Page 170 - TaxAdviser_Jan_Apr23_Neat

STATE & LOCAL TAXES

■ Not having tax approve each
In addition to sampling methodology, request, just the material impact,
and/or perform a cadence review of
technologies such as robotic process what has been issued.
automation; extract, transform, and load; ■ Educating purchasers throughout the
and optical character recognition have organization of use tax basics, if pos-
sible, including a high-level matrix
become common audit tools. decision tree of when to provide a
vendor certificate during purchases.
Similar to a proactive cadence review
and/or ERP are then updated to reflect because it was sent to an email of vendor certificate issuance, an auto-
that customer exemption. address of the seller — it more than mated comparison of exempt sales to
Assume that three to four years makes up for the manual hours spent customer certificates is also a key meth-
later the business is defending this declining and validating revised od of examining risk. Leveraging citizen
exempt transaction under audit. While certificates. automations (i.e., strategies developed by
you may be able to summarize the ■ Accept a certificate in good faith nontechnical business users), such as the
overall customer certificate process in — in most states, the taxpayer is not ETL tools mentioned above, can quickly
just a few sentences, validation and obligated to do in-depth research on create a reconciled file between exempt
maintenance can result in thousands the customer to determine how they sale customer names and certificate cus-
of manual hours each year, even when are registered; instead, it can accept tomer names.
leveraging technology. Tools in the the certificate in good faith. If the record systems are not clean
market can streamline the process for ■ The business also is not required to enough to create a straight match of
both customer certificate collection and research whether the signer of the names, fuzzy matching is a great capa-
vendor certificate issuance. However, certificate is in fact an officer, direc- bility within many ETL tools that can
few organizations have fully integrated tor, or another person authorized to help to match similar, but not identical,
these solutions into their ERP and tax sign it. Instead, the signature can be names. Ideally, the business will want to
engine to make the most of the experi- accepted in good faith. work with its IT department to capture
ence, resulting in the need for manual In addition to addressing the human the correct matching datapoints to tie
processes. So how do you address it? element of the validation process for out customer information between sales
Aside from technology, the first area customer certificates, the issuance data and exemption certificates — both
to examine is how the team is validat- of vendor certificates also can create to streamline the proactive comparison
ing certificates. There are two possibili- problems when under audit. While the in seeking to ensure certificates are on
ties: Either there is minimal validation, business often does not need to pro- file for exempt sales and to retrieve
which results in customers uploading vide this proof of documentation, an certificates for audit documenta-
their grocery list (often not accepted unstructured vendor certificate process tion support.
by auditors), or the team is validating can result in local stores, business units,
every aspect of the certificate, spending or factories providing a certificate to Exactly what are ‘audit-ready
two or three hours researching just one purchase goods and services without files’?
customer and declining their certificate tax when tax should have been paid. You likely have heard about “audit-
because of a missing/wrong “issued to The tax department may notice no tax ready files.” Building on the use of citi-
seller” address. was paid and accrue use tax — or it zen automations and software systems
The hours can quickly add up and could go unnoticed and then result in to handle big data and appropriate
may require hiring three full-time re- significant tax, penalties, and interest methods to address common issues
sources just to validate certificates. The under audit. regarding exemption certificates, other
fastest way to address this is by follow- Some best practices include: considerations can help businesses
ing a few simple rules: ■ Establishing a centralized process respond to stacks of audit notices.
■ Make the business decision to accept for requesting vendor certificates Cadence is a priority here; it is more
certificates that are missing the through a workflow management important to have a realistic process in
issued-to-seller information. This tool, many of which are readily place. Here are suggestions to create
requires proactively working with available through the organization’s a process that can result in files ready
auditors to accept the certificate IT group. to audit:

56 March 2023 The Tax Adviser