IPT 2015 Sales Tax Symposium Indian Wells, California

Management of Exemption

Certificates

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Presenters

Dave Elder Larry Powers McGladrey, LLP Sales Tax Officer

West Palm Beach, FL Sunnyvale, CA 561.699.6451 650.383.8527

dave.elder@mcgladrey.com larryp@pacbell.net

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Agenda for Presentation

Exemption Certificates – Who/What/Why/When

A Critical Business Process Exemption Certificate Metrics Creating Your Methodology Best Practices in Action Integration Technology Enablement Success Workflow for Exemption Documentation Conclusions and Q/A

The Reality of Sales Tax

Tax Rates are rising, resources are limited.

State Tax Revenue is decreasing.

Audits are increasing, both in volume and value.

Concrete Proof of Exemption is critical.

Automation options for the ECM process

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Exemption Certificates

Who Responsibility for collection Provide customers with certificate State Issued New Forms (SSTP) Combinations Missing certificates=Tax assessment

What

States

Non State Taxing Jurisdictions – Non compliance has little toleration

Knowledge Expectations on Tax Department – Multiple business area – sales, credit, CSR’s, and tax

– Tax is responsible in most cases, especially when

considering the audit or compliance support

Exemption Certificates

Exemption Certificates

Why

Financial Transactions

Provide as Needed

Provide as Required

Provide as Threatened

Customers must provide or pay

Exemption Certificates

When Earlier is Better Transaction Driven Time is Money Risk Increases Over Time if Deficient Process is the Key Sales vs. Tax – Customer service at what cost?

Issues in Collecting Certificates

Diffused compliance responsibility

No central authority

True audit will tell your exposure

Lack of visibility

The framework is crucial to success

Limited understanding of true risk

ECM Metrics

Reduction in assessments, interest and penalties.

Resources spent

– Preparing for and defending audits.

– Acquiring and reviewing certificates.

– Researching and correcting errors.

– Response time and levels on certificate acquisition campaigns.

Create Your Methodology

Standardization

Quality Control

Compliance Rules

Data Ownership

Flow of Data

Synchronization Rules

Best Practices

A minimum set of sufficiency rules would include checking: – That the proper form was used. – That it was signed and dated.

And may also include: – A specific seller’s name – A description of purchase – A valid certificate registration number (form and

format). – Expiration Dates.

* States adopting SSTP requirements.

Needs for Forms and Statutory Compliance

Each State has their own

May be transaction specific

SSTP

Expirations vary by location

Change frequently (M&A, updated forms)

Certificate Workflow

Transaction inception

Sales taxability

Sufficiency Reviewed

Documented, Stored, Indexed

Searchable

Retrievable

Audit Defense

• Scheduled Exemption Data • Source for Tax

Exempt Data

Data Feed

• Decision Matrix • Forms Library • Certificate Wizard

Certificate Acquisition

• Repository of indexed documentation

• Warehousing • Analytics

Reports Compliance Campaigns

Exempt Data flow

Technology Enablement

Cloud vs. On Premise environment Remote access 24/7 for images/data Audit tools to support assessments Confidence in your compliance Increased audit support Outsourcing where necessary Working with IT (Web services/data port) Training Credit/Sales/Customer Service

Benefits of ECM Process

Reduce the cost to acquire and handle exemption certificates.

Eliminate errors and confusion.

Increase certificate compliance.

Minimize audit risk and exposure.

Satisfy Customers and Staff while centralizing your process.

Thank you for your time!

Dave Elder, McGladrey dave.elder@mcgladrey.com

Larry Powers, ISSI/TEAMS larryp@pacbell.net

Tip #1

Understanding your governance policy – Do you have a policy? – Who owns the policy? – Who is accountable for the policy?

Learn the policy and make sure your group can comply with this.

– Many times, some of the practices and policies are put into place without the involvement of credit or IT.

– The most effective way is to make sure when there is any shift in policy or personnel, that you are in the loop and can provide feedback or suggestions.

