WHO TO CONTACT DURING THE LIVE PROGRAM
For Additional Registrations:
-Call Strafford Customer Service 1-800-926-7926 x1 (or 404-881-1141 x1)
For Assistance During the Live Program:
-On the web, use the chat box at the bottom left of the screen
If you get disconnected during the program, you can simply log in using your original instructions and PIN.
IMPORTANT INFORMATION FOR THE LIVE PROGRAM
This program is approved for 2 CPE credit hours. To earn credit you must:
• Participate in the program on your own computer connection (no sharing) – if you need to register
additional people, please call customer service at 1-800-926-7926 ext. 1 (or 404-881-1141 ext. 1).
Strafford accepts American Express, Visa, MasterCard, Discover.
• Listen on-line via your computer speakers.
• Respond to five prompts during the program plus a single verification code.
• To earn full credit, you must remain connected for the entire program.
Sales Tax Exemptions and Resale Certificates: Compliance
Issues, State-by-State Requirements and Updates
TUESDAY, APRIL 7, 2020, 1:00-2:50 pm Eastern
FOR LIVE PROGRAM ONLY
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April 7, 2020
Sales Tax Exemptions and Resale Certificates: Compliance Issues, State-by-State Requirements and Updates
Stacey L. Roberts, CPA, State and Local Tax Director
TaxOps
Judith B. Vorndran, JD, CPA, MSBA, Partner
TaxOps
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY
THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY
OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT
MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR
RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction
described in the associated materials we provide to you, including, but not limited to,
any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are
subject to change. Applicability of the information to specific situations should be
determined through consultation with your tax adviser.
Sales Tax Exemptions &Resale CertificatesCompliance Issues, State-by-State Requirements and Updates
Presented by Judy Vorndran, Esq., CPA, and Stacey Roberts, CPA
Presented by
• Specializing in designing tax strategies and solutions that improve business tax outcomes
• 20+ years of public and private sector accounting experience, both practical and in management, she’s gained the essential business acumen necessary to be a key advisor to clients
• Managing all compliance issues related to state income/franchise, SALT, real and personal property and unclaimed property taxes for flow through entities and C corporations; identifying planning opportunities and state and local credits and incentives; and, mitigating state and local tax controversy issues
• Frequent speaker and instructor on SALT issues for industry and professional organizations including the Denver Tax Institute, Product PowerUp, NowCFO and more.
Stacey Roberts, CPA303-393-2318
TaxOps.com
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Presented by
• Marrying tax and law exclusively in State and Local Tax (SALT) for 25+ years
• Helped more than 1,000 taxpayers figure out who they are, where they are and how best to comply with tax duties
• Leads the SALT practice at TaxOps, helping clients navigate the morass of issues to make it less taxing
• 3-year appointment to Colorado’s legislative Sales and Use Task Force to help simplify its complex sales tax system
• Dually licensed attorney and CPA, Judy is also president of the Colorado Chapter of the American Academy of Attorney-CPAs
• Nationally recognized thought leader and award-winning instructor
• Successfully changing laws in states and local jurisdictions promoting simplicity
Judy Vorndran, CPA, Esq.720-227-0093
TaxOps
304 Inverness Way South
Englewood, CO 80112
TaxOps.com
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8
AG
EN
D
A
Collect the Tax or Get
the Doc
Criteria & Compliance
Compliance Protocol
Best Practices
Banking the cannabis industry
Collect the Tax or Get the Doc
9
Compliance Duties
• Every transaction between a buyer and a seller should be taxed or documented
• Business selling into the resale, wholesale, or exempt entity markets must “collect the tax or get the doc”
• Legitimate document attesting to the proper exemption that applies to the transaction
• Document demonstrates a transaction is tax-exempt, relieving the seller a company of collection duties
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Tax Exemption Types
• Customers and transaction are tax-exempt for three basic reasons
• Use-based exemptions are linked to products put to use after the transaction is complete (generally, resale products)
• Product-based exemptions relate to the nature of the product being sold (in some states, manufacturing equipment is exempt)
• Buyer-based exemptions relate to the type of buyer purchasing the goods or services (in some states, government and/or non-profit organizations are exempted from paying sales tax)
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Role of Sourcing
• Exempt transactions also depend on the location of the buyer and the seller
• Inconsistent application across states, increasing audit risk
• Most sales within a state are based on the location of the seller
• Sales made between states are typically based on the consumer’s location
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Whose Problem is It?
• Complicated patchwork of nexus rules and sales tax regimes
• Vary from state to state, leading to uncollected sales taxes and risk
• With no universal, clear and complete definition of nexus, every party in the food chain has work to do to see if they need to collect sales tax or get an exemption
• Responsibility falls on various entities throughout a transaction cycle• Originating manufacturer several states away could end up holding the sales tax bag for a
reseller or distributor that isn’t property licensed in the end-user’s state
Manufacturer Distributor Wholesaler Retailer End-user
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Sales Tax Risk
• Tripping nexus in any form may create sales tax risk
• A business with nexus in Virginia selling to a third party that holds an exemption certificate in Colorado might not be able to validly exempt the sale in Virginia
Click-through Nexus
Use of Affiliates
and Agents
Negotiated Direct Pay
Permits
Unsigned and Expired Certificates
LicensingWhich
Certificate to Secure
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Sales Tax Risk
• Nexus exposure
• Physical
• Click-through
• Affiliate
• Wayfair/Economic
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Economic Nexus Snapshot
Source: Avalara Resource Center (As of February 2020)
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Drop Ship NexusUgly, 3-parties to a Transaction
SELLER
SUPPLIER
CUSTOMER
NEXUS
DELIVER
Y
Order
Seller price
Supplier price
Resale certificate
Source: Avalara
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Drop Ship NexusIt's Complicated!
