The Relationship Between Customer Service and Exemption Certificate Management

8/3/2019 The Relationship Between Customer Service and Exemption Certificate Management

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THE RELATIONSHIPBETWEEN CUSTOMERSERVICE AND EXEMPTION

CERTIFICATE MANAGEMENT

How Poor Processes or Managing Exemption CertifcatesCreates Negative Customer Experiences



The Relationship Between Customer Service

And Exemption Certifcate Managemen

Page 1

We all know that customers are the sole reason why there are businesses and why

businesses stay in business. This is why businesses are constantly searching or waysto improve service to customers, retain existing customers and thereby increase profts

Rightully so, most businesses ocus on the traditional areas like product mix, pricing,promotion and training. However, there is one area nearly all businesses overlook andthat is the customer experience o sales tax exempt customers. To be exempt romsales tax, these customers must not only belong to a certain organization classifca-tion determined by taxing authorities, but are also required to have the proper docu-mentation, called an exemption certifcate, that proves they are exempt rom payingsale tax.

Sounds airly simple. Unortunately, it is anything but simple and a poor process orhandling exempt customers can be a source o rustration or these customers and

that can aect customer retention and eventually profts. It is complex due to theneed to keep abreast o the hundreds o constantly changing exemptions in the hun-dreds o jurisdictions across the country. Inaccurately collecting and managing thisexemption data by employees and within your internal systems (or not collecting itall) can have huge consequences downstream. Consequences can take the orm o inaccurate billings, employees spending valuable time fxing errors like issuing taxreund checks or credits, poor customer service like held up orders, huge audit assess-ments and much more.

This white paper will discuss how a poor process or managing exempt customers andexemption certifcates impacts customer service, customer retention and profts andprovides best practices or properly managing exemption certifcates and creating apositive customer experience or your exempt customers.

Introduction

Tax exempt transaction compliance is a

much overlooked area o business that candamage or enhance the customer’s opiniono your company.

When you don’t manage your tax exemptcustomers properly, not only does yourcustomer service suer but you can alsoincur signifcant hidden costs.



Page 2

Untapped Ways to Improve Customer Service,

Customer Retention and Profts

Ask a C-Level executive i increasing margins and improving operational efciency are

key company initiatives and you’ll receive a vigorous head nod. Talk about the impor-tance o customer service on margins and costs and you’re sure to keep his attention.Now that you have the executive actively engaged, ask i the way his company man-ages sales and use taxes negatively impacts customer service, customer retention andthe bottom line and then watch his eyes glaze over.

Why? Because or many companies, managing sales and use taxes is nothing morethan an administrative burden. But, in reality, how you address this complex area o taxability has a direct impact on customer service, customer retention, and your bot-tom line, especially when you are managing your tax exempt customers.

For many companies the percentage o gross revenue that comes rom exempt salescan be signifcant. When you add up sales to schools, the government, religious institu-

tions and more, the numbers are staggering. Even i you don’t sell directly to exemptconsumers, there are exempt sales to resellers, manuacturers, the agricultural industryand much more.

A well-defned, eective exemption certifcate management process can help yourcompany improve its relationships with exempt customers. To get a quick eye-openinginsight on how a poor process can negatively aect customers, go to a community o-rum or a large company and search or orum topics on sales tax and you’ll see manyexempt customers complaining about their exempt sales tax experience.

Create a competitive advantage with anexemption certifcate management process.

Managing exemption certifcates andexemption data should not be treated asmundane administrative tasks. It is anuntapped area or improving customerservice.





Page 3

Start with this premise - a happy customer is a loyal customer. Now, translate that to

exemption certifcates. When it comes to exemptions, what kind o conversation do youwant to have with your customer? Have an eective exemption certifcate manage-ment process and make the right taxability decisions at the right time consistentlythroughout your value chain and the discussion is easy and the customer is happy.Have an ineective exemption certifcate management process, make incorrectdecisions and adjust ater the act, and the conversation is decidedly dierent. Why?Because incorrect decisions have a cascading eect on both you and your customers’organizations.

The path to fx the process and incorrect decisions can take many twists and turns.Just consider the ollowing customer touch points related to certifcates to grasp howtheir mismanagement can result in a poor customer experience and wasted time andmoney.

• Initial Certifcate Collection — Does sales/credit know which exemption cer-tifcates to collect and are they flled in completely? Is it usually done correctly thefrst time?