– CYA

Tip #2

Identify Gaps early on – Data gaps – Process gaps – Resource gaps

Ensure you are documenting as you go – When identifying the gaps, the right person has to be aware

in order for proper fixes, whether tax, IT, sales, customer service

– Many companies do not learn from the mistakes and are prone to repetitive behavior, don’t be that guy!

Tip #3

Get the right certificate, early on and in a customer friendly way

– Credit pack inclusion – As early in the on-boarding process as possible – For the right location by proper form – Let the customer know the importance of this for all

departments standpoint Ship to/Multi/SST/Drop-ship

– Some forms support multiple jurisdictions, and thus ship-to locations, so tracking effectively is key to keeping the customer happy

– Applying Drop-ship scenarios where applicable

Tip #4

Get the aforementioned correct certificate into the right spot

– Where did that thing go? Know where the certificate needs to go and in what format Certificate number If Multi, are there registration numbers for all locations

– In order for it to be reflected properly, the certificate must be tied to that location in the A/R system Indexing by location Indexing by expiration Indexing by document type

This will increase effectiveness down the road!

Tip #5

Communication back to the customer – Expired/Insufficient and why – Make sure there is a good explanation around when

performing this communication, there is much more understanding when a customer understand your policy reasoning or if a date/signature/customer number was an issue

– Work to find a quick resolution, the longer this goes, the more apt the customer is to be moved to taxable and create customer service issues.

– Have a solid “campaign” process to reach out for certificates via your best customer facing/talking folks

Tip #6

Data/IT – How solid is your data?

Bill to Ship to Ship to matching the Bill to, those first two seem easy now

– Interpreting the data IT lunches are a must for a little love

– Downstream data Audit assessments Audit defense Accruals Reductions Interest Customer service

Tip #7

Access – Create the ability to let the folks that need to know have

access Credit Customer Service Sales

– Whether online or via other tools (document management, Excel), keep the most current certificates available Eliminates redundancy across departments and multiple customer

requests. Have a main point of contact if this is unachievable to drive the

process. Running lists, but only one master driven by the latest data

Tip #8

Templates/Intranet – Whether mailing/emailing campaigns or letters included in

the credit documentation, the more effective the language, the higher your result Establish the need via this communication Consider a mailing or contact policy

– 1/2/3 then your taxable Have multiple eyes for review

– Access to an intranet will help others interpret the policy, forms library, sufficiency rules, indexing

– Make sure to segment by entity if different rules/sales methodology

Tip #9

Document for the next guy or when you move up – The ultimate CYA is “What??? I not only did it, I passed it

on for the next guy!” This knowledge is key, especially when states are overly aggressive,

during audit times Adds another great thing to your resume Just makes you feel warm inside

– Having the exposure to the policy makes it much easier for you to interpret the next time or when changes occur

– In cases of M&A, puts a good process on the front end and much more on the data side.

Tip #10

Network – There are a vast sea of folks experiencing exemption

certificate issues Find contacts with similar issues In your vertical In your area for a get together

– Consultants Tax technology folks have a good grasp, but make sure you are

apples to apples with their experience Blending A/R, Tax Calculations, and certificates takes a wide range of

experience – Whether you use a vendor, in-source, or a blend, make sure

the fit is right for your company

Common Certificate State Expiration

State Expires State Expires State Expires AL 3 KY 5 OH 5 AR 1 LA 3 OK 3 AZ 5 MA 5 PA 5 CA 5 MD 5 RI 5 CO 5 MI 4 SC 5 CT 3 MN 3 SD 1 DC 5 MO 5 TN 5 FL 1 MS 5 TX 5 GA 5 NC 5 UT 3 HI 5 ND 1 VA 5 IA 5 NE 3 VT 5 ID 5 NJ 5 WA 4 IL 3 NM 10 WI 5 IN 5 NV 5 WV 1 KS 5 NY 5 29