• Complicated if one of the parties has nexus but the others do not
• Comes down to who gets the resale certificate, and from where, and who collects the tax
Supplier perspective. If you provide drop
shipping, does the seller have nexus?
Seller perspective. If you use drop shipping,
does your company have nexus?
• If no, as a supplier have you exceeded
the threshold on behalf of the seller into
a shipping state?
• If yes, you created nexus for the seller
and must request a resale certificate
• If no, did the supplier exceed thresholds on
your behalf to your customers into a shipping
state?
• If yes, you have nexus in the supplier
shipping state and should register for a sales
tax licenseSource: Avalara
• Before Wayfair, less certificates needed to be collected because supplier may not have nexus
• Post Wayfair, deliveries that trigger supplier nexus, means more certificates to collect (more
paperwork to be compliant!)
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Which Certificate, When?Three Primary Categories of Certificates
Exemption certificates used by taxpayers
selling to non-profits and tax-exempt entities
Resale certificates issued by buyers that are not
selling to end-users; these are also available through
the Multistate Tax Commission (MTC)
Direct pay permits negotiated between sellers and the state
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Exemption CertificatesTaxpayer Requirements
• Increase in exemption certificate documentation requirements
• Some states include exempt sales in the economic nexus threshold, meaning taxpayers need to collect in more states
• Varying state rules on customer exemptions and documentation requirements
• Validation of certificates
• Maintenance of documentation
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Resale Certificates
• In the past, resale certificate might have been received only from the state where a business is headquartered
• Now, with the movement to state of receipt, resale certificates in multiple states are likely to be required when sales are made to customers that are outside the headquarter state
• States vary
• Not every state exempts the same thing for the same entity
• No universal acceptance of exemptions or resale certificates issued by other states
• Wholesalers can’t rely on their vendors to collect sales tax
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Quantifying Exemption RiskIn State X
• Company generates $20M in revenue a year in State X
• 50% of the sales are for resale
• Company holds valid exemption certificates for 50% of sales for resale
• What are the total taxable sales?
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Banking the cannabis industry
Criteria & Compliance
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Exemption CertificatesAcceptable Exemption Certificates
• Properly completed• Name of both buyer and seller
• Reason for exemption (resale for drop shipments)
• Correct state form (SST, MTC, state issued)
• Signature/Date (at time of sale for best good faith standards)
• Blanket (for recurring sales) or Single
• Invalid or expired certificates are no different from missing certificates
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Res
ale
Cer
tifi
cate
s
26
Uniform MTC ExemptionSales and Use Tax Exemption Certificate
• Product of the Multistate Tax Commission
• Uniform sales and Use Tax Exemption certificate shortcomings
• Covers only a couple dozen states
• May not be sufficient proof in non-participating states
• An exemption certificate secured by an entity in one state may not satisfy requirements for a sales into another state
27
Mu
ltij
uri
sdic
tional
Form
Source:
http://www.mtc.gov/getattachment/Resource
s/Uniform-Sales-Use-Tax-Exemption-
Certificate/Uniform-Sales-and-Use-
Certificate-3_13_2019.pdf.aspx?lang=en-US
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Mu
ltij
uri
sdic
tional
Pro
cess
Source: http://www.mtc.gov/getattachment/Resources/Uniform-Sales-Use-Tax-Exemption-Certificate/Uniform-Sales-and-Use-Certificate-3_13_2019.pdf.aspx?lang=en-US
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Dir
ect
Pay
Per
mit
A W
hole
Oth
er P
roce
ss
Source: https://www.colorado.gov/pacific/sites/default/files/paypermitapplication.pdf
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Exempt Organizations & Government Agencies
• Nuances
• Colorado
• Washington
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Exem
pti
on
Cer
tifi
cate
sE
xem
pt
Enti
ty
32
Banking the cannabis industry
Compliance Protocol
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Taxpayer RequirementsNuances in Managing Exemption Certificates
• Certificate management
• Product and customer exemptions
• B2B
• Exemption reporting
• Keep copy of certificate/certificate image
• Expiration dates
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Certificate Management
• Understand your nexus footprint
• Investigate sourcing rules to determine which state has the sales tax duty in each transaction
• Map nexus footprint to each state’s resale or exemption certificate requirements
• Track which states apply which exemptions
• Recognize exempt services and goods in each state where you collect tax
• Create systems to track changing tax exemption rules
• Track sales tax holidays
• Track exemptions of all three types: use, product, and buyer
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Certificate ManagementValidate, Manage, and Store Exemption Certificates
• Make sure exemption and resale certificates are valid
• Are tax exemption certificates complete?
