Most B2B transactions qualify for a sales and use tax exemption, but that doesn’t mean they’re statutorily exempt. To validate a tax-free sale of a taxable good, the seller must obtain an exemption or resale certificate from the buyer. In the absence of such a certificate, sales tax must be collected.
Collecting certificates is never simple, even when a sale occurs in person. Once the transaction moves online, it becomes considerably more difficult. Most ecommerce platforms don’t offer an easy way to accept exemption and resale certificates. If they’re set up to collect sales tax, they may not allow tax-exempt sales — they’ll automatically apply sales tax to all transactions, even those that should be exempt.
Consequently, it’s not uncommon for manufacturers, suppliers, and other B2B sellers to simply charge sales tax at checkout then credit the buyer for the tax once they obtain a valid exemption or resale certificate.
This process is not ideal. For starters, it’s a public relations fiasco: Customers generally don’t appreciate being charged tax when they know they’re exempt. Unhappy customers strapped for cash, as many businesses are in the time of COVID-19, may dispute the charges or even cancel the sale. At a minimum, they’ll expect to be refunded the tax.
Yet tax can’t be refunded unless a valid certificate is on file. Thus begins the inevitable back-and-forth of communications, which adds to overall costs and can increase Days Sales Outstanding (DSO), the number of days it typically takes for a business to collect its account receivables or convert credit sales into cash. The longer the DSO, the more strain on the business.
