4 ways to manage exemption certificates for B2B online sales

Need new printers for the office? You can order those online. Want cell phones for your employees? You can set all that up on your carrier’s website. Don’t have time to pick up lumber for your next construction job? You can get that on the web and have it delivered to your site.

Over the past several years, companies large and small have been progressively answering the call for convenience and establishing online selling capabilities. A 2019 study revealed that one-third of business-to-business (B2B) customers preferred shopping online to make at least 90% of their business-related purchases. Then the events and lingering effects of 2020 put that movement into overdrive. Many companies that perhaps never considered establishing an online purchasing presence found themselves scrambling to do so to stay in business.

More businesses are doing more business online.

The versatility of online selling has been great for businesses but has challenged organizations to properly manage their tax exemption certificates.

Exemption Certificates 101

Exemption certificates verify that a business is not liable for sales tax on an otherwise taxable product. Reasons vary as to why an organization may hold an exemption certificate, but most often, it’s attributed to the type of company or purpose of the purchase — such as a purchase made for resale.

For example, in some states such as Colorado, exclusively charitable, educational, religious, or scientific organizations can apply for tax-exempt status, permitting them to purchase merchandise and services without paying sales tax. Illinois grants exemption for purchases of machinery and other equipment that will be used primarily to produce or assemble products for wholesale or retail sale.

The need for speed

The basic process of managing tax exemptions is the same for online selling as it is for brick-and-mortar stores. What’s changed is how companies collect and manage the exemption certificates. In the recent past, B2B buyers would typically email or fax the certificates, then staff would verify the exemption — an already time-consuming procedure. But with online purchases — even B2B — customers expect speed and efficiency for all steps of the transaction, including exemption verification.

So, how can B2Bs best manage their exemption certificates?

4 ways to manage B2B exemption certificates

  1. Don’t forgo verification
    Establishing certificate authentication in the purchasing platform may seem daunting or out of budget for many small businesses. They may choose instead to bypass verification and take the exemption in good faith. That’s risky. Many B2B purchases can tally into the thousands of products — companies often aren’t buying just one T-shirt or one laptop. Forgoing authentication can be a significant financial and audit risk.
  2. Don’t make them wait
    As we mentioned earlier, online purchases necessitate a timely — immediate — verification process, preferably existing in the buyer’s shopping cart. Waiting for verification might strain customer satisfaction and the supply chain. Delays in receiving exemption documentation could stall merchandise deliveries.
  3. Zero out the tax
    Instant verification isn’t necessarily the endgame. For total efficiency, you may want to zero out the tax at the time of purchase once you’ve verified the exemption. Most certainly, B2B buyers would prefer not to pay the tax at all than pay it and wait for a refund.
  4. Automate exemptions
    Manual authentication will no longer suffice for businesses that want to deliver an efficient and satisfying online selling presence. Manually verifying certificates for single channels can be cumbersome for companies with strained resources but then throw in multiple online selling channels, and the feat becomes exuberantly more challenging — and risky. The greater the burden, the greater the chance for errors. To err is human; to automate is accuracy. Automated solutions free up resources and mitigate errors that threaten compliance.

As the years buzz by deeper into our digital age, ecommerce will most likely only advance and flourish. Companies large and small must find ways to adapt to stay competitive and compliant. And proper management of exemption certificates for online B2B purchases is a critical component.

If you’d like to dive deeper into exemption certificate management, check out our blog: How to manage exempt online sales. And to learn more about automated solutions, visit Avalara.

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