Sales Tax Exemption Certificates: Best Practices, Expiration and Compliance | Podcast

Private Equity in Motion

In this episode of Weaver: Beyond the Numbers, Private Equity in Motion,, Sean Muller and John Westbrook discuss how sales tax exemption certificates factor into state tax due diligence. They explain what exemption certificates are, when they expire and why sellers need state‑specific documentation, especially in multistate transactions. The conversation also covers audit risk, best practices for maintaining and storing certificates and common issues that surface when certificates are incomplete or outdated.

Subscribe and listen to future episodes of Weaver: Beyond the Numbers on Apple Podcasts or Spotify.

©2026

Detailed Description of Sales Tax Exemption Certificates: Best Practices, Expiration and Compliance

00:00:00
Sean: Hi, I’m Sean Muller, and John Westbrook is joining me today. We’re going to talk about some of the state tax issues that we’re seeing in due diligence.

00:00:06
Sean: John, thanks for joining me today. Let’s kick off with exemption certificates.

All right — sales tax exemption certificates. What are they?

00:00:13
John: In reality, what that certificate is, is the customer acknowledging to the seller that, “I am buying something from you that normally would be taxable, but because of the nature of my business, who I am, or how I will be using it, it’s not taxable to you.”

00:00:32
John: And the reason that sellers should really be invested in that is that states want to see that acknowledgement from the buyer — that, sure, sellers normally know what they’re selling and that it’s exempt, but states like to see the buyer saying, “Yes, in fact, I am using it in an exempt manner.”

00:00:49
John: The flip side of that is not only does your customer say that I’m using it in an exempt manner, but they also normally are saying that if there’s any divergent use, I’m on the hook for that, according to the state’s rules for the certificate.

That’s the general high-level.

00:01:04
Sean: Okay. Do exemption certificates expire?

A lot of times we’ll see, “This has been a client for 20 years. They gave me an exemption certificate.” Do they expire?

00:01:16
John: Yeah. So, certificates themselves may expire. It depends on the state’s rules.

There are a few states that have an explicit: “This certificate expires after four or five years,” requiring sellers to go get additional certificates and run certificate campaigns.

00:01:34
John: But even if a seller isn’t operating in a jurisdiction that has certificates that expire, it’s usually a good idea to go check your certificates and refresh them.

So, sometimes the customer that you’re selling to will have undergone a transaction themselves. They’re not operating under the same name, or they’ve otherwise changed their business.

00:01:56
Sean: Sure.

00:01:57
John: And so, you want to go back, and maybe they’ve got the tax ID number. The states are very formal in that they want to see exactly who’s on your invoices, exactly who’s on your exemption certificate.

00:02:08
Sean: All right. So that brings us to a point here. I’m working with a customer here in Texas, and then they also want me to go work for them in Louisiana.

I’ve got an exemption certificate in Texas. Do I need to get another exemption certificate when I’m in Louisiana doing work for them?

00:02:23
John: Yes. States are very specific, and they want to see that exemption because these are, again, exemptions.

And so, they want to see that not only are you exempt according to the Texas state rules, but also the Louisiana rules, wherever the work is performed.

00:02:38
Sean: Okay. So, what do I do if I’m going through a transaction and I don’t have the exemption certificate? I’ve lost it.

Can I go back and get another one from my client? What do I do then?

00:02:51
John: Most states do allow you to correct your exemption certificate on audit for that reason. Same story in diligence.

If you can go back to that customer and get that certificate — in our last example, we identified that they were exempt in the original state, but then the scope of work expanded to additional states — go back and get those additional certificates for those additional states so you’re fully covered.

00:03:17
Sean: Right. So, what’s the best way we can advise our sellers to store their certificates?

I mean, I got it in the metal cabinet in my controller’s office. What’s the best way to store these certificates?

00:03:27
John: There are a multitude of certificate organization software programs out there to store it by retention that, depending on your level of sophistication and your number of clients, or your number of customers, that you can go and you can click, “Show me all of my certificates for Texas,” if I’m being audited, and it’ll pull that up.

00:03:49
John: There’s lots of software programs out there that, you know, they vary according to cost and features and interactability with your ERP software

Ultimately, though, digitizing them, making sure that they’re stored — you know, before you digitize them, give them a good read. Make sure that they tick all the boxes that are required for exemption certificates.

00:04:11
Sean: That’s the last point here is make sure exemption certificates are actually filled out properly, right?

00:04:16
John: Right.

00:04:17
Sean: It’s not just having the company name on the top and then, here you go, right? It actually has to be filled out, right?

00:04:20
John: That’s correct. And, unfortunately, too many times in diligence, we see forms that are nonresponsive to sales and use tax.

They’re — you know — it’s a federal form or it’s something else that really doesn’t check all the boxes.

00:04:33
John: States have gotten better with the Streamlined Sales Tax certificate being more widely accepted, but there are still states that have their individual requirements that you want to make sure that each certificate meets.

00:04:44
Sean: All right. Well, John, this has been very helpful. Thank you.

00:04:46
John: Thank you.

Featured

State and Local Tax Impacts: Federal Tax Law UpdatesRead Article

 

Article

State and Local Tax Impacts: Federal Tax Law Updates