Keeping tax exempt customers happy: How certificate management processes can create a customer service edge

We all know that happy customers are likelier to become loyal customers. It’s why businesses strive to deliver great customer service — a philosophy that extends to the purchase process itself. Exemption certificate management is an often overlooked part of that process, but can have a huge impact on the satisfaction of tax exempt customers.

Document management is complex, with variations in tax jurisdictions across the country. But a poor process for handling exemptions can be a source of frustration, reducing customer retention and company profits. Improperly collecting and managing exemption data by employees or within internal systems can have huge consequences downstream. Mismanagement leads to inaccurate billings, employees spending valuable time fixing errors, order delays, huge audit assessments, and other liabilities. Even more troublesome is not collecting the proper documentation at all.

This whitepaper covers how inadequate processes for managing exempt customers and exemption certificates impact business. It also introduces best practices for properly managing exemption certificates, creating a positive customer experience through ease of purchase, and automated collection through digital channels.

While customer service initiatives are often engaging topics for business leaders, improving exemption management is usually met with less enthusiasm. The perceived disconnect between sales, service, and profitability and the dry world of sales tax compliance is wide, but the two are more closely aligned than one may expect.

For a practical example, consider an auto parts dealer supplementing their on-hand stock. If they have to pay the tax on their order, then wait for a credit or work with customer service for a rebate, they’re investing funds and time to recoup taxes they shouldn’t have had to pay in the first place. At best, they become an annoyed customer. At worst, they abandon their cart altogether and take their business to a competitor with a built-in tax exemption process.

For many companies the percentage of gross revenue that comes from exempt sales can be significant. Between sales to schools, government agencies, and religious institutions, the numbers are staggering. Even without selling directly to exempt consumers, there are exempt sales to resellers, manufacturers, the agricultural industry, and much more.

The ability to easily handle exempt sales can expand markets and help create new business partnerships as well. For instance, businesses looking to create new drop shipping relationships are more likely to consider a shipper that can smoothly handle exempt sales. Especially with the increase in scrutiny by states imposing marketplace or economic nexus laws.

Effective exemption certificate management processes help keep customers happy. Applying the right tax rates, enabling omnichannel uploads, automating verification and renewals — each of these contributes to a simplified process. And the less customers have to think about, the better their overall experience.

When implementing a successful document management process, it’s important to consider each of the following points:

Initial certificate collection

Do employees know which exemption certificates to collect and how to verify them?
Are they collected and verified correctly the first time?

Existing customer certificate lookup

Do employees in all customer-facing departments have quick access to current exemption information?

Tax exempt purchase experienc

Is the current experience for exempt customers quick and reliable?
Does the process cause order delays?
Are taxes and exemptions properly applied in mixed purchases?

State and local regulations

Does the system account for differences in taxability rules in each jurisdiction?
Can it track which states count tax exempt sales toward economic nexus thresholds?

Billing and invoicing

Are bills and invoices accurate?
What percentage of refund checks or credits are processed due to tax errors?

Certificate renewals

Are certificate expirations tracked?
Are updated versions of expired certificates filed on time?

Audits

How often are customers contacted for missing certificates?
Inefficiency in any of these areas not only creates tax liability for a business, but can cause frustration for customers.

An inefficient tax exemption process isn’t just a problem for the customer experience; it can also lead to significant hidden costs to fix preventable problems, most of which impact departments outside of tax management, including credit, customer service, collections, accounts receivable and payable, sales, and store managers.

The time and resources spent preparing for and managing an audit are also an important factor. Manually locating each certificate an auditor requests is time-consuming, especially if businesses have to reach out to customers to reconstruct the necessary documentation. Compare that to the ease of a self-serve portal an auditor can use to pull up the information they need, when they need it.

Lastly, liabilities have to be accounted for. Even if a business has sufficient reserves to cover mismanagement, there’s an opportunity cost associated with maintaining that kind of cash on hand. With a better process for managing tax exempt customers, the headaches, frustrations, and costs on all sides can be dramatically reduced.

It’s easy to think managing documents should be as simple as collecting a certificate at the point of sale, then making sure it’s properly completed. But like most business processes, it’s not as simple as it first sounds.

Process decisions occur when:

• Collecting exemption certificates
• Storing collected exemption certificates
• Locating exemption certificates when customers make repeat purchases or during an audit
• Ensuring exemption certificate data is accessible by tax calculation and billing software

Take initial certificate collection, for example. Customer service or sales are typically the teams who collect exemption documentation. But unlike the tax department that deals with these issues every day, they don’t necessarily have the knowledge to verify the correct information during a sale. If the certificate is incomplete or from the wrong tax authority, it’s not valid and won’t hold up during an audit.

In most cases, the tax department first validates an exemption certificate while preparing for or during an audit. Should they find errors, it’s their responsibility to reconcile, verify, and produce new tax exemption certificates — rarely an easy task. If an exemption certificate is improperly stored or missing, the tax department will have to contact the customer to collect a new one.

Between reconciliation calls to customers, delayed invoices, billing fixes, and penalties and interest incurred, both customer service and the bottom line can take a hit as a result of mismanaged certificates.

Take initial certificate collection, for example. Customer service or sales are typically the teams who collect exemption documentation. But unlike the tax department that deals with these issues every day, they don’t necessarily have the knowledge to verify the correct information during a sale. If the certificate is incomplete or from the wrong tax authority, it’s not valid and won’t hold up during an audit.

In most cases, the tax department first validates an exemption certificate while preparing for or during an audit. Should they find errors, it’s their responsibility to reconcile, verify, and produce new tax exemption certificates — rarely an easy task. If an exemption certificate is improperly stored or missing, the tax department will have to contact the customer to collect a new one.

Between reconciliation calls to customers, delayed invoices, billing fixes, and penalties and interest incurred, both customer service and the bottom line can take a hit as a result of mismanaged certificates.

The appendix includes a list of common exemption certificate management best practices (Figure 1), an exemption certificate validation checklist (Figure 2), and a process workflow for collecting, reviewing, and updating billing systems (Figure 3).