The Facts about Exemption Handling for Wholesalers and Why it’s Important

By Tom WeissSeptember 21, 2019

Every business owner knows that becoming or staying sales tax compliant is a vital part of any organization. Keeping up with various compliance requirements is a true challenge to both small and large businesses alike.

Sales tax obligations come in different flavors and variations. One common strategy to manage it is to explore all possibilities to avoid calculating, collecting, remitting and filing taxes in the first place.

The most effective way to minimize tax obligations is to offer tax exemptions to your reseller business partners. Now, unfortunately, the world of tax exemptions just got a little more colorful after the Supreme Court ruling South Dakota vs. Wayfair. 

Almost all states across the US are now mandating that businesses even without a physical presence in one particular State can be required to collect and remit sales taxes on certain transactions if variable thresholds are met.

What does that mean? Essentially, the good old days of limited tax obligations in the State where your brick and mortar store is located are over.

You are now required to understand and comply with tax obligations in up to 46 taxing jurisdictions.

However, not all is lost. While these new rules might seem overwhelming at first, there are also positive aspects to consider. Since not every business is yet calibrated to handle exemptions across all states, you might have a significant competitive advantage by offering a nationwide solution to your resellers. Deploying a robust exemption management can lower tax liabilities.

Many wholesalers have switched gears as a result of the Supreme Court Ruling and simply don’t offer resale exemptions any longer. However, this is not a feasible long-term solution as this challenge will not go away any time soon. Sticking your head in the sand will result in offering your goods and services at the premium cost of negative cash flow impact to your resellers. Your business partners will, sooner or later, abandon ship and search for another wholesaler offering better tax terms.

Accept resale exemption certificates from your customers to stay competitive.

Some wholesalers are taking the route of obliviousness and simply ignore the fact that Economic Nexus is the new standard. Going that route not only provides for significant risk to the wholesaling business but also puts the reselling entity in jeopardy by applying a potential need for use tax obligation.

The fact is that the millions of businesses dealing with wholesale transactions across the US are all facing the same challenge. Turn a challenge into a competitive advantage and provide the best offering to your business partners; ensure to limit your audit risks and financial fallout – for you, as the wholesaler, and your reselling partners alike.

Stay ahead of the game and adapt to new laws, rules and business practices as soon as possible to continue to be one step ahead of the pack.

The best way to minimize your tax obligation is to ensure you collect and validate all of your tax exemption certificates accurately and renew them on time.  Consider partnering up with a tax service provider who fits your business needs in terms of usability, cost and commitment.

Test drive EXEMPTAX and sign up for your FREE PLAN. No Credit Card needed, and no questions asked.

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.