• Are unified forms used in SST states?
• Understand how to validate exemptions
• Appropriate registration protocol
• Collection duties
• Automate to reduce risk in managing exemption certificates across locations and states
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Certificate ManagementPitfalls
• Exposure from uncertainty over what’s covered, definitions, and classification
• Overcollection lawsuits
• Undercollection liabilities
• Privacy concerns
• What will states require?
• What information will they audit?
38
Banking the cannabis industry
Best Practices
39
Requirements and Key IssuesWholesale: Real Questions from Sales Tax Providers
What are the sales tax reporting requirements for sales to parties who wholesale the product into another state? Most of our drop ships to California are for customers that have resale certificates. Do we need to report that amount? Are wholesale distributors operating as a fulfillment center responsible for collecting sales and use tax?
• Marketplace laws dictate sale tax duties for wholesale distributors and are layered on top of Wayfair, making compliance a two-step process
• Generally, you cannot collect a certificate of exemption without a license• Wholesalers need to be a licensed and registered to collect the exemption certificate. Put another way, collecting a
certificate is like collecting tax—you are a licensed vendor. Your duty as a wholesaler is to report 100% of the amount you sold, then back out non-taxable sales and other exemptions through relevant mechanisms, depending on the state.
• Don’t assume you are exempt from sales tax collection duties because you are selling to a reseller or non-taxable entity instead of the end-user
• Companies need documentation to ensure that they are dealing with a licensed reseller or tax-exempt entity
• Documented proof demonstrates which party should be taxing the transaction and collecting
• Few companies seek and confirm documentation if they perceive they are pure resellers, wholesalers or selling to exempt customers.
• Don’t ignore: The cost of noncompliance is substantially higher than compliance!
Source: Go to SALTovation for more Q&A
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Resale CertificatesPay vs. Request: Real Questions from Sales Tax Providers
Most of our customers in the United States are resale. Do I need to do anything other than request a resale certificate from them? If they are not resale, do I just need to pay sales tax to their state?
• Technically, some states require a seller to hold an account for them to accept resale certificates from a customer.
• Obtaining a valid certificate is the most important element, because that document substantiates the resale and protects the seller.
• The validity of the certificate, which form is provided, and what information it contains is where the inconsistency (and complexity) exists between various states.
• When the wrong forms are being provided or obtained, it becomes an issue under audit, and in most states, the burden to prove that a sale was for resale is on the seller.
• If a taxable item is being sold to a non-exempt customer, the seller must charge tax if they
have nexus in the “ship-to” state.
• If there is nexus, the seller must register for a sales tax account, then collect and remit the appropriate tax to the applicable taxing jurisdiction(s). It is illegal to collect sales tax from a customer without having a sales tax account in the state where the tax is ultimately due.
Source: Go to SALTovation for more Q&A
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Certificate ManagementSummary
• Assess your business relationships
• Where are you drop shipping or using a supplier for drop shipping?
• Determine if economic nexus thresholds are being exceeded
• Evaluate which party is responsible for collecting certificates or sales tax
• Register your business
• Collect exemption certificates
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Streamlining and Simplification
Streamlined Sales Tax Project (SSTP)
• Initiated March 2000 to simplify and update sales and use tax collection and administration, easing tax burden on all sellers and all types of commerce
• National effort by state and local governments and the private sector produced the “Streamlined Sales and Use Tax Agreement (SSTP)”
• Design, test, and implement a sales and use tax system with uniform sales and use tax standards, modernized sale and use tax laws, and equalize compliance burden
• SSTP improves administrative procedures, provides uniform definitions within the tax laws, and provides technology systems for the tax collections in line with current technology.
43
Streamlining and Simplification
• Majority of states participating in the Agreement at one of three levels: Full Membership, Contingent Membership, and Advisory Status States
• States gain Advisory Status through enabling legislation or regulations by their state and have no vote in SSTP
Source: Streamlined Sales Tax Project
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Banking the cannabis industry
More Resources
45
Visit SALTovation.com for strategies and tools for
SALT compliance
Visit TaxOps.com for tax business
consulting, compliance and
advocacy
46
Resources
• Taxfoundation.org
• All Big Four (Deloitte, Ernst & Young, KPMG, & PwC) have SALT blogs and webinars
• Institute for Professionals in Taxation (IPT) – Income/Sales Use and Property tax specialists – nationwide
organization – JOIN at $350 per year for sales tax practitioner
• Coalition to Simplify Colorado Sales Tax
• Law firms: Eversheds Sutherland , Morrison Forrester, McDermott Will and Emery
• Avalara’s sales tax expert directory
• Sales Tax Institute for more training
• Check out Avalara’s blog!
• Avalara state-by-state guide
• Avalara sales tax
• Subscribe to TaxOps newsletters at TaxOps.com/subscribe
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Let’s stay connected
TaxOps.com │SALTovation.com
Judy Vorndran, Esq., CPA
720.837.8939
Stacey Roberts, CPA
303.393.2318
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