When do sales tax exemption certificates expire?
Expiration dates for sales tax exemption certificates vary by state, by situation, and, in some cases, by the type of certificate. Some sales tax exemption certificates are good for a year or two or four. Other exemption certificates remain valid for as long as the information they contain is accurate and up to date.
But let’s back up.
What are exemption certificates and why are they required?
If your business is registered for sales tax in a state, you’re required to collect the state sales tax (and any applicable local sales tax) on all sales of tangible personal property that aren’t automatically exempt in that state. You could be liable for the uncollected sales tax unless you can prove the sale was exempt — and the proof is an exemption or resale certificate.
Exemption certificates validate sales tax exempt purchases by explaining why the buyer qualifies for tax-exempt status. There are several reasons why sales tax would not apply to normally taxable sales. Maybe the buyer will resell the goods or incorporate them into products they’re manufacturing. Perhaps the buyers themselves are exempt entities, as is generally the case with the federal government and nonprofit organizations like public schools.
Whether dealing with exempt organizations or sale for resales, it’s usually best practice for a seller to collect the appropriate and properly completed form from the customer at the point of sale. The exemption or resale certificate should then be stored in a secure and easily accessible manner for at least the entire audit period. And those vary. There’s generally a three-year statute of limitations on tax audits in New York, though as the New York State Department of Taxation and Finance reminds, the statute of limitations doesn’t always apply.
Since many forms expire and different certificates expire at different times, it’s important for businesses to develop a process for keeping track of each certificate’s status. That way, you can request updated exemption certificates as needed.
These frequently asked questions about tax exemption certificates (and their answers) provide more details:
- Do sales tax exemption certificates expire?
- How do I renew a sales tax exemption certificate?
- Why is it important to keep track of exemption certificate expiration dates?
- What happens if exemption certificates expire?
- How can I manage certificates more effectively?
- Where can I find information about exemption certificate requirements in all states?
Do sales tax exemption certificates expire?
Unfortunately, there’s no simple answer to this question.
Some sales tax exemption certificates are intended to last as long as there’s a business relationship between the buyer and the seller (provided the information is accurate and up to date). Some certificates are project-specific and cease to be valid after the project is complete. And some certificates will expire on a specific date or after a set amount of time has passed.
For instance, Massachusetts exemption certificates are generally valid for 10 years, but the Alabama certificate of exemption must be renewed annually. The renewal period for exemption certificates in Illinois typically varies depending on the buyer, but the state recommends certificates of resale be updated “at least every three years.”
Agricultural exemption certificates in Tennessee are valid for a four-year period (certificates valid for the current four-year period expire December 31, 2023). However, the Tennessee sales and use tax exemption certificate for a qualified production entity expires in two years.
As in Tennessee, agricultural and timber exemption numbers in Texas must be renewed every four years, and renewed and new Ag/Timber numbers expire December 31, 2023. Since a valid agricultural and timber registration number must be included on the agricultural or timber exemption certificate, the certificates themselves effectively expire December 31, 2023, too.
Here’s another example. Kansas project exemption certificates (PECs) — numbered documents that exempt all materials and labor used on a particular project — apply “only to one specific project and expire upon completion of that project.”
There are also Tax-Exempt Entity Exemption Certificates in Kansas, and these need to contain an expiration date. Yet blanket exemption certificates in Kansas never become void as long as the customer and seller information remains unchanged and the business relationship is “recurring.”
Bear in mind that the lack of an expiration date doesn’t necessarily mean a certificate will last forever. In the District of Columbia, for instance, “an exemption certificate issued to an exempt organization without dates shall expire upon notice by the Office of Tax and Revenue” (OTR). The OTR says taxpayers will receive a notice 180 days prior to the expiration date and a reminder 30 days prior to expiration, so be sure to check your email and snail mail.
For what it’s worth, the OTR also encourages all taxpayers to “proactively renew their exemption certificates to avoid the possibility of an expiration.”
How do I renew a sales tax exemption certificate?
Here too, there’s little consistency from state to state. But as a general rule, states that require taxpayers to renew certificates want to periodically verify the tax-exempt status of buyers. If a purchaser no longer qualifies for an exemption, the seller must collect sales tax from them at the time of sale.
Some states are working to streamline form renewals. For 2023, the Tennessee Department of Revenue created a QR code that takes taxpayers to the TNTAP homepage, where they can log in to their account and renew their agricultural exemption. The state also provides an option for taxpayers with no TNTAP account.
Alabama allows taxpayers to send an email renewal request to email@example.com, but only if the taxpayer has an application that’s less than three years old on file with the department, and all information in the application is accurate. Otherwise, you’d have to submit a new application for a certificate of exemption.
In Massachusetts, the Department of Revenue will issue a renewal notice to you approximately 30 days before your cert expires. This is a good incentive to ensure the department has your current contact information.
Why is it important to keep track of exemption certificate expiration dates?
It’s important to keep track of exemption certificate deadlines for one simple reason: Expired exemption certificates do not validate exempt sales and can therefore lead to penalties, interest, and a heap of back taxes for the seller.
Auditors frequently check the status of certificates. This allows the tax authorities to monitor who’s buying and selling what, to ensure sellers have exemption certificates on file for all tax-exempt sales, and to confirm businesses charge sales tax on taxable goods as required by law.
What happens if exemption certificates expire?
Expired exemption certificates can lead to negative audit findings and hefty fines in most states. “You don’t want an auditor to discover expired exemption certificates before you do,” explains Silvia Aguirre, CEO of Tax CSA and former VP of Certificate Management at Avalara. If you don’t have a valid exemption certificate on file to validate each tax-exempt sale, you could be held liable for the uncollected sales tax along with interest and penalties.
Missing, outdated, or invalid certificates could also put you on an auditor’s watch list, which generally isn’t a fun place to be.
How can I manage certificates more effectively?
It’s possible to manage exemption certificates manually, but it’s not easy.
Creating a certificate management or inventory system that works for you can help you stay on top of deadlines and due dates in multiple states. You may find it helpful to track expiration dates in Excel, to set reminders to renew certificates well before they expire, or to establish a review system to ensure the active forms you have on file are up to date.
You’ll also want to find a way to keep abreast of any changes to certificate requirements, including changing expiration dates.
Yet tax and finance teams that rely on manual processes are least likely to describe themselves as efficient in this area, according to a survey conducted by Hanover Research in June 2023, and more likely to have IT teams working toward automating exemption certificate management.
Automating certificate management reduces both the headache and the risk of noncompliance. Avalara Exemption Certificate Management helps with the collection, validation, storage, and accessing of exemption and resale certificates. Avalara Vendor Exemption Management helps businesses obtain and supply the documents needed to support exemption requests.
Where can I find information about exemption certificate requirements in all states?
Our state-by-state guide to exemption certificates and state-by-state guide to resale certificates provide a host of helpful state-specific details, including which states accept multijurisdiction forms like the Multistate Tax Commission Uniform Sales and Use Tax Resale Certificate and the Streamlined Sales Tax Agreement Certificate of Exemption.
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