Transcript Sales and Use Tax Operational Procedures Exemption Certificates

Exemption Administration
Training
Prepared by the
Streamlined Sales Tax Governing Board
Audit Committee
Prepared January, 2011
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Streamlined Sales and Use Tax
Agreement (SSUTA)
 States adopting the SSUTA are required to change the
administration of sales tax exemption certificates to
comply with the provisions of SSUTA.
 Sellers that comply with the exemption certificate
provisions of SSUTA are relieved of any liability for an
otherwise taxable transaction.
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Exemption Certificate
Requirements (Member States)
 A member state may require an identification number
be presented by a purchaser to the seller at the time of
the sale to claim exemption.
 Member states may allow direct pay permits,
exemption certificates, or another means as proof of
exemption that does not burden sellers.
 A member state must post the streamlined sales and
use tax exemption certificate on its website.
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Exemption Certificates
 Are used to purchase items exempt from
sales tax.
 Satisfy the seller’s responsibility to prove a
sale was not taxable.
 Come in various forms and versions.
 Example of the SSUTA Certificate of
Exemption is on the next slide.
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SSTGB Form F0003, SSUTA Certificate of Exemption
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Other Exemption Forms
 State issued exemption certificate/permit
 Previous versions of state exemption forms
 Letter of Exemption issued by some states
 Uniform Sales & Use Tax Certificate –
Multijurisdiction, issued by the Multistate
Tax Commission
 Other documentation acceptable to the
state.
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Fully Complete Exemption
Certificate Requirements
 Purchaser’s name and business address,
 Purchaser’s identification number as follows:
1. State sales/use tax ID number or SST ID #;
2. If none, the state sales/use tax identification number
issued by another state and the name of the state;
3. If none, the Federal Employer Identification Number;
4. If none, then a valid state issued driver’s license
number and the state of issue, or
5. If none, a non-tax state issued identification number
and the state of issue
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Fully Complete Exemption
Certificate Requirements
 Description of the purchaser’s type of
business or organization using the business
type code on the exemption certificate, and
 Reason for exemption using the code on the
exemption certificate.
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Fully Completed
Exemption Certificates
 The fully complete standard applies to
exemption certificates received:
- on the date of the sale,
- received within 90 days after the date of
the sale, or
- on file prior to the beginning of the audit.
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Fully Complete Exemption Certificate
Requirements
 The seller’s name and address are not
required by law.
 Do not consider these fields when
determining if the certificate is fully
complete.
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Handling Exemption Certificates
in an Audit
 The “at the time of sale” requirement will be
considered met if a fully completed
certificate is received within 90 days after
the date of the sale or is in the possession of
the seller prior to the start of the audit.
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Invalid Exemption Certificates
that are Fully Complete
 If the purchaser provides a fully completed
exemption certificate to the seller within 90
days of the sale, the state auditor must accept
the certificate.
 If the state auditor believes the exemption
claimed is invalid, obtain as much information
as possible about the transaction and follow
applicable procedures for possible assessment
to the purchaser.
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120-Day Rule
Within 120 days after receiving a request for
substantiation of exempt sales from a member state,
a seller with missing or incomplete exemption
certificates at the time an audit begins must provide:
 fully completed exemption certificate taken in
good faith from the purchaser, or
 other information acceptable to the state
establishing that the transaction was not subject to
the tax.
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120-Day Rule
Request missing and incomplete certificates
early in the audit process.
In the case of a sales sample, the 120 days
does not begin until the seller has been
notified of the sample.
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120-Day Rule
If statistical sampling is used, the 120-day period
does not begin until the seller has been notified of
the transactions in the sample.
 If a block sample is used, the 120-day period does
not begin until the seller is notified of the months or
alphabetical vendor files that will be reviewed.
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Incomplete and Missing
Exemption Certificates
 Request the taxpayer obtain complete
certificates to replace incomplete
certificates.
 If no certificate is on file, treat the sale as
taxable until a valid certificate is provided.
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Good Faith Standards
Use “good faith” standards when reviewing
exemption certificates that are:
 received after the audit begins
 incomplete and replaced with new
exemption certificates received after the
audit begins if the sales occurred more
than 90 days prior to the start of the audit
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Good Faith Standards
“Good faith” means that the exemption claimed
on an exemption certificate received within the
120 days of notice to provide must be:
 statutorily available on the date of the
transaction in the jurisdiction where the
transaction is sourced,
 applicable to the item being purchased, and
 reasonable for the purchaser’s type of business.
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Relief from Tax Liability
The seller is relieved of any tax liability for an
exempt transaction if it provides the exemption
certificate or acceptable exemption information
within the 120 days of notice.
Exception: Liability is not relieved even if
received within 120 days of notice if:
 the seller had knowledge or had reason to know that
the information provided was materially false, or
 the seller knowingly participated in activity intended to
purposefully evade the tax.
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Burden of Proof
 The state must establish that the seller had
knowledge or had reason to know at the
time the information was provided that the
information was materially false for a
transaction to be considered taxable when
an exemption certificate has been provided
within the time periods specified.
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Handling Exemption Certificates
in an Audit
 If an exemption certificate was not received “at the
time of sale”, examine the validity of the certificate.
 A certificate can be considered invalid if:
- Not complete
- Exemption claimed does not exist
- Not reasonable for the seller to believe that the
purchaser is entitled to the exemption.
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Handling Invalid
Exemption Certificates
 If determined that an exemption certificate
obtained more than 90 days after the sale is
invalid, do not accept the certificate and
consider the sale taxable.
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Blanket Exemption Certificate
 A blanket exemption certificate received “at the time
of sale” from a purchaser with whom the seller has a
recurring business relationship relieves the seller of
any applicable tax on transactions with that purchaser.
 A state may not request the renewal of or updates to
information on blanket certificates.
 A recurring business relationship exists when a period
of no more than twelve months elapses between sales
transactions.
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Drop Shipment Rule
 In the case of drop shipment sales, a state must allow a
third party vendor (e.g., drop shipper) to claim a resale
exemption based on an exemption certificate provided
by its customer/re-seller or any other acceptable
information available to the third party vendor
showing the sale qualifies for a resale exemption,
regardless of whether the customer/re-seller is
registered to collect and remit sales and use tax in your
state.
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References and Resources
 Information based on the Streamlined Sales and Use Tax
Agreement – Section 317 – Administration of Exemptions
Section 317.1 – Simplified Administration Process
 Form F0003 – Certificate of Exemption
(Both items are found at www.streamlinedsalestax.org )
 Uniform Sales & Use Tax Certificate - Multijurisdiction
can be found at www.mtc.gov
(Select resources and forms)
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