• Returning Customer Certifcate Lookup — Does Sales/Credit have quick ac-cess to accurate customer exemption Ino?

• Tax Exempt Purchase Experience — Is it quick and nearly error ree? Areorders rarely held up?

• Billing/Invoicing — Are they accurate? Is the issuance o reund checks/creditsminimized? Are credit and re-bills to correct or tax errors rare occasions?

• Renewal Certifcate Collection — Do you keep track o certifcate expirations?Is there timely collection o updated versions o expired certifcates?

• Audits — Do you rarely need to contact customers or missing certifcates?

I you answered “No” to even one o these questions, your company probably has cus-tomer service issues related to managing certifcates.

Failure to be efcient in all these areas can cause customer rustration and eventuallyloss o customers, in addition to all the extra time and money spent fxing problemscaused by an inefcient exemption certifcate management process in the frst place.

How Exemption CertifcateManagement Impacts Customer Service



Page 4

When you don’t manage your tax exempt customers properly, not only does customerservice suer but you can also incur signifcant hidden costs. This double whammy goesstraight to your bottom line, mostly driven by hidden costs ound in duplicate eorts

and inefcient processing. These can come in the orm o operational expenditures tofx preventable problems, most o which all outside o the tax department with credit,customer service, collections, accounts receivable and payable, sales and location/storemanagers. For example, it may require additional FTEs or temps to issue sales tax reunds orexempt purchases billed incorrectly. Or, your sales sta may be spending too muchaccount management time helping customers fx sales tax billing errors, rather thanusing the time to generate new sales. Then there is the time and resources spent pre-paring or and managing an audit. Can you locate the certifcates the auditor needs?Do you need to bother and rustrate your customers to reconstruct needed documenta-tion to prove tax exemption?

Lastly, have liabilities been accounted or, and i they have via reserves, what lostopportunity costs are associated with those unds? I only a better process or manag-ing tax exempt customers were in place, the headaches, rustrations and costs on allsides could have been dramatically reduced.

QUICK FACT

It’s difcult keeping current on exemptioncertifcate changes.

There are an average o 760 annual rule andrate changes in over 8,000 tax jurisdictionsnationwide.

Fortunately, there are best practices tomitigate this difcult task.

The Costs o MismanagingTax Exempt Customers





Page 5

Why are such seemingly simple tasks o collecting and tracking exemptioncertifcates throughout the value chain so complex? Because, like almost anyother tasks, it is complex only i your company doesn’t have a process in place to man-age the complexity. Customer service, sales and credit on the ront lines are typically the ones who collectexemption documentation. But unlike the tax department that deals with these issuesevery day, they don’t have the knowledge to consistently make the right call. Com-pound that with the average 760 annual rule and rate changes in the over 8,000 tax

jurisdictions nationwide and those ront line employees can’t possibly stay current.

Escalating the complexity are process decisions or:

1. Collecting exemption certifcates.

2. Storing collected exemption certifcates (ensuring documentation doesn’t getlost).

3. Locating exemption certifcates when customers make a repeat purchases orduring an audit.

4. Ensuring exemption certifcate data is accurately stored in tax decision and bill-ing sotware so customers are billed correctly.

Tax department review o exemption certifcates is yet another area adding to thecomplexity. Most oten, the tax department’s frst view o the exemption certifcatesis when they are preparing or or actually in an audit. Should an audit reveal errors, it

is that department’s job to reconcile, veriy and produce tax exemption certifcates. I exemption certifcates cannot be located, then customers will have to be contacted tocollect them.

Between penalties and interest incurred and reconciliation calls to customers, bothcustomer service and your bottom line can take a hit as a result o mismanaging thiscomplexity.

Drivers o ExemptionCertifcate Management Complexity



Page 6

Okay, it can be complicated. How can the complexity be managed? It all starts with a

process that is consistently enorced throughout the organization. The process must beenorced. You can have a great process, but i no one within your company ollows it, itis worthless.

To begin creating an enorceable process, you must frst thoroughly review your currentpolicies and procedures regarding exempt customers. Map every process that happensas a result o an exempt transaction, whether handled correctly or incorrectly. Once youknow exactly how you are handling things today, you can begin to identiy areas orimprovement. Make sure that the correct decisions are made at the point o transac-tion to eliminate or lessen the negative impacts downstream. Train ront-line employ-ees on the basics o exemption certifcates and exempt sales. Most importantly, staycurrent with rules and rates.

