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Why are Tax Exemptions so much Work?

Being exempt shouldn’t destroy the customer experience.

A student looks frustrated by having to find textbooks in a bookstore.
Finding the books is harder, but in person at least there’s no sales tax. Photo by Mike Von on Unsplash

As the spring semester gets underway, millions of college students are in need of a few textbooks for their classes. A generation ago that meant heading to the school bookstore, finding each class's requirements on a list, and scouring row after row for your books (stacked in what always felt like a random order). The only real choice back then was new or used.

Today’s students no longer deal with the chaos or crowds, they head online. Beyond the sheer number of outlets, choices regarding format (paper vs. digital), ownership (purchase vs. rental), speed (shipping choices), and cost provide countless options. If they decide on an eBook, it’ll be theirs to use in seconds. What an amazing world, unless they want to claim their exemption from sales tax.

Who’s entitled to an exemption?

According to The National Association of College Stores, 36 states and Puerto Rico have some form of tax exemption for course materials. When purchases are done at the bookstore, employees are aware of the local regulations and can both inform and assist students in benefiting from their entitlements. But what happens when you go online? Sadly, it’s every student for themself.

The world’s largest college bookstore

According to a 2019 survey, a higher percentage of college students purchased a book from one online retailer than in their college bookstore. That was pre-pandemic, so it’s safe to assume their dominance has only increased. Given their leadership position, you might assume this retailer would have focused on the customer experience, providing additional assistance for users to identify and submit possible exemptions from sales tax. You would be wrong.

Information provided by an online retailer regarding exemption certificate documentation requirements.
The ST-16 didn’t make the cut for NJ instructions

The process for claiming a sales tax exemption online for textbooks is diabolical. The site offers instructions and the assistance of a “Wizard,” but sadly there are no magical powers to be found. For example, the state-issued form used to claim the exemption for New Jersey students (the ST-16) isn’t available, although the instructions allow you to submit identification and documentation to substantiate your claim. If you figure out what to file, you then have to upload the form and wait for the customer service group to review and approve a refund. A refund. That means you have to pay the taxes upfront. At some point, you have to wonder if your time is worth the 6.625%. Having recently invested an hour (as someone who knows the forms and requirements) to reclaim taxes paid on exempt textbooks for which I received a refund of $2.37 (when I was expecting $17.68), I am comfortable saying for most the answer is no.

This example is from the “gold standard” of online shopping. Sure, exemption certificates aren’t influencing a majority of their buyers, but for the ones that are impacted, it’s tough to believe how miserable the customer experience can be. Appreciating that this is the most popular place to purchase textbooks, I can only imagine how the experience elsewhere might be significantly worse.

Improving the experience through AI

The textbook example is but a very small sliver of an exemption certificate storm that’s growing exponentially. An unintended consequence of the Wayfair decision is the compliance complexity in support of exemption certificates. Physical presence before Wayfair included tax and retail employees familiar with the local entitlement forms and requirements. Today, economic nexus requires an understanding of exemptions across the country, with different rules and requirements to meet the “good faith” standards that sellers strive for to limit their own risk. These changes are overwhelming tax departments and creating risk for even small organizations selling online. Larger organizations are drowning in documents and settling for partially completed and inaccurate forms. These exposures and limitations are unacceptable and unnecessary.

Tax departments need to embrace technologies that both manage their compliance concerns while simultaneously improving the customer experience. Digital platforms that utilize Artificial Intelligence help stakeholders navigate the complexities of exempt transactions while delivering benefits that include:

  • Exemption utilization in real-time (via tax engine integration).
  • More accurate exemption documents (the right form, done correctly).
  • Reduced need for seller review, analysis, correction, and maintenance.
  • Instant access to utilized forms for both buyers and sellers.
  • Reduced audit risk.
  • A deeper understanding of the customer.
  • Improved customer experiences.

In the end, AI is about improving the user experience. Ironically, AI-driven exemption certificates not only improve performance and relationships but are also dramatically reduce costs. Commerce on a global scale has accelerated to incredible speed. It’s time to stop managing exemption certificates as documents by engaging with AI-enabled digital platforms that accurately document the entitlements due to the buyer.




Using Artificial Intelligence and Machine Learning to streamline taxation for every transaction on the planet.

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