Finance News & Insights

Save more money with sales tax exemptions: 4 keys

To cut costs whenever and wherever possible, your finance staffers must be able to recognize purchases that qualify for sales and use tax exemptions. But that’s easier said than done.  

Even B.J. Pritchett, president of Pritchett Sales & Use Tax Consulting, admits that without proper education, collaboration and proactive effort, tax exemptions can be extremely difficult to manage.

Practices that pay off

Pritchett’s a proponent of the phrase, “Every dollar of tax paid is one less dollar of profit made.” That means getting exemptions right is key to avoiding overpayments, penalties and even audit agony.

Check out four strategies Finance and Purchasing can use now:

1. Make it a team effort. A/P’s the one paying the invoices, but it shouldn’t be all on their shoulders, Pritchett says. Proper tax exemption management requires:

  • The rest of the C-Suite’s understanding. You know how much sales and use tax payments can affect a company’s gains or losses. But the rest of the C-Suite also needs to see the value of tax exemption accuracy and continued education for staffers.
  • Participation from all departments. Is A/P having trouble getting what they need? Ask department managers to drive home with their employees: A/P requires specific info on transactions (who’s buying it, from where, why, etc.) to fully understand if items are taxable or exempt.

2. Maintain your certificates. Knowing that items are exempt doesn’t do your company any good if it hasn’t filled out and sent the proper exemption certificates to vendors.

Your company should have a log of your vendors, purchases and certificate statuses to keep it all straight. And make sure the log includes expiration dates, since different states have different requirements.

3. Stay current on tax news. You see states constantly coming out with new guidance and rulings about what items are exempt. So really, Finance’s job is never done.

The goal is to constantly work toward 100% compliance, says auditor and accountant Silvia Aguirre. That entails having an eye out for tax exemption news concerning your state as well as vendors’ states.

It might be worthwhile to add a quick discussion of tax news to your regular Finance or Purchase-to-Pay meetings. Ask staffers to come prepared with any updates or helpful tips they’ve gathered recently.

4. Consider automation. Implementing automated sales and use tax solutions is another way many companies are alleviating the hassle of tax compliance. These solutions can help A/P and A/R stay up on exemptions, apply accurate rates, streamline filing, and have peace of mind in an audit.

In fact, 48% of companies think an auditor would find mistakes in a sales and use tax audit, but only 3% of companies with an automated sales and use tax process think an auditor would find mistakes.

Automation removes some of the guesswork, Aguirre points out. So, if your company’s growing rapidly or doing business with many vendors in many states, investing now could make managing exemptions (and making sure you’re taking advantage of every single one you qualify for) a whole lot simpler.

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  • Tim Hoon

    Are there any experts with railcar repair exemptions that relates to the new Wayfair decision for services performed and sent out to other states?