Sales Tax Automation 201: Exemption Certificates

Chapter 3: Automating Certificate Management

Sales tax is a complicated world. We’ve put together this series to give you the information you need to navigate the complexities of compliance, as well as the solutions offered through sales tax technology. In this chapter, we cover the software components and benefits of automating certificate management.

Putting the pieces together

Automating certificate management from end to end requires three types of software: exemption certificate management (ECM) software, tax decision software, and enterprise resource planning (ERP) or billing software.

Exemption certificate management software

Generally, ECM software can be broken into two types: standard and intelligent. Exemption certificate management can either be performed in house or outsourced. The workings and benefits of the exemption certificate life cycle apply in either case.

Standard ECM software

Functions and benefits

  • Digitally stores exemption certificates — Certificates are imaged, indexed, and quickly located, eliminating paper waste and the need to store physical certificates.
  • Assists in the collection of exemption certificates — In many cases, standard ECM software displays which customers have been sent certificate requests, the date sent, and whether a certificate has been received.
  • Provides certificate reports — Reports usually contain details about customers and their certificates. Some reports are capable of showing staff productivity.


  • Usually a desktop-based installation, software relies on routine maintenance to ensure the latest version is being used.
  • Often requires purchasing and installing additional releases of the software.
  • The software cannot be accessed from anywhere other than desktop, precluding access via remote office, home office, while traveling, or directly by an auditor.

Intelligent ECM software

Intelligent ECM software performs the functions of standard ECM software but includes additional, powerful features that maximize the benefits of automation. These features can reduce non-taxed transaction audit liability, increase staff productivity, and improve the exempt customer purchase experience.

Functions and benefits

Software as a Service (SaaS) — A web-based solution minimizes installation cost and time. Software updates are usually included in the licensing agreement and are provided automatically upon signing in to the software, reducing the burden on IT.

Automates the collection process — Customer records are imported and the system automatically sends requests, as well as notifications when customers have taken action on a certificate. Certificates can be signed electronically and instantly captured in a central, digital system.

Certificate verification — A review function flags invalid certificates and initiates a request to the customer for correction. The expiration function enables certificate renewal requests to be sent for certificates before or after certificates expire.

Provides auditor tools — Allows auditors to quickly access and view requested certificates.

Tax decision software

In general, tax decision software determines the taxability and tax rate of a transaction based upon several factors in the transaction, including, but not limited to:

  • What’s being sold
  • Where the customer and seller are located
  • Whether the seller has nexus
  • How the order is being fulfilled

Once the taxability and rate are determined, the information is transmitted to the ERP where the invoice is created.

Tax determination software has to be accurate. If the information the software relies on is faulty, the tax determination may be faulty as well. Aside from having access to the latest sales tax rates, the most important factor for correctly assessing sales tax is taxability. The tax decision software needs to communicate with the ECM to omit tax for exempt customers, and to charge tax when a valid certificate isn’t on file.

For example, say a customer’s certificate expires, but the customer makes a purchase before the expiration is passed on to the tax decision software. The software will recognize the customer as exempt, and no sales tax will be billed. If the company is audited, the auditor will determine the business did not collect sales tax on a taxable transaction, leading to possible fines and penalties.

Integrating tax decision software with ECM software prevents this type of error. Intelligent ECM software can automatically export certificate data into tax decision software at regular intervals, or on demand as transactions are processed.

Enterprise resource planning or billing software

Typically, ERP or billing software is where most businesses store information about their customers, like billing and shipping addresses, contacts, purchase history, open orders, and more.

For new exempt customers, the faster a seller collects valid certificates, the sooner orders can be released. Intelligent ECM software automatically imports customer records and sends certificate requests to the new customers, ensuring up-to-date information is available to the ECM software for managing certificates.

Why invest in automation?

With many states simultaneously experiencing a decrease in revenue and a higher demand for public services, most states are aggressively stepping up efforts to collect revenue and close these deficits. One method states are using to raise revenue is increased aggression with sales tax audits.

Proactive businesses can successfully meet this challenge by automating the certificate process. By establishing a process far less prone to human error, businesses can ensure compliance and reduce their exposure to risk.

Additional benefits to the business include:

  • Reduced staff time and effort in managing auditor requests
  • Increased staff productivity by eliminating manual certificate processes
  • Improved exempt customer purchase experience
  • Elimination of manual entry of certificate data into tax decision software and customer data into ECM software
Document compliance automation

Collect and manage exemption certificates with far less effort.