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									Exemption Administration
            Prepared by the
 Streamlined Sales Tax Governing Board
           Audit Committee

             Prepared January, 2011
   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.

      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.

       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.
SSTGB Form F0003, SSUTA Certificate of Exemption

      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
       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

     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.

            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.

Fully Complete Exemption Certificate

 The seller’s name and address are not
  required by law.
 Do not consider these fields when
  determining if the certificate is fully

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.

     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.
                 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.
              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.

                 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.

         Incomplete and Missing
          Exemption Certificates

 Request the taxpayer obtain complete
  certificates to replace incomplete
 If no certificate is on file, treat the sale as
  taxable until a valid certificate is provided.

       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

       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.

       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.

           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.

    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.

         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.

   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

          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

     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 )

 Uniform Sales & Use Tax Certificate - Multijurisdiction
  can be found at

                    (Select resources and forms)

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