Sales and marketing success manifests itself in many ways. Posting profits is clear enough. Other results are less obvious, representing consequences often overlooked in the push to meet key business objectives.

For example, expanding distribution, broadening your dealer force, and building brand and product equity through quality, innovation and value are common priorities.

Focusing on those types of priorities can mean other business challenges are overlooked. For example, tax compliance - specifically the acquisition, tracking and updating of use tax exemption certificates - is not always a key business consideration. It’s not likely exemption certificate management will ever be a key performance indicator, though it’s a tempting thought. After all, the receipt of use tax exemption certificates does reflect real world sales activity. Valued resellers, educational, religious, and other certified tax-exempt customers expect to do business with a company that manages their tax status with accuracy and confidence.

Challenging questions

Remember that auditors in the jurisdictions where you have economic nexus have great interest in your tax obligations. Compliance is inherently tricky and ever evolving. Ask these questions when going through your current exemption certificate management approach:

• Does the seller’s legal name match the d/b/a name? Is it a valid certificate?

• What is the process for flagging expiring or invalid certificates?

• Where are the certificates? Are they easy to locate through your manual, ERP or CRM system?

• Do you have a customer-friendly method to onboard certificates?

• What’s your defense strategy when auditors ask about exemption certificate management practices?   

An auditor’s sampling of certificates can put some companies in a delicate spot. Old school, manual certificate management methods may have once worked fine. But states are more intent than ever on enforcing compliance, especially since the pandemic. Today, an analog strategy may put a company at needless risk, especially if facing varying nexus demands across many jurisdictions.

Even with some states’ well-intended attempts at banding together to bring more order and predictability to exemption certificate management through initiatives like the Streamlined Sales Tax program and the Multistate Tax Commission, exceptions still occur.. Organizations cannot afford to assume that tax laws will remain static in the states where they operate.

From 6 weeks to 1 day

What is the first step to crafting a strong exemption certificate management strategy? Understand your shortcomings. As one senior ERP administrator confesses, “The way we were handling tax exemptions was honestly very embarrassing. There was no structure, no organization.”

It's a situation Andrew Snowden, controller for Bridgestone HosePower, no longer faces. Bridgestone HosePower is a manufacturer of hydraulic and industrial hoses, hose assemblies, and mobile hose services distributed from more than 40 company locations across North America. Snowden and his team handle more than 10,000 exemption certificates, dispersed across various servers, drawers, and warehouses. Response time for an auditor's certificate validation request was previously up to six weeks.

“I wouldn’t know if there was an issue until the auditor knew there was an issue,” Snowden explains. “It wasn’t a good situation. I don’t like flying blind in an audit.”

In response, Snowden and his team adopted an automated solution. A cloud-based, single source of truth now compresses certificate response time from six weeks to a single day. Better yet, Snowden says the company is now better protected against the possibility of unexpected tax liabilities and audit penalties.

For Bridgestone HosePower and other companies, automation presents a compelling array of advantages. Here are four to consider in your exemption certificate management journey:

1. Simplify certificate transfer

Both you and your customers share an interest in making certificate hand-off as simple as possible. Exemption certificate management software can seamlessly integrate with your present point of sale system, shopping cart or invoicing solution to help ensure a rapid and accurate certificate transfer.

2. Validate certificate accuracy

Software can work wonders in automatically validating tax certificate numbers, exemption type, format consistency receipt confirmation and location. What’s more, certificate delivery should be indexed automatically by jurisdiction, expiration and exemption type for easy, on-demand categorization.

3. Demonstrate compliance commitment

Investment in a proven, industry standard exemption certificate management solution goes a long way to demonstrating your company’s dedication to tax compliance.

4. Maintain transparency

Using email to communicate early and often with customers is central to a well-oiled exemption certificate management process.

Today, the pressure has never been greater to honor your compliance obligations. As you weigh your exemption certificate management options, remember that cloud-based automation can help reduce audit risk, penalties, fines and even help you better understand your tax liabilities