Resale (sometimes called exemption) certificates are documents provided by your customers to exempt them from sales tax. If you have these documents on file, you do not have to charge those particular customers sales tax on their purchases from you.
States vary on the types of certificates they will accept. Some will only accept their particular certificate; others will accept a certificate called the multi-state resale, which is a single certificate that covers multiple states. There are also variations in the expiration dates; some never expire, others expire every one to four years.
The certificates can be kept in an alphabetized binder. Or they can be scanned and kept in pdf form. To make them even more accessible, enter them in a spreadsheet. This will assist you in tracking the states, type, number, expiration dates and any other information you may need about the certificates.
Once or twice a year, review the spreadsheet to find the certificates that are going to expire within the next few months. Then you can contact your customers well in advance to get the current certificate on file.
If your company is selected for a sales tax audit, it will make it much easier to pull the appropriate certificates from a database list. Of course you will want to keep your originals or your pdf files also.
Occasionally mistakes happen, and a customer is exempted in error with no certificate on file. It is acceptable to request the certificate from your customer after the fact. However, this is now more of a customer service issue. Most businesses are very understanding about these types of mistakes, and you should be able to resolve the issue by contacting the customer directly. The amount of sales tax, as well as your relationship with the customer, should be factored in.
Sales tax is a complex issue, particularly if your business operates in multiple states. Please contact us if you have questions regarding the resale documents or the requirements for exemption.