All it takes is just one missing, expired, or incorrect sales tax exemption certificate for your business to be at risk of losing thousands of dollars in an audit. While you might think this is a slight exaggeration, it has become a hard reality for many businesses.
The truth is that your non-taxable sales are only as strong as the valid exemption certificates you have to support them. You may know very well that a business is exempt from sales, but without a properly documented exemption certificate on hand, YOU the seller will be the one assessed with the tax. Just one missing or incomplete exemption certificate can create unnecessary exposure.
For example: If a business has $600,000 of non-taxable sales that is audited over a one month period and $15,000 of that was found to be taxable due to insufficient documentation, your situation might look something similar to this: Assuming that the $15,000 in taxable sales was charged a 7% tax rate, you would owe $1,050 in taxes for that one month period. However, if you project that over a 36 month audit period, you are now looking at a fine of $37,800, plus any additional penalties and accrued interest.
During a time when most states are facing major budget deficits, it’s no wonder that they are turning to sales tax audits as an easy way to help make up for their revenue shortfalls. Not only are they putting more auditors on the street to take advantage of this, but they are also increasing the penalties and constantly changing the rules, making it nearly impossible for businesses to come out of an audit unscathed.
That is why it is more important than ever to take stock of your exemption certificates and verify that they are all on file, organized, accurate and up-to-date. Avalara can help address all of these challenges and more. With AvaTax Certs you can access and manage all of your customer’s exemption certificates from directly within Microsoft Dynamics, so you will know your customer’s exemption status in real-time and always have access when you need it.