Oklahoma Raises the Stakes For Sales Tax Exemption Certificate Management
- Sales and Use Tax
- June 17, 2010 | Avalara
The Sooner State legislature has just incentivized Oklahoma vendors to pay a little more attention to management of their customer's sales tax exemption certificates.
From a political angle, this issue bubbled up in the context of veterans groups and the sales tax exemptions they typically are in possession of. But the expanse of the final legislation (signed into law 6-7-10) provides penalties for non-compliant transactions with any holder of a sales tax exemption certificate.
The message from Oklahoma City is delivered via this piece of legislation (search for Bill SB1321).
Look closely though, the law has a twist we didn't see coming until we read it ourselves. This law is not concerned with vendors who avoid sales tax collection by honoring fraudulent or incomplete exemption certificates.
Here, the enhanced penalties are for vendors who refuse to honor valid exemption certificates. The new law enhances the penalties for charging sales tax in opposition to a valid exemption certificate. Not what you thought, is it? Read on.
This particular enhancement has some real teeth:
" A second or subsequent violation of this subsection shall be unlawful and constitute a misdemeanor offense punishable by a fine of not more than Five Hundred Dollars ($500.00) per such offense, in addition to any administrative fine. The Tax Commission shall refer any vendor who has more than once willfully or intentionally refused to honor the exemption, whether fined or not, to the district attorney where the vendor is located for prosecution."68 O.S. 2001 Sec. 1361.1 (B.)
Whoa! In the everyday world of state and local words like "misdemeanor" or "district attorney" or "prosecution" are thankfully rare. Even when we do hear about one or the other or the other, the story generally relates to under-reporting or under-remitting type of, ahem, incident.
Here, we see the threat of criminal prosecution for collecting the sales tax in contravention of a valid exemption certificate.
Wait! There's more:
" For the purposes of this subsection, "vendor" means any individual most responsible for supervising, and the conduct of, any employee who intentionally refuses to honor the exemption including, but not limited to, a manager, owner, partner or corporate officer." 68 O.S. 2001 Sec. 1361.1 (B.)
It looks like the liability under this law may extend to the managers or officers as well as owners of a violating vendor. Vendors must have "actual knowledge" that a customer has a valid exemption certificate and then "willfully" or "intentionally" refuse to honor the certificate in order for the really bad stuff to kick in.
Quotes added because that is what the law says, but also to highlight the rather subjective nature of the requirements for "prosecution". Since the law lacks precision, vendors who have concerns about their own exemption certificate management might consider automating exemption certificate management in an effort to avoid miscalcualtion of sales taxes on exempt customer's invoices, deliberately or not. (Hint, hint, hint...)
Of course, no one can predict future enforcement of any new rule or reg. And believe us, we aren't exactly a bunch of chicken littles, the sky is not falling on Oklahoma vendors. And no one is expecting the OK Tax Comminssion to start throwing the book at every vendor who issues a taxable invoice to an exempt customer. But there is a bigger point.
The big point? This rule illustrates the need for effective, accurate sales tax exemption certificate management. It might be counter-intuitive for some vendors to imagine the need for criminal penalties for over-collection of sales taxes, but in Oklahoma at least, thats the new rule in town
Finally: This blog does not constitute legal advice. This blog is intended to be a source of general sales tax information, not a source of legal advice. Please consult with your tax and legal professionals to let them apply the law to your specific facts and circumstances.