Have you ever tried to find a thorough list of sales tax exemption certificate expiration dates?
There isn’t one, unfortunately. You’ll have to create your own. It’s not the most fun job in the world, but it’s certainly an important one. Over the years, I’ve helped many companies produce internal documentation to track different expiration dates in different states. It definitely makes a difference.
In today’s post, I’m going to share a process I’ve personally used to help clients create and maintain updated lists of exemption expiration periods.
First, you may be wondering:
Why is it important to inventory exemption certificate expiration dates?
For one thing, each state approaches sales and use tax exemptions in its own way. For example:
- In Texas, many forms never expire
- But in Florida, resale exemption certificates expire annually
- And in some states , the type of certificate, a multijurisdictional form or a streamline sales tax form determines the expiration period
Second, the dates can change at any time. Just because the exemption certificate you collected in 2011 was originally good until 2016, that doesn’t mean a five-year period still applies. The state may have since started requiring renewals every three or four years instead. (In fact, this happened in Texas just a few weeks ago.)
It all comes down to this:
You don’t want an auditor to discover expired exemption certificates before you do. If attempts to obtain them retroactively don’t work, you’ll be liable for not only uncollected sales tax but interest and penalties as well. You could even put your company at an increased risk for future assessments if the auditor feels you haven’t made a good faith effort to play by the rules.
Having a thorough, up-to-date list is one of the best preventative measures you can take.
How to Create an Exemption Certificate Expiration Matrix
To start, you’ll need to gain a deep understanding of the products and services your company sells.
Next, start pulling together a list of corresponding regulations in each state where you do business, from resale exemption certificates to exempt organization forms.
Not too bad so far, right? Perhaps a little time intensive, but easy enough.
Now comes the tricky part. As you study the forms for each state, you will have to read each one carefully to determine its expiration date. Thankfully, many states do make them easy to find. But some make it incredibly hazy.
For example, Pennsylvania regulations state that sales tax exemption certificates “should” be renewed every four years. Does that mean you must renew certificates every four years? Or is it just a nice recommendation from the state? As strange as it may sound, you sometimes have to decide for yourself when an exemption certificate could or should expire.
Which brings me to the last and final step:
Set your own internal expiration dates.
State regulations might recommend renewing a certificate every five years, but that doesn’t mean you can’t ask customers for new ones every two or three years instead.
You have to decide how conservative you want to be. In fact, many organizations will go ahead and collect new certificates every year for states where the guidelines aren’t crystal clear.
Even after you have created your list based on the guidelines above, you may decide to throw it all out the window depending on your audit circumstances. I’ve seen tax managers who, after dealing with aggressive state auditors, opted to renew sales tax exemption certificates on a regular basis even in states where the forms are reportedly valid forever.
Creating and maintaining a list will help you keep track of sales and use tax expirations as they apply to your business, but the ultimate decision of what you can defend under audit is yours.
Would you like more information you can use to create your own list of sales tax exemption certificate periods? Download a free copy of our Exemption Certificate Survival Guide for more guidelines on determining the validity of certificates and learning the rules of each state.