Tax-Exemption: Sales Tax’s Evil Twin

One of the most hated things I always hated about working retail was dealing with tax-exempt transactions.  You may ask why and the answer is quite simple.  Do it right and everything is fine, screw it up and get called to the carpet with much yelling.

So what exactly is tax-exemption? 

It is usually any government entity either state, local, or federal that allows people to buy products without having to pay state sales tax.  There is also another type of tax-exemption known as a “reseller’s certificate”.  Under state law, only business checks and business charge cards are acceptable forms of payment.  Cash, personal checks and personal charge cards are not acceptable forms of payment.

How is tax-exemption processed?

Back in the days of Woolworth, the transactions were handled at the customer service desk at the back of the store.  A photocopy of the customer’s tax-exempt certificate is stapled to the sales receipt and is mailed off to Augusta to be processed monthly.  If all went well, you never heard from Augusta again.  If there was a problem, the improperly handled transaction is mailed back to the store to get straightened out within 60 days.

At Staples, all the tax-exemption was handled at any register and was handled electronically.  A system of looking up a customer’s tax-exempt information was in place that allowed to search by customer name, business name or phone number.  If the customer’s information was not found, it was possible for the manager on duty to input their security code into the register to manually process a tax-exempt transaction.  This always made me cringe because fraud could easily run rampart with this procedure. 

Staples also had a procedure in place that would process tax-exempt cards in the store by taking the customer’s tax-exempt certificate and inputting information in a special computer and create a tax-exempt card at time of purchase.  This system was eventually eliminated because, I believe, too many false tax-exempt forms were used.  The process was changed to the backward procedure of filling out a paper application, having the store mail it to Staples’ home office, they send it to Augusta.  Augusta then decides on the legitimacy of the form, then sends an approval to Staples’ home office, which in turn sends a tax-exempt card to the customers’ address.  Total time for all this could be 8 weeks or longer.  Certainly not user friendly or customer friendly by any means.

What were the consequences of not following the rules of tax-exemption?

This was always kind of a murky question as it depends on the severity of the problem and how often it happens.  I have heard that the states levy fines from about $100 per transaction all the way up to $10,000 for severe cases.  These fines also include the price of sales tax as well that must be reimbursed back to the state as well.  Certainly violating tax-exemption laws cost companies money.

I remember several times at Woolworth when we the customer service people were scolded by being sloppy and costing the store (not the company) money by not going by procedure.  It was always the store’s expense to pay the fines for not doing its job appropriately.

Ironically, I never heard of anyone getting scolded at Staples for not handling tax-exemption properly, but chances are that Staples probably never paid the fines placed against them anyway.  Still, procedures needed to be followed anyway.

It should be noted that Staples’ cashiers were notorious in taking cash for tax-exempt transactions which is the #1 no-no.  I always felt like beating them to death when they did this.

How could someone get around the tax-exemption issue?

The easiest and most popular way is to shop in nearby tax-free New Hampshire.  This not only a popular thing to do, but for many the only way to stick it to the state.

Tax Evader Representative Chellie Pingree

Speaking of sticking it to the state, I have a story regarding Maine’s own State Representative Chellie Pingree.  During her first attempt at running for Congress, her staff made a large amount of purchases in one of our New Hampshire stores.  When her campaign failed, she returned ALL of her unused supplies back to the store I worked in here in Maine.  The problem I  have with all of this is that someone who wants to represent Maine is doing a slap in the face to the state by ducking the state’s sales tax.  The total amount returned was about $300 of miscellaneous merchandise and took quite a while to process because of the sheer number of items.  It is because of this business approach that I will NEVER vote for Ms. Pingree as I feel that she doesn’t represent Mainers, but her own special interests.  If you avoid taxes as a wannabe public figure, then you lose my vote.  But then again, this sort of thing is running rampart in politics today.  Which brings up the question of who can you trust in politics.

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