THE RELATIONSHIP
BETWEEN CUSTOMER
SERVICE AND EXEMPTION
CERTIFICATE MANAGEMENT
How Poor Processes for Managing Exemption Certificates Creates
Negative Customer Experiences
The Relationship Between Customer Service
And Exemption Certificate ManagementPage 1 of 10
We all know that customers are the sole reason why there are businesses and why
businesses stay in business. This is why businesses are constantly searching for ways
to improve service to customers, retain existing customers and thereby increase
profits.
Rightfully so, most businesses focus on the traditional areas like product mix,
pricing, promotion and training. However, there is one area nearly all businesses
overlook and that is the customer experience of sales tax exempt customers. To be
exempt from sales tax, these customers must not only belong to a certain organiza-
tion classification determined by taxing authorities, but are also required to have the
proper documentation, called an exemption certificate, that proves they are exempt
from paying sale tax.
Sounds fairly simple. Unfortunately, it is anything but simple and a poor process for
handling exempt customers can be a source of frustration for these customers and
that can affect customer retention and eventually profits. It is complex due to the
need to keep abreast of the hundreds of constantly changing exemptions in the
hundreds of jurisdictions across the country. Inaccurately collecting and managing
this exemption data by employees and within your internal systems (or not col-
lecting it all) can have huge consequences downstream. Consequences can take
the form of inaccurate billings, employees spending valuable time fixing errors like
issuing tax refund checks or credits, poor customer service like held up orders, huge
audit assessments and much more.
This white paper will discuss how a poor process for managing exempt customers
and exemption certificates impacts customer service, customer retention and profits
and provides best practices for properly managing exemption certificates and creat-
ing a positive customer experience for your exempt customers.
Introduction
Tax exempt transaction compliance is a
much overlooked area of business that
can damage or enhance the customer’s
opinion of your company.
When you don’t manage your tax
exempt customers properly, not only
does your customer service suffer but
you can also incur significant hidden
costs.
Page 2 of 10
Untapped Ways to Improve Customer
Service, Customer Retention and Profits
Ask a C-Level executive if increasing margins and improving operational efficiency
are key company initiatives and you’ll receive a vigorous head nod. Talk about the
importance of customer service on margins and costs and you’re sure to keep his
attention. Now that you have the executive actively engaged, ask if the way his
company manages sales and use taxes negatively impacts customer service,
customer retention and the bottom line and then watch his eyes glaze over.
Why? Because for many companies, managing sales and use taxes is nothing more
than an administrative burden. But, in reality, how you address this complex area of
taxability has a direct impact on customer service, customer retention, and your
bottom line, especially when you are managing your tax exempt customers.
For many companies the percentage of gross revenue that comes from exempt sales
can be significant. When you add up sales to schools, the government, religious
institutions and more, the numbers are staggering. Even if you don’t sell directly to
exempt consumers, there are exempt sales to resellers, manufacturers, the
agricultural industry and much more.
A well-defined, effective exemption certificate management process can help your
company improve its relationships with exempt customers. To get a quick eye-open-
ing insight on how a poor process can negatively affect customers, go to a commu-
nity forum for a large company and search for forum topics on sales tax and you’ll
see many exempt customers complaining about their exempt sales tax experience.
Create a competitive advantage with
an exemption certificate management
process.
Managing exemption certificates and
exemption data should not be treated
as mundane administrative tasks. It is
a vast untapped area for improving
customer service.
The Relationship Between Customer Service
And Exemption Certificate ManagementPage 3 of 10
Start with this premise - a happy customer is a loyal customer. Now, translate that to
exemption certificates. When it comes to exemptions, what kind of conversation do
you want to have with your customer? Have an effective exemption certificate
management process and make the right taxability decisions at the right time
consistently throughout your value chain and the discussion is easy and the cus-
tomer is happy. Have an ineffective exemption certificate management process,
make incorrect decisions and adjust after the fact, and the conversation is decidedly
different. Why? Because incorrect decisions have a cascading effect on both you and
your customers’ organizations.
