Sales Tax Exemption Certificate Management Best Practices

By Leonard, Wendy | Business Credit, January 2012 | Go to article overview

Sales Tax Exemption Certificate Management Best Practices


Leonard, Wendy, Business Credit


While many departments often deal with sales tax exemption certificates, it is the credit department that is often left holding the bag to own the overall process. The quality of your company's exemption certificate processes can impact your financials (audits, cash flow), customer service, regulatory compliance and cross-departmental efficiencies. While validation of certificates can be a struggle for credit professionals, the primary driver for best practices is around the administrative burden that falls on their team. The goals are to be more efficient and make multi-step tasks as manageable as possible. This is typically done by creating processes that are understandable, repeatable and measurable. For exemption certificate processes, this breaks out into three large buckets: collecting, storing/ retrieving and indexing certificates.

Certificate Collection

In a survey done by the Credit Research Foundation (CRF), 81% of responding companies identified the process of collecting certificates from their customers as a major challenge. Collecting certificates falls into two distinct efforts: individual requests and bulk collection campaigns.

Individual Requests

Most individual requests occur as a part of customer on-boarding. The biggest mistake companies make with new exempt customers is applying the exemption at the customer level, instead of at the state level. Sales tax is a state issue and requires a certificate for each ship-to state. As a best practice, when creating new ship-to accounts for existing customers, the process should include a review of certificates on hand. Unless there is an accepted, non-expired certificate for that state, the ship-to should be taxable. The next step in the procedure should be to reach out to the customer to ask for a certificate so that future transactions can be exempted properly.

Bulk Collection Campaigns

For bulk requests, the biggest hurdle, yet the most important step, is identifying which customers should be contacted and how to contact them. Once you identify which customers should be contacted, should you send information to the bill-to, ship-to, or payer? Do you have email addresses and/or fax numbers? Do you have a name contact or just a P.O. Box address? Having proper contact information is vital to a successful collection project.

Ship-to account = state for which you need a certificate

Bill-to account = where to send requests

Phoning customers gets the best response but is the most time consuming and expensive, and is usually reserved for urgent projects such as an ongoing audit. After phoning, the response rate is usually best in the order of email, fax and then mail. The expense of communication is in the reverse order of the response rate. Mail is typically the most expensive, then fax and finally email being the cheapest. Since email gets the best response for the least expense, it is worth the effort to try to collect email addresses for customers. Hint: Often your marketing or billing department will have email addresses for customers when your standard order entry team does not.

Best Practices for Bulk Campaigns:

* Anticipate returned communication and have a process to resend requests via another method (typically 10-15% of all communication fails).

* Include your email address and phone number for customers with questions (because they will have questions) and be sure to notify customer-facing departments so they are not surprised by calls on certificates and are able to handle the inquiries.

* Implement a process for customer responses that includes:

** Logging certificates received.

** Effectively answering questions such as invoice number, dates, products, states and other questions.

** Handling responses of "I'm taxable" or "I'm no longer a customer" and moving them to taxable and or removing from future communication. …

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