID-19 depleted offers, we will see increased compliance and collection efforts. You do not want to wait until an audit for the state to tell you your certificates are all in order or worse you have issues. 

We are currently offering our Certificate Spot Check Review. In this review, we will ask that you provide us with a list of exempt sales from the past 12 months. We will then choose 25 transactions and ask for those certificates. We will then review each certificate for the most common reasons an auditor would reject a certificate during an audit. While 25 certificates is not a scientific sample, it is generally enough to indicate whether there are issues or not. There usually are. Even if there are no issues, there is something to be said for peace of mind. Our fee for the spot check is $495. You can sign up for this service here. 

If you would like to speak to a member of our team about this service, any of our other exemption certificate management services, or any of our other state and local tax services click here.