Managing Tax Exemptions for B2B Transactions as Sellers Stock Shelves for the Holidays

When it comes to managing exemption certificates online during a busy season, B2B sellers should be mindful of the following potential pitfalls.

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The holiday season will look different this year in many ways. From store closures on Thanksgiving to holiday deals beginning as early as October, sellers are grappling with a business-not-as-usual holiday season amid the Coronavirus disease (COVID-19) pandemic. According to the National Retail Federation, 43% of shoppers plan to wait until November to start buying for the season, but many retailers aren’t banking on normal shopping periods. In a year that has been anything but ordinary, many retailers are wasting no time adapting their strategy to best reach and serve customers online this holiday season.

A key part of this strategy is happening well before the peak holiday season arrives as retailers stock their inventories for an uptick in sales. Interestingly, just as many consumers prefer to make purchases online, a 2019 study found that one-third of B2B buyers wanted to buy 90% or all of their professional purchases online. As more B2B transactions happen online, manufacturers and retailers providing products to merchants for the holidays should be mindful of how they manage tax exemptions for customers to stay compliant and improve the buying experience.

When it comes to managing exemption certificates online during a busy season, B2B sellers should be mindful of the following potential pitfalls:

●       Omnichannel sales. B2B buyers are likely to spend more time researching products and suppliers, which increases the number of channels they are likely to seek out during their purchasing journey. To stay competitive, many B2B sellers are utilizing multiple online channels to reach and sell to customers, which expands the compliance complexity already created by online tax exemption management.

Unlike in-person transactions, digital sales require sellers to collect and validate sales tax exemptions nearly at the time of purchase. Even with one digital sales channel, managing exemptions close to real-time can quickly become burdensome for businesses that rely on human management and manual processes to collect exemptions. When multiple online channels are added into the mix, the ability to manually manage exemptions becomes virtually impossible.

●        Sales tax holidays. Sales tax holidays are used by states at various times throughout the year. While these holidays reduce the burden of sales tax calculations, they do not impede the process of exemption certificate collections. Sellers are still required to collect and manage exemption certificates for buyers who are regularly eligible for exemptions. While there are no set sales tax holidays in the United States during the holiday season, as ecommerce extends the shopping season earlier into the year, sales tax holidays could soon overlap with retailers stocking their shelves.

●        Supply chain management. COVID-19 has wreaked havoc on supply chains, so many retailers are already on edge when it comes to filling their inventories. For retailers, getting their shelves stocked and ready for a longer-than-usual holiday shopping season is of utmost importance and interruptions must be avoided at all costs. While there are a number of disruptions that could cause delays or other negative impacts on B2B supply chains, ineffective exemption certificate management could be a silent assassin many sellers could overlook.

One way ineffective exemption certificate management could impact the supply chain is on the product side. If proper documentation is not received on time, products can be withheld for delivery. Before a product is delivered, credit applications, financial information, and exemption certificates should be received, reviewed, and evaluated. If an exemption certificate is missing, then the supply chain could come to a stop.

Another risk is on the financial side of the supply chain when payment is expected for an invoice of products that have been delivered. If the buyer is exempt, they could either short pay the invoice or ask that a new invoice be created and possibly restart net payment terms. In both cases, the seller is out of cash for non-payment. Businesses can avoid these scenarios by allowing technology to collect exemption certificates at the appropriate time to help increase cash flow and reduce risk. 

The 2020 holiday season will be unlike any other in recent years. Long lines at stores will be replaced by packages delivered to front porches as the world goes online. Not only do retailers need to prepare their systems for a digital-first season, but so do B2B sellers as inventories are stocked and sales are prepped. While there are a host of considerations for B2B sellers this year, it’s critical that effective tax exemption management is not overlooked.

Whether a B2B supplier is selling through a single website or multiple online channels, traditional and manual management processes will no longer suffice. Sellers will inevitably need the help of automation technologies to streamline the process of collecting and validating exemption certificates for digital orders to maintain compliance and prevent any disruptions to the customer experience. A successful holiday season begins with B2B transactions, so getting compliance right from the start will be key to enabling a successful holiday season for retailers and consumers alike.