Can a retailer use a single, electronically generated multi-purpose exemption statement at the point of sale instead of Utah's exemption-specific paper forms (TC-721)?

Plain-English summary

This ruling spans three years of correspondence (1994-1997) between a large retailer building a computerized point-of-sale exemption certificate system and the Utah State Tax Commission — the Commission's position evolved across the exchange as the retailer narrowed its proposal, so the final 1997 letter is the one that matters, not the more skeptical 1995 response.

August 1994 — the retailer's original proposal: The company wanted to replace paper exemption certificates entirely with a computer-generated system: a sales associate would pull up the customer's exemption on screen, the customer would sign via a computerized signature pad, and the resulting signed statement would be stored electronically — used as a single, all-purpose exemption statement in place of every exemption-specific form (resale, religious/charitable, and any other exemption Utah law recognized), modeled partly on the multijurisdictional certificate adopted by the Multistate Tax Commission. The company asked for a binding ruling covering a detailed list of legal questions about form content and electronic recordkeeping.

1995 — the Commission's initial, more cautious response: Utah Code § 59-12-106 requires exemption certificates to contain Commission-prescribed information, which the Commission has built into its Form TC-721. Admin. Rule R865-19S-23 allows a "valid exemption certificate or other similar acceptable evidence" — leaving some room for alternatives, but the Commission explained several concerns: (1) a single, generic, all-purpose statement on a sales check would generally not be approved; (2) only exemption-specific forms generally count as "other similar acceptable evidence"; (3) the explanatory language on TC-721 (spelling out each exemption's legal limits) is important to prevent purchaser/seller misunderstandings, so forms without similar language are usually not approved; (4) the Multistate Tax Commission's multijurisdictional certificate is acceptable for audit purposes when properly completed in good faith, but it's not Utah's preferred method; and (5) electronically produced/stored receipts and signatures can be accepted in lieu of hard copies if they otherwise meet Utah's electronic recordkeeping rule (R865-19S-22) and the exemption-specific language concern is resolved.

March 1997 — the retailer's request for reconsideration: After operating under the multijurisdictional certificate since 1994, the company asked the Commission to reconsider and let it use its own "Unit Certificate" for all exempt Utah sales, to streamline service for customers and auditors alike.

August 1997 — the Commission's final, approving response: The company's revised proposal was much narrower than its original 1994 ask — limited to seven specific transaction categories: (1) sales to foreign diplomats, (2) sales to government entities, (3) sales to Native Americans delivered to Indian lands, (4) sales of farm equipment, (5) sales over $1,000 to religious or charitable organizations, (6) sales to public or religious educational entities, and (7) sales for resale. The company's electronic process walked a sales associate through three input screens (purchaser info, exemption selection from a Utah-specific list, and Utah sales tax number/purchase order data) before printing a certificate for the customer's signature. The Commission approved the company's proposed "generic" electronic certificate — a form with a perjury-penalty statement tying the purchase to a claimed exemption — because it was satisfied the form was sufficiently tied to the specific sales transaction to create an audit trail, which resolved the Commission's main concern. The Commission reiterated its general preference for exemption-specific forms that spell out legal limitations (to protect purchasers from accidentally claiming an exemption in error), but explicitly did not require the retailer to conform to Utah's own paper-form system, in recognition of the shift toward paperless accounting.

What this means for you

Retailers building electronic point-of-sale exemption systems

A single generic electronic certificate can work in Utah, but the Commission's comfort turns on the certificate being tied to the specific transaction well enough to create a real audit trail — not on matching Utah's TC-721 form word-for-word. Build in enough transaction-specific data capture (purchaser info, exemption basis, sales tax number, purchase order/reference number) to satisfy that concern.

Retailers hoping to use one blanket exemption form for every possible exemption type

Don't expect blanket approval for a truly all-purpose statement covering every exemption Utah recognizes — this retailer only got approval after narrowing its request to a defined, enumerated list of transaction types, not the sweeping "any exemption under Utah law" version first proposed in 1994.

Businesses moving to paperless/electronic recordkeeping generally

Electronically captured signatures and stored receipts can substitute for hard-copy exemption certificates if your system otherwise satisfies Utah's electronic recordkeeping rule (R865-19S-22) and the resulting record is detailed enough to document the exemption claimed for each transaction.

