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Uniform Sales and Use Tax Exemption Certificates

Sales and use tax exemptions can be a complex issue for ecommerce retailers to understand, but it’s critical that they do. Without proper documentation, exemptions can fall apart and retailers can then find themselves in the midst of a costly audit. The problem is that all states have different laws and codes defining when and where these exemptions apply. Retailers may think that there is "one certificate to rule them all" but, in fact, the subtleties of state-to-state legislation and guidelines can make those certificates invalid or lead to incomplete filing of exemption certificates. Centralization documentation for all states does not exist yet, but two organizations are making headway toward that goal.

The Forms for Sales and Use Tax Exemptions Across Multiple States

Uniform sales tax certificates pose unique challenges for online retailers. Click To Tweet

First off, there are two forms by which retailers can obtain sales and use tax exemptions in certain states. They were each designed by a different group with a mission to create more level tax standards. They are:

1. Streamlined Sales Tax Agreement Exemption Certificate

This exemption certificate is a result of the efforts of the Streamlined Sales and Use Tax Governing Board, a collaboration of 44 states and the District of Columbia to unify sales and use tax laws through the Streamlined Sales and Use Tax Agreement (SSUTA). Retailers need to know the following:

While this is a good beginning, fully relying on this certificate will not cover all states’ exemption requirements or regulations. However, there are some benefits, such as ease of adding the exemption for member states and the ability to use sales tax administration software, which may be eligible for subsidization. This is a good step towards centralizing the exemption process.

2. Uniform Sales and Use Tax Certificate – Multijurisdiction Form

The Multistate Tax Commission (MTC) is an agency working to "administer, equitably and efficiently, tax laws that apply to multistate and multinational enterprises." Again, there are member states that work with this agreement. The Uniform Sales and Use Tax Certificate, sometimes referred to as the MJC (Multijurisdication Certificate), is another form for registering exemptions with participating states. To use this form, retailers need to know the following:

It’s clear that while the MTC has numerous foundational plans both in place and in review to create an easier sales and use system, including a Nexus and Audit program, more work needs to be done before this system can replace state-by-state exemptions.

Again, there are similar benefits, but neither document is a substitute for knowing the sales and use tax exemption regulations in the state that a retailer or drop shipper is operating in or has a nexus in.

Best Practices for Filing These Exemptions

Hopefully, the Streamlined Sales Tax Governing Board and the Multistate Tax Commission can continue to work closely with states to move the processing of sales and use tax exemptions in a more efficient direction, but more work remains to be done. For now, ecommerce retailers should take the following best practices to protect themselves, whether or not they choose to use these forms:

The MTC and SSUTA are taking helpful first steps towards centralizing state-by-state sales and use tax laws and regulations and can be useful for online retailers who employ best practices and are fully aware of state exemption regulations that affect them.