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									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.
                                                   4
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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