The path to fix the process and incorrect decisions can take many twists and turns.
Just consider the following customer touch points related to certificates to grasp how
their mismanagement can result in a poor customer experience and wasted time and
money.
• Initial Certificate Collection—Does sales/credit know which exemption certifi-
cates to collect and are they filled in completely? Is it usually done correctly the
first time?
• Returning Customer Certificate Lookup—Does Sales/Credit have quick access
to accurate customer exemption Info?
• Tax Exempt Purchase Experience—Is it quick and nearly error free? Are orders
rarely held up?
• Billing/Invoicing—Are they accurate? Is the issuance of refund checks/credits
minimized? Are credit and re-bills to correct for tax errors rare occasions?
• Renewal Certificate Collection—Do you keep track of certificate expirations? Is
there timely collection of updated versions of expired certificates?
• Audits—Do you rarely need to contact customers for missing certificates?
If you answered “No” to even one of these questions, your company probably has
customer service issues related to managing certificates.
Failure to be efficient in all these areas can cause customer frustration and eventually
loss of customers, in addition to all the extra time and money spent fixing problems
caused by an inefficient exemption certificate management process in the first place.
How Exemption Certificate
Management Impacts Customer Service
Page 4 of 10
When you don’t manage your tax exempt customers properly, not only does
customer service suffer but you can also incur significant hidden costs. This double
whammy goes straight to your bottom line, mostly driven by hidden costs found in
duplicate efforts and inefficient processing. These can come in the form of opera-
tional expenditures to fix preventable problems, most of which fall outside of the
tax department with credit, customer service, collections, accounts receivable and
payable, sales and location/store managers.
For example, it may require additional FTEs or temps to issue sales tax refunds for
exempt purchases billed incorrectly. Or, your sales staff may be spending too much
account management time helping customers fix sales tax billing errors, rather than
using the time to generate new sales. Then there is the time and resources spent
preparing for and managing an audit. Can you locate the certificates the auditor
needs? Do you need to bother and frustrate your customers to reconstruct needed
documentation to prove tax exemption?
Lastly, have liabilities been accounted for, and if they have via reserves, what lost
opportunity costs are associated with those funds? If only a better process for
managing tax exempt customers were in place, the headaches, frustrations and costs
on all sides could have been dramatically reduced.
QUICK FACT
It’s difficult keeping current on exemp-
tion certificate changes.
There are an average of 760 annual
rule and rate changes in over 8,000 tax
jurisdictions nationwide.
Fortunately, there are best practices to
mitigate this difficult task.
The Costs of Mismanaging
Tax Exempt Customers
The Relationship Between Customer Service
And Exemption Certificate ManagementPage 5 of 10
Why are such seemingly simple tasks of collecting and tracking exemption
certificates throughout the value chain so complex? Because, like almost any
other tasks, it is complex only if your company doesn’t have a process in place to
manage the complexity.
Customer service, sales and credit on the front lines are typically the ones who
collect exemption documentation. But unlike the tax department that deals with
these issues every day, they don’t have the knowledge to consistently make the right
call. Compound that with the average 760 annual rule and rate changes in the over
8,000 tax jurisdictions nationwide and those front line employees can’t possibly stay
current.
Escalating the complexity are process decisions for:
1. Collecting exemption certificates.
2. Storing collected exemption certificates (ensuring
documentation doesn’t get lost).
3. Locating exemption certificates when customers make a
repeat purchases or during an audit.
4. Ensuring exemption certificate data is accurately stored in tax
decision and billing software so customers are billed correctly.
Tax department review of exemption certificates is yet another area adding
to the complexity. Most often, the tax department’s first view of the exemption
certificates is when they are preparing for or actually in an audit. Should an audit
reveal errors, it is that department’s job to reconcile, verify and produce tax exemp-
tion certificates. If exemption certificates cannot be located, then customers will
have to be contacted to collect them.