Accountants and tax professionals

This ruling is a good illustration of how a taxpayer's persistence and willingness to narrow scope over a multi-year exchange can move the Commission from an initial "generally not approved" position to a specific approval — worth citing as precedent for structuring an electronic exemption certificate request, though remember it binds only this taxpayer's system as ultimately described.

Common questions

Q: Can we use one generic exemption certificate for every type of exemption instead of Utah's TC-721?
A: Not automatically — this ruling shows the Commission generally resists a truly all-purpose statement, but will approve a generic form scoped to a specific, enumerated list of exemption types if it's sufficiently tied to each transaction to create an audit trail.

Q: Is the Multistate Tax Commission's multijurisdictional exemption certificate valid in Utah?
A: Yes — the Commission confirmed it's acceptable for audit purposes when properly completed and taken in good faith by the seller, though it's not Utah's preferred method since it lacks the explanatory detail of Utah's own TC-721 form.

Q: Can we store exemption certificates and signatures purely electronically, with no hard copy?
A: Yes, if the electronic receipts/statements otherwise meet Utah's electronic recordkeeping requirements (R865-19S-22) and adequately document the exemption for each transaction.

Q: Does the Commission require our custom exemption form to use the same language as its TC-721 form?
A: Not necessarily, based on the final 1997 letter — the Commission approved a company-designed "generic" form without requiring TC-721 language, once satisfied the form was properly tied to specific transactions, even though it generally prefers TC-721-style explanatory language.

Citations and references

Statutes and rules:

• Utah Code Ann. § 59-12-106 (exemption certificate content requirements; TC-721 form)
• Utah Admin. Rule R865-19S-23 (documentation of exempt transactions)
• Utah Admin. Rule R865-19S-22 (electronic recordkeeping)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original PDF: https://files.tax.utah.gov/tax/commission/ruling/97-023.htm

Original ruling text

97-023

Response
August 4, 1997

March
10, 1997

Dear
Val:

Enclosed
please find the following:

Letter dated August 22, 1994, from COMPANY
B

Letter dated January 9, 1995, from the
State of Utah

Copy of Unit Certificate of Exemption
& Uniform Sales and Use Tax

Certificate Multi jurisdiction

Since
August 22, 1994, we have refund the exemption certificate and are using the
certificates in the third item listed above.
If you would reconsider the state�s response and allow us to use the
Unit Certificate for all exempt sales in Utah it would enhance our customer
service to both our retail customers and the state�s auditors.

If
I can be of any assistance please contact me at #####.

Sincerely:

NAME

NAME

ADDRESS

CITY
STATE ZIP

Dear
NAME:

In
response to your letter of August 22, 1994 (copy attached), I am providing you
with the following information.

Utah
Code Annotated Section 59-12-lC6 (copy attached), requires exemption
certificates to evidence exemption from the sales or use tax and indicates that
the exemption certificates "shall contain information as prescribed by the
commission." The commission has prescribed that information on its Form
TC-721 (copy attached).

Administrative
Rule R865-19S-23 (copy attached), further describes documentation required to
verify the exempt nature of various types of transactions and allows for use of
"a valid exemption certificate or other similar acceptable evidence."
[Emphasis added.]

Because
of the significant number of different exemptions (some of which are customer
specific, and some of which are linked to the type of item or its use), the approved
form has become somewhat lengthy. However, past experience has shown that most
attempts to reduce the language and format for any particular exemptions have
resulted in confusion and its accompanying costs to the seller, the customer,
and the commission.

1. Consequently, a single, multi-purpose exemption statement on
   the sales check would generally not be approved.

2. Exemption-specific exemption forms are generally the only
   types of forms considered to constitute "other similar acceptable evidence"
   of exemption.

3. The language on the TC-721 describing and clarifying each
   exemption for which the form is designed is critical to avoiding
   misunderstandings on the part of purchasers and sellers alike. For this reason,
   forms not incorporating the same or similar language are generally not
   approved.

4. While the multijurisdictional exemption certificate adopted
   by the Multistate Tax Commission is acceptable for audit purposes when properly
   completed and taken in good faith by the seller, the form is not without
   problems; and its use is certainly not the preferred method of evidencing
   exemptions.