Next, investigate the benefts o using exemption certifcate management (ECM)sotware. This type o sotware will enable your company to enorce the new processyou have put in place. This sotware is designed to manage the complexity o exemp-tion certifcates and automatically keep current on changes to exemption certifcates.What’s more, the sotware can be integrated with point-o-sale, ecommerce, tax deci-sion and enterprise resource planning (ERP) or billing systems.

By using a well-defned process and enorcing it with exemption certifcate manage-ment sotware, exemption certifcate management can be simplifed while improvingcustomer service, customer retention and profts.

In the Appendix, there is a list o common exemption certifcate management bestpractices (Figure 1), an exemption certifcate validation checklist (Figure 2) and a pro-cess worklow or collecting, reviewing and updating billing systems (Figure 3).

Best Practices orManaging Exemption Certifcates





Page 8

Figure 1. Exemption CertifcateManagement Best Practices

Exemption CertifcateManagement Best Practices

Appendix

Overall Management

√ Sotware-as-a-Service (SaaS)Exemption Certifcate Management (ECM) Sotware• Web-based sotware or collecting, storing and managing

exemption certifcates• Accessible across company• Increases compliance level signifcantly• Integrates with point-o-sale, e-commerce, tax decision and billing

sotware

Collection

√ Point o Purchase

√ Basic sales tax training or customer-acing employees

√ SaaS ECM sotware• Built-in exemption certifcate rules provide needed tax expertise to

customer-acing employees

Storage

√ Centralized and electronic• Easy to locate exemption certifcates• SaaS exemption certifcate management sotware

Validation

√ Use checklist in fgure 3

√ Review soon ater collection o exemption certifcates

√ SaaS ECM sotware with review capabilities

Billing

√ Always charge tax i no valid exemption certifcate is on fle

√ Enter exemption data on jurisdiction level into tax decisionand billing systems

Update when necessary

√ SaaS ECM sotware and integrate with other internal systems

Maintenance

√ Track exemption certifcate expirations• Collect new certifcates prior to expiration

√ Track exemption certifcate orm changes• Update collection eorts with new orms when necessary

√ SaaS ECM sotware to automate maintenance





Page 9

Certifcate data must include, with very ew exceptions:

Seller name/address

Buyer name/address

• Completed, no blanks

• Name on certifcate should match name on customer account

Date

• Should be current, not several years old

State o exemption

State sales tax registration number

• Very ew requirements to veriy authenticity o registrationnumber

• A ew exemptions in a ew states have exceptions to requiringa sales tax registration number on the certifcate (agricultural,manuacturing and wholesalers). Customers who do not providea registration number should include a statement as to whythey are not providing one.

Type o exemption claimed

Type o property purchased

Normal course o business o the buyer (your customer)

Signature o customer

• Some certifcates require “authorized signature” o owner,

partner or corporate ofce

Some certifcates might include:

Single/blanket checkbox

Title

Printed name o signer

Other items to review:

Correct orm

• No W-9s, seller’s permits, registrations or license documents.

• Must be an actual state-approved certifcate.

Completely flled out

• No blanks!

Good Faith

• Have a amiliarity with exemptions available in the state, ex-

emptions available that can be reasonably perormed with typeo property purchased, customer business types to confrm goodaith conditions.

I the certifcate has an expiration, is it still in its validity period(non-expired)?

Method o payment

• Government and non-proft exemptions stipulate that the pur-chase must be directly paid or with organization/governmentunds.

Figure 2. Sales tax exemption

certifcate validity checklist

Sales Tax ExemptionCertifcate Validity Checklist



Page 10

Figure 3. Best practice exemptioncertifcate worklow

Create NewCustomer

Record

Is NewCustomerExempt?

Code NewCustomer as

Taxable inSystem

Request anExemptionCertifcate

Review &Validate

Certifcate

Certifcate

Valid?

Store,Maintain,

Update& Access

Certifcates

Code NewCustomer as

Exempt inSystem

CustomerExempt?

TaxCollection

Process

Short-paycheck

received ontaxableinvoice

YES

NONO

NO

NO

YES

YES

YES

Cross-Functional Process

CUSTOMERSERVICE

TAXDEPARTMENT

A/R

CertifcateReceived?

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The Relationship Between Customer Service and Exemption Certificate Management

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