Many businesses make these 3 common mistakes when documenting exempt sales, and this can get them into trouble during a tax audit. Watch the video to learn more about these errors and how to avoid them.

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Get more tips for managing exemption certificates with our Exemption Certificate Survival Guide.

Video Transcription

Hi. Welcome to Will’s Whiteboard, I’m Will. Today we’re going to be talking about three common errors that businesses make when it comes to managing exempt sales. Imagine that you have a business based in Ohio. You get a notice in the mail that you’re going to be audited in three days. You feel confident that this is going to be a clean audit. You have your exemption certificates in a box in your filing room. You have a spreadsheet with all the Ohio rates on your computer.

Think about the shock you would face if you got a notice after the audit that the state was penalizing you for $30,000.00 because of missing or incomplete exemption certificates. Let’s talk about three reasons you may have ended up in this situation. Okay, one area that businesses get into trouble is by having inaccurate or incomplete exemption certificates to document their exempt sales. There are many reasons why this might happen.

It might happen at the point of collection. If you get certificates from customers that are on the wrong form, or contain missing information, then they’re going to be inaccurate. Sometimes exemption certificates expire, or the business may change in that it’s acquired, or has a name change, or changes address, rendering, again, the exemption certificate inaccurate. And in inaccurate certificate is basically no certificate at all.

Number two reason for errors; there’s no single process in place in your business for managing the documentation of exempt sales. Maybe you have people collecting out in the field, people collecting back at headquarters and there’s no central location where you’re storing certificates, and there are no controls in place for ensuring that you get accurate certificates. That can get you into trouble too.

Okay, number three: manual storage. Do you have paper certificates that you store in a box? Where do you keep that box, in a back room, in a cellar, in a warehouse? Is there water dripping in it? Rodents breeding in it? Coffee spilled on it? Is it a messy situation, in other words? And sadly, this is the case for many businesses. You can imagine that when the auditor asks you for exemption certificates and you can’t find them, or have to pull out damaged certificates because of manual storage, it’s not a good situation.

So what’s the fix here? Well, it’s relatively straightforward. You need accurate and complete certificates. That means getting accurate certificates at the point when the sale occurs, but also staying up to date and not letting them expire, or letting the information expire. You need a single process in your organization that guarantees that the certificates will be stored in an easy to access way, and that you will get accurate certificates. And finally, you should think about automating your certificate storage process. In fact, Best In Class sales exemption software can not only automate your storage, but it can also automate your process of going out and getting accurate certificates and making sure they’re up to date, and it can help you have a single, unified process in your organization. I hope this helps you not fall into these errors when it comes to managing exempt sales. Thanks very much, I’ll see you next time.