Sales tax auditors identify issues with missing or invalid tax exemption certificates in roughly half of all audits.

Source: Wakefield Research

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Introduction

Exemption certificate compliance involves the processing of collecting, validating and renewing sales tax exemption certificates for your tax-exempt customers. Like most compliance fields, it’s a must have as failure to abide by state laws and regulations in this area can result in back taxes, as well as potential civil and criminal penalties. Ever since the Supreme Court decision in South Dakota v. Wayfair in 2018, businesses have been subjected to a dramatic increase in their obligation to manage tax exemption certificates. To meet this challenge, businesses of all sizes have embraced exemption certificate managers or ECMs to automate key portions of the exemption certificate management process and increase compliance.

Below is a comprehensive overview of exemption certificate managers, common use cases, various types of ECM solutions, and tips for getting started.

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EXEMPTAX’s Exemption Certificate Management platform offers quick-setup, is easy-to-use, and has industry-leading security- all at a price that is well below the rates of traditional exemption certificate management providers.

Features Include

  • Guided exemption certificate completion
  • Advanced tax validation rules
  • Easy to use interface
  • Flexible plans
  • 14-day free trial period
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Topics

1. What Is an Exemption Certificate Manager?

2. Why Use an Exemption Certificate Manager?

3. The 5 Most Important Features of a Good ECM Solution

4. Compare Exemption Certificate Managers

5. Traditional Exemption Certificate Managers

6. Modern Exemption Certificate Managers

7. Implementing an Exemption Certificate Manager

8. Recap

What Is an Exemption Certificate Manager?

An exemption certificate manager, or an “ECM,” is a platform that enables businesses to collect, validate, and renew resale and sales tax exemption certificates. ECMs are used as ongoing document repositories and allow businesses to securely organize critical tax documents to substantiate tax exempt sales during sales tax audits.

ECMs are most used during onboarding of new tax-exempt customers. For businesses with a large base of tax-exempt customers including wholesalers and manufacturers, managing exemption certificates can be quite involved, as generally speaking each tax-exempt customer requires a valid tax exemption certificate on file for each state where you have sales tax nexus, and for which you are conducting business.

A good ECM solution helps simplify and automate key portions of the compliance process by guiding your customers to submit a timely and valid exemption certificates through an easy guided tax document flow. This process along with the subsequent reporting and integration capabilities into your leading systems, allows you to address and remediate audit risks posed by missing, expired or invalid sales tax exemption certificates.

EXEMPTAX Exemption Certificate Manager

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Ultimate Exemption Certificate Guide

Why Use an Exemption Certificate Manager?

Exemption certificate managers provide businesses a way to easily collect, validate and renew sales tax exemption certificates in a scalable and cost-effective manner. Without an ECM solution, not only are businesses left to fend on their own to research tax laws in each state, but they must also dedicate resources to manage certificates via laborious and offline processes prone to error.

According to Wakefield Research, roughly half of all sales tax audits find issues with tax exemption certificates, often resulting in back taxes and penalties. This is entirely preventable, as a good ECM solution can help simplify and automate key portions of the management process by guiding your customers to submit a correct, timely, and valid exemption certificate through a guided tax document flow. This process along with integration and reporting capabilities in a centralized and secure platform, helps reduce compliance risks, allowing you to easily substantiate tax exempt sales during sales tax audits.

The 5 Most Important Features of a Good ECM Solution

Guided Exemption Certificate Completion

One of the key challenges when it comes to exemption certificate compliance, is the friction associated with the collection and completion of the certificates itself. Often times certificates are completed by individuals in job functions who are not familiar with the ins and outs of the process. A good ECM solution will seek to reduce friction in this area by allowing your customers to generate and submit correct certificates through a dynamic and guided tax document flow. This guided flow enables your customers to digitally generate and submit exemption certificates, reducing back and forth communication, and other clerical errors that can be common in a manual and offline processes.

Tax Validation Rules

Even for tax professionals, confirming that an exemption certificate is fully complete and audit ready can be difficult. Rules and regulations for exemption certificates can change, vary by state and are often prone to interpretation and numerous edge cases. Unfortunately, many ECM solutions tend to dance around this issue, and rely on the ability of the end user to determine whether a certificate is valid. This hands-off approach can lead to incorrectly completed certificates to slip under the radar, potentially resulting in serious compliance issues. A good ECM solution will seek to assist the reviewer in identifying mistakes, by applying customizable tax validation rules at a field level. Such validation can ensure that all required fields on the exemption certificates are logical and filled out, without the end user having to be an expert on requirements of a specific exemption certificate.

Easy To Use Reporting

The goal of an exemption certificate manager is to make it as easy as possible for the end user to identify issues with exemption certificates and remediate them in a timely manner. If reporting features are cumbersome, this can have negative impact on the visibility and timely collection of certificates. At the end of the day, a sales tax auditor is most concerned with whether they have a valid certificate. Features that make it easy to identify and share certificates will ultimately pay off in the performance of a smoother audit experience.

Integration With External Systems

Exemption certificate managers or ECMs are typically integrated into other tax, e-commerce, accounting or ERP systems to facilitate the exchange of exempt customer data. While such synchronization can greatly improve the efficiency of internal businesses processes, it’s important to note that not all ECM providers make a smooth or cost-effective integration process a top priority. To reduce complications in this area, it’s important to evaluate whether such providers provide open API documentation, and whether they are actively involved in the integration process. Beware of any provider that completely outsources the integration to a third-party provider, as such projects can be prone to budget overruns and well as delays.

