The Costs of Exemption Certificate Audits

By John SerdarSeptember 20, 2019

If your business handles resale or sales tax exemption certificates, it’s likely there will come the fated day when your organization is audited. You may ask yourself, why us and why now? Unfortunately, there may not always be a clear answer, nor is this really relevant. While undergoing an exemption audit, the most important goal for a business is to walk away from it with the least amount of hassle and cost.

Average Costs

For most businesses, exemption certificate compliance is unlikely to be a top priority. However, not being prepared for an audit can be a very costly mistake. According to a recent study, roughly 42% of sales tax audits identify issues with exemption certificates. After costly penalties, back taxes, interest, costs of an audit defense and lost productivity, a typical negative sales tax audit can cost even a small to medium sized business more than $114,000.

The key takeaway; this isn’t pocket change and may be catastrophic for your business.

Risk Mitigation

At the end of the day the cost of non-compliance is generally many times more costly than being proactive and being compliant in the first place. Proper tax exemption certificate handling generally comes down to the following processes:

  1. Collecting the right resale or exemption certificates in a timely manner
  2. Ensuring that a certificate is complete and valid
  3. Timely renewal of expiring certificates
  4. Storing and providing auditors exemption certificates to substantiate tax exempt sales

EXEMPTAX

A proper exemption management platform such as EXEMPTAX will allow your business to execute the steps above, and will enable your business to streamline the handling of resale and sales tax exemption certificates.

To learn more about EXEMPTAX and how we can help click here.

Do you have more questions about exemption audits? Join the discussion and drop us a comment below.

Sales tax rules and regulations change frequently. Although we hope you'll find this information helpful and informative, this blog is for informational purposes only and does not provide legal or tax advice.