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Exemption Certificates – Is Your Business Properly Handling Them?

  • By Ashley Jazayeri
    • Jul 14, 2023
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Is your business properly handling exemption certificates? A recent decision by the Rhode Island Division of Taxation highlights the importance of ensuring that knowledge of State and Local Tax (‘SALT’) legislation in the states that your business is operating in is up to date and properly applied by qualified SALT experts.

Since 2007, Rhode Island has followed the provisions of the Streamlined Sales and Use Tax Agreement (SSUTA) to determine its Sales and Use Tax Laws. Per the guidance of the state, eligible sellers may claim exemption from sales tax liabilities if they collect a valid resale certificate within 90 days of the sale; alternatively, the seller may also retroactively accept a resale certificate, provided that they respond to a request to provide proof of the tax exemption by a SSUTA state within 120 days.

In 2016, a Rhode Island vendor remitted sales tax collected from a buyer who had not provided a resale certificate. The buyer later provided a resale certificate, after which the vendor claimed a tax credit on sales tax already remitted. The resale certificate was collected just over 100 days from the date of sale. As a result, the Rhode Island Division of Taxation determined that the certificated had been received outside the 90-day window. Meaning the vendor did not qualify to claim tax exemption. The vendor was required to repay the tax, it was also held liable for penalties for late payments and negligence.

What does this mean for your business?

In the case above, had the vendor been fully aware of the implications of the SSUTA Sales and Use Tax legislation, it likely would have made sure to collect proper exemption documentation immediately.  Don’t let your business fall into a trap that may come back to cost it tens of thousands of dollars.

This case is only one example of how SALT legislation can sometimes follow seemingly counterintuitive processes. Many business owners might believe they need not collect exemption certificates since they are exempt from collecting sales tax. However, there may be small nuances not known to many businesses, as demonstrated by this case.

How can your business avoid similar missteps?

SALT legislation is a complex and ever evolving sphere. Sometimes the ‘safe’ choice may not be the correct one. With challenges of SALT rules and regulations, the best choice a business owner can make is to consult qualified experts. These experts provide relevant advice to ensure your business is following SALT legislation correctly and avoid potential financial penalties.


Ashley Jazayeri

State & Local Tax Consultant

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