Many companies worry that they would not be adequately prepared in the event of a sales tax Exemption Certificate Audit. The following steps may help businesses feel more confident and ready for an audit whenever it may occur.
Preliminary Evaluation
Taking a look at the process that is currently in place can be very helpful in determining where improvements can be made. First, businesses should ensure that their sales teams and credit departments know when and from whom to collect certificates in addition to providing the correct forms when customers claim an exemption. To substantiate the exemption, customers should be required to provide the correct certificate. Companies may avoid unnecessary fees by staying up-to-date on certificate requirements and making it easy for customers to find and complete the most recent certificate for their state. Files should be organized to ensure old certificates have not been mixed in with current documents.
Conduct an Internal Audit
An internal audit can give a company an accurate idea of how it would fare during a real sales tax exemption certificate audit. During the internal audit, current, fully verified certificates should be catalogued. Incomplete certificates should be inventoried as even small oversights may add up to costly penalties. After collecting incomplete certificates in a folder, the company should follow up with customers to obtain missing information. Expiration dates are also important. Therefore, the company should record the expiration date on each certificate and create a system for following up with customers as their certificate’s expiration approaches.
Create a Plan
After getting organized, the most important part of preparing for a sales tax exemption audit is to create a plan. Companies should consider the steps they will take to contact customers to keep certificates up-to-date and ensure the certificates are complete. Smaller businesses will likely find a spreadsheet to be helpful in keeping customer information organized while larger companies may wish to implement an all-in-one tool.
Having a knowledgeable CPA can help a company of any size prepare for an audit. Gary Kaplan is available to advise and provide accounting solutions to businesses in Florida, Maryland, Washington, D.C., New York, and Utah.