5. The short-comings of the information you have listed and
   incorporated in your proposed format have to do with the explanatory language
   of specific exemptions. If the language of the TC-721 (or very similar
   language) can be incorporated into the format of the sales check, the approval
   you seek would be granted. Since most of the exemptions your retail stores are
   probably concerned with are the resale exemption and the limited exemption for
   religious and charitable institutions, perhaps the TC-721 language for these
   two types of transactions could be incorporated into the sales check,
   substantially reducing paper exemption verification.

6. Assuming that receipts and statements produced and stored
   electronically otherwise meet the criteria as outlined in Rule R865-19S-22
   (copy attached) for recordkeeping, such documentation will be accepted in lieu
   of "hard copy" documents if our concerns over language of the specific
   exemptions can be resolved.

If
I may be of further assistance to you, please feel free to contact me.

Respectfully,

W.
Val Oveson

Chairman

Enclosures

August
22, 1994

Mr.
W. Val Oveson

Chairman

• Office of the Commission

Utah
State Tax Commission

210
North l950 West

Salt
Lake City, Utah 84134

Dear
Mr. Oveson:

COMPANY
A is developing computer applications that will simplify its "point of
sale" information storage and retrieval procedures Specifically, COMPANY A
would like to electronically produce statements of exemption on sales receipts
and store the transaction to be retrieved at a later date to document sales
that are exempt from tax Utilizing these procedures, exemption statements will
appear on a computer screen at the "Point of sale" Customers will
sign computer generated statements using a computerized signature pad This
process will produce a customer signature on the computer generated receipt
Exemption statements; including customer signatures, obtained in this manner
will be stored in a COMPANY A mainframe computer

To
facilitate implementation of the above-described procedures, COMPANY A would
like to develop a single exemption statement for use in lieu of separate
exemption specific exemption forms to document exempt sales and use tax
transactions as required by your state's law The principal use of this
statement would be to document exempt purchases for resale and exempt purchases
by charitable and religious organizations, etc However, this statement would be
used whenever an exemption provision under your state's laws required COMPANY A
to obtain an exemption certificate showing that the purchaser is exempt from
tax

To
determine the feasibility of using a single, all purpose exemption statement in
place of recommended or prescribed exemption certificates in your state, we
would appreciate responses to each of the following inquiries.

1. Would a single, multi-purpose exemption statement on the
   salescheck be legally sufficient in your state to document exempt transactions
   requiring documentation in accordance with state law. YES

2. Assuming it met all statutory prerequisites could a single,
   multi-purpose exemption statement on the salescheck be used in lieu of all
   state prescribed exemption specific exemption forms? YES

3. If a single, multi-purpose exemption statement could not be
   used in lieu of all exemption specific exemption forms, could such a document
   nevertheless be used in place of some these forms? Which prescribed exemption
   statement forms could a single, multi-purpose exemption statement be used in
   lieu of? YES

4. Is the uniform sales and use tax exemption certificate
   adopted by the Multistate Tax Commission accepted in your state? YES

5. Would an exemption statement modeled after the Multistate
   Tax Commission exemption certificate containing the following information meet
   statutory requirements in your state governing the content of exemption
   certificates?

-
Signature of the purchaser or an agent or employee of the purchaser; OK

-
The name and address of the purchaser, OK

• The number of the seller's permit held by
  the purchaser;?

• A certification that tax will be paid by the
  purchaser if tax is found to be due and owing on the purchase; OK

• A statement indicating the nature of the
  exemption relied upon; and OK

• The date of execution of the document. OK

(An
example of a single, multi-purpose exemption statement proposed for use in your
state is attached - assuming the information indicated above is sufficient to
meet statutory requirements would this form be acceptable ?) If a single
multi-purpose exemption statement containing the foregoing information would
not meet statutory requirements what additional information would this form
need to include to be in compliance with state law? (Please indicate which
exemptions would require exemption documentation containing information in
addition to the foregoing, and what additional information such exemption
certificates would require)

6.
As noted previously, COMPANY A will electronically record and store receipts
and exemption statements on them In lieu of "hard copy" exemption
certificates, customer signatures will be electronically captured on computer
and will be stored in electronic form in a mainframe computer Consequently,
only computer generated copies of receipts with exemption statements, including
electronically produced signatures of purchasers. will be available for
inspection and review on audit. Assuming receipts and statements produced and
stored in this manner met all statutory perquisites as to content and format,
would the state accept such documentation in lieu of "hard copy"
certificates as legally sufficient documentation of exempt transactions as
required by statute?