Between penalties and interest incurred and reconciliation calls to customers, both
customer service and your bottom line can take a hit as a result of mismanaging this
complexity.
Drivers of Exemption
Certificate Management Complexity
Page 6 of 10
Okay, it can be complicated. How can the complexity be managed? It all starts with
a process that is consistently enforced throughout the organization. The process
must be enforced. You can have a great process, but if no one within your company
follows it, it is worthless.
To begin creating an enforceable process, you must first thoroughly review your cur-
rent policies and procedures regarding exempt customers. Map every process that
happens as a result of an exempt transaction, whether handled correctly or incor-
rectly. Once you know exactly how you are handling things today, you can begin to
identify areas for improvement. Make sure that the correct decisions are made at the
point of transaction to eliminate or lessen the negative impacts downstream. Train
front-line employees on the basics of exemption certificates and exempt sales. Most
importantly, stay current with rules and rates.
Next, investigate the benefits of using exemption certificate management (ECM)
software. This type of software will enable your company to enforce the new pro-
cess you have put in place. This software is designed to manage the complexity of
exemption certificates and automatically keep current on changes to exemption
certificates. What’s more, the software can be integrated with point-of-sale, e-com-
merce, tax decision and enterprise resource planning (ERP) or billing systems.
By using a well-defined process and enforcing it with exemption certificate manage-
ment software, exemption certificate management can be simplified while improv-
ing customer service, customer retention and profits.
In the Appendix, there is a list of common exemption certificate management best
practices (Figure 1), an exemption certificate validation checklist (Figure 2) and a
process workflow for collecting, reviewing and updating billing systems (Figure 3).
Best Practices for
Managing Exemption Certificates
The Relationship Between Customer Service
And Exemption Certificate ManagementPage 7 of 10
A commonly overlooked method to improve customer service, customer retention
and profits is the process for collecting and managing exemption certificates and
data from customers that are exempt from sales tax.
Most companies have poor processes that are affecting customer retention and prof-
its. Exemption certificate management may seem simple (just collect and store the
exemption certificate) but is in fact complex. This is because there are hundreds of
constantly changing exemptions in the thousands of jurisdictions across the country
and this data must be tracked and managed by employees and internal systems.
Mismanaging exemption data can negatively impact many areas of your business
causing inaccurate billings, employees spending valuable time fixing errors, poor
exempt customer experiences, huge audit assessments and many other problems.
Although managing exemption certificates is complex, there are several best
practices that can be employed inside a well-defined exemption certificate manage-
ment process. A well-defined, enforced process will allow your company to improve
customer service, customer retention and profits in an area most other companies
ignore, providing your company a competitive advantage.
Summary
Getting started with AvaTax is easy.
Take the next step toward automating your sales tax process.
call: 877.780.4848 visit: www.avalara.com
About Avalara
Based on Bainbridge Island, Washington, Avalara is transforming the sales and use
tax compliance process for businesses of all sizes. With point-and-click ease, Avalara
provides the fastest, easiest, most accurate and affordable way for companies to
address their sales and use tax compliance. Avalara is the industry’s most trusted
provider of solutions, serving more than 40,000 registered users located throughout
the U.S., Canada and abroad, delivering more than 350 million sales tax transactions,
and filing and remitting more than $10 billion in tax collections per year.
Avalara may have patents, patent applications, trademarks, copyrights, or other intellectual
property rights governing the subject matter in this document. Except as expressly provided
in any written license agreement from Avalara, the furnishing of this document does not give
you any license to these patents, trademarks, copyrights, or other intellectual property.
© 2011 Avalara, Inc. All rights reserved.
Avalara, AvaTax Calc, AvaTax Returns, AvaTax Certs, AvaRates, TrustFile, BPObridge,
Laserbridge+, Sales Taxll, Sales TaxPC, SalestaxPC+, StatetaxII, and StatetaxPC are either
registered trademarks or trademarks of Avalara, Inc. in the United States or other countries.
All other trademarks are property of their respective owners.
Page 8 of 10
Figure 1. Exemption Certificate
Management Best Practices
Exemption Certificate
Management Best Practices
Appendix
Overall Management
√ Software-as-a-Service (SaaS)
Exemption Certificate Management (ECM) Software
• Web-based software for collecting, storing and managing exemption
certificates
• Accessible across company
• Increases compliance level significantly
• Integrates with point-of-sale, e-commerce, tax decision and billing
software
Collection
√ Point of Purchase
√ Basic sales tax training
for customer-facing employees
√ SaaS ECM software
• Built-in exemption certificate rules provide needed tax expertise to
customer-facing employees
Storage
√ Centralized and electronic
• Easy to locate exemption certificates
• SaaS exemption certificate management software
Validation
√ Use checklist in figure 3
√ Review soon after collection of exemption certificates
√ SaaS ECM software with review capabilities
Billing
√ Always charge tax if no valid exemption certificate is on file
√ Enter exemption data on jurisdiction level into tax decision
and billing systems
• Update when necessary
√ SaaS ECM software and integrate with other
internal systems
Maintenance
√ Track exemption certificate expirations
• Collect new certificates prior to expiration
√ Track exemption certificate form changes
• Update collection efforts with new forms when necessary
√ SaaS ECM software to automate maintenance
The Relationship Between Customer Service
And Exemption Certificate ManagementPage 9 of 10
Certificate data must include, with very few exceptions:
Seller name/address
Buyer name/address
• Completed, no blanks
• Name on certificate should match name on customer account
Date
• Should be current, not several years old
State of exemption
State sales tax registration number
• Very few requirements to verify authenticity of registration
number
• A few exemptions in a few states have exceptions to requiring
a sales tax registration number on the certificate (agricultural,
manufacturing and wholesalers). Customers who do not
provide a registration number should include a statement as to
why they are not providing one.
Type of exemption claimed
Type of property purchased
Normal course of business of the buyer (your customer)
Signature of customer
• Some certificates require “authorized signature” of owner,
partner or corporate office
Some certificates might include:
Single/blanket checkbox
Title
Printed name of signer
Other items to review:
Correct form
• No W-9s, seller’s permits, registrations or license documents.
• Must be an actual state-approved certificate.
Completely filled out
• No blanks!
Good Faith
• Have a familiarity with exemptions available in the state,
exemptions available that can be reasonably performed with
type of property purchased, customer business types to confirm
good faith conditions.
If the certificate has an expiration, is it still in its validity period
(non-expired)?
Method of payment
• Government and non-profit exemptions stipulate that the
purchase must be directly paid for with organization/
government funds.
Figure 2. Sales tax exemption
certificate validity checklist
Sales Tax Exemption
Certificate Validity Checklist
Maintenance
√ Track exemption certificate expirations
• Collect new certificates prior to expiration
√ Track exemption certificate form changes
• Update collection efforts with new forms when necessary
√ SaaS ECM software to automate maintenance
Page 10 of 10
Figure 3. Best practice exemption
certificate workflow
Create New
Customer
Record
Is New
Customer
Exempt?
Code New
Customer as
Taxable in
System
Request an
Exemption
Certificate
Review &
Validate
Certificate
Certificate
Valid?
Store,
Maintain,
Update
& Access
Certificates
Code New
Customer as
Exempt in
System
Customer
Exempt?
Tax
Collection
Process
Short-pay
check
received on
taxable
invoice
YES
NO
NO
NO
NO
YES
YES
YES
Cross-Functional Process
CUSTOMER
SERVICE
TAX
DEPARTMENT
A/R
Certificate
Received?
The Relationship Between Customer Service & Exemption Certificate Management
Poor processes for managing reseller certificates create a negative customer experience and put your business at risk in an audit. Download this whitepaper and learn how you can create a competitive advantage with an automated exemption management process.
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