Easy to Use Interface

While it goes without saying, an easy-to-use interface for an exemption certificate manager goes a long way in reducing potential errors, as well as increasing customer satisfaction. Unfortunately, many ECM solution providers design their platforms with the assumption that their users are tax professionals and that they live and breathe in the industry. This is usually not the case and often results in many friction points. An easy to user interface can dramatically increase efficiency in your compliance processes.

EXEMPTAX Exemption Certificate Manager

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EXEMPTAX Pricing Options

Ultimate Exemption Certificate Guide

Compare Exemption Certificate Managers

Exemption Certificate Managers come in all shapes and sizes, and can vary greatly in terms of pricing, ease of use, customer support, and more. Before choosing a provider, it’s important to evaluate your options and find a solution that enables you to address your compliance requirements.

One of the interesting things about the ECM space is that the industry is dominated by traditional players who have developed ECM offerings through acquisitions of other companies, as opposed to developing core features themselves. This often results in platforms that can be cumbersome to use. Additionally, the industry with a few limited exceptions tends to be stagnant and dominated by secrecy. Nevertheless, below we’ll provide a high-level breakdown of various solutions, including pricing and features.

EXEMPTAX Avalara CertCapture
Features and User Interface
Features and User Interface Comprehensive, simple and easy to use. Users may need to pay for account management and training to understand the tool.
Onboarding and Setup
Onboarding and Setup All customers undergo a personalized onboarding process. Difficult and confusing setup might require expensive premium support to get started.
Customer Support
Customer Support Responsive and friendly support with focus on solving your issues. Users complain about delayed or non-responsive customer service even with premium support.
Pricing
Pricing Transparent and affordable plans starting at $250/mo with no hidden fees. Complex and unclear pricing menus with hidden cost.
Integrations
Integrations Most integrations and plugins are built and maintained in-house. All integrations are warrantied by EXEMPTAX. Misleading promises about ready to use plugins requiring significant integration timelines and additional cost.

Traditional Exemption Certificate Managers

Avalara CertCapture

ONESOURCE Certificate Manager

Vertex Exemption Certificate Manager

In general, the traditional Exemption Certificate Manager category is comprised by three solutions: Avalara CertCapture, ONESOURCE Certificate Manager, and Vertex Exemption Certificate Manager. The companies behind these products have a long history in the sales and use tax space and are known for being feature-heavy and secure. While many of them offer similar capabilities and meet critical compliance requirements, many key features present in these solutions tends to be unnecessarily complex. This complexity allows these providers to generate additional revenue by upselling various support, consulting, and other proprietary certification schemes. In addition to these charges, none of the traditional providers are known to provide public facing pricing for their ECM solutions, and almost all tend to be significantly more expensive than the newer ECM solutions available in the marketplace.

Modern Exemption Certificate Managers

In the last few years there have been a few new players in the Exemption Certificate Manager space, but none are really well known for providing an end-to-end stand-alone exemption certificate management solution, with an open-API and extensive feature set other than EXEMPTAX. In contrast to the traditional solutions, EXEMPTAX is easy to use, quick to set up (can be same day), and relatively inexpensive to maintain. EXEMPTAX offers a free trial, as well as public facing pricing which is unheard of in the industry.

Prices vary depending on your plan and certificate volume, but all things considered, EXEMPTAX is often significantly cheaper than traditional Exemption Certificate Managers. In addition to having purpose-built features like tax validation rules, EXEMPTAX prioritizes data security and ease of use. Exemption Certificate Managers may all seem the same, but they each have distinct nuances that will make one more desirable or useful than the other, depending on a company’s preferences and needs.

EXEMPTAX Exemption Certificate Manager

Review Features and Functionalities

EXEMPTAX Pricing Options

Ultimate Exemption Certificate Guide

Implementing an Exemption Certificate Manager

More often than not, exemption certificate managers need to be implemented quickly to address potential audit exposure, so it’s common for ECM users to prioritize simplicity and ease of use over more complex, cumbersome features. Below are some additional tips to keep in mind when implementing an exemption certificate manager.

Once a company makes the decision to invest in an ECM, it may be overwhelming deciding which solution will actually provide the most value to the business. The days of complex, confusing pricing structures, hidden fees, and surprise charges can be avoided by going with the more modern providers. A reputable, trustworthy ECM provider will clearly display its pricing scheme, usage allowances, security standards, and other relevant features. If this information is not easy to discern on the provider website, it may be best to shift the search for an ECM elsewhere. There is plenty of competition in the space, but that does not mean that all ECMs will be a worthwhile investment.

When it comes to integration between ECM solutions into external e-commerce, ERP and accounting systems, it’s important to consider whether the provider offers an open API. While not a hard and fast rule, providers who put barriers to access generally do so because they are either using legacy technologies, or because they want to upsell integration services through preferred partners often at a steep premium over more open providers.

Ultimately, companies need to consider their needs, both existing and future, to ensure that they select an ECM solution that will grow with them as they grow. Of course, in addition to pricing, rapid adoption, immediate implementation, ease of use, and ongoing technical support will undoubtedly be top priorities. One thing that companies should consider is requesting a free trial, so that they can see whether a particular solution is the right fit.

Recap

Exemption certificate managers can be valuable tools for certain businesses and industries, and absolute necessities for wholesalers and manufacturers. ECMs vary in terms of features, complexity, and price, but finding the right solution can greatly reduce your audit risk.

Exemption certificate managers have come a long way, especially in the last five years. It is now easier than ever to invest in and set up a highly secure exemption certificate solution data storage solution, with the modern platforms such as EXEMPTAX being the service of choice. EXEMPTAX has been and continues to be a pioneer in the ECM space, and has built a strong reputation thanks to its transparent pricing, practical features that actually get used, an intuitive, user-friendly interface, and industry-leading customer support. Contact us today to schedule a demo!

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