Please
include blank copies of all state prescribed or recommended exemption
certificate formats (including resale certificates), and related instructions
with your responses to the foregoing inquiries This information should be
forwarded to the undersigned at the following address:

COMPANY
A

ADDRESS

CITY
STATE ZIP

Given
the potential exposure that would arise should COMPANY A improperly document
exempt transactions COMPANY A respectfully requests that your agency issue a
ruling or other formal response to the foregoing inquiries if, in the absence
of such formal action, its response to this correspondence would not constitute
a legally binding interpretation of law or for any other reason (other than a
change in applicable law) would not be applicable in future audits of COMPANY A
exempt transactions by your state Please let me know if any additional facts or
other information, or any additional submissions would be necessary to obtain a
binding determination with respect to this matter.

If
you have any questions or comments regarding the foregoing, or need any
additional information please contact the undersigned at #####. Thank you for
your assistance regarding this matter.

Sincerely,

NAME

Other
information in file

RESPONSE LETTER

August
4, 1997

NAME

ADDRESS

CITY
STATE ZIP

Advisory
Opinion - Electronic multistate exemption certificate.

Dear
NAME,

We have received your request for
reconsideration of our advisory opinion issued in 1995 concerning the
multijurisdictional exemption certificate developed by your company. As we understand your current proposal, the
certificate would be used only for the following transactions:

1. Sales
   to foreign diplomats

2. Sales
   to government entities

3. Sales
   to Native Americans and delivered directly to Indian lands.

4. Sales
   of farm equipment

5. Sales
   of more than $1,000 to religious or charitable organizations.

6. Sales
   to public or religious educational entities.

7. Sales
   for resale.

Your system requires the COMPANY A sales
associate to proceed through a number of steps to process an exempt sale. First, the associate pulls up an input
screen and types in purchaser information. Second, the associate pulls up a
second input screen and selects the appropriate exemption. This screen is specific to our state and
includes only the exemptions listed above.
Finally, the third input screen requires the associate to enter the
purchaser�s Utah sales tax number and other information, such as purchase order
number.

Once the required information is
entered into the computer, a printed form is placed before the purchaser for
signature. You have presented two model
forms for consideration. One

is
a certificate which has been endorsed by the Multistate Tax Commission. Our agency has already approved that form
for use. The other form is a is a
�generic� certificate developed by your company which shows the basis for the
exemption and the following statement:

Under penalty of perjury and the rules and regulations of
the below listed taxing jurisdiction I declare that the property described
herein, represented by the attached sales document, and purchases from COMPANY
A, is for a qualified use for which a tax exemption has been granted under the
laws of below listed taxing jurisdiction and I assume liability for all taxes
and penalties if I use or consume the property in such a way as to render the
sale subject to tax.

We are happy to approve any form
that meets your needs so long as it also meets our recordkeeping requirements. We assume from your description that the
generic exemption certificate is sufficiently tied to the sales transaction to
establish an audit trail. If so, that
answers our major concern.

Another concern that we have with
multijurisdictional forms in general is that they overlook the opportunity to
alert the vendor and the purchaser to the conditions imposed on a purchaser who
claims a sales tax exemption. Our
exemption certificate is designed to provide the vendor and the purchaser with
a general summary of the legal parameters of each of Utah�s sales tax
exemptions. By signing our form, the
purchaser verifies that he or she understands the exemption and verifies that
the transaction qualifies for the exemption under the limitations imposed by
law. Multijurisdictional forms do not
contain that kind of detail, and we are concerned that purchasers may subject
themselves to penalty situations by claiming exemptions in error. However, we concede that it is equally
important to be flexible with retailers who are moving toward a paperless
accounting environment. For that
reason, we encourage you to consider this issue as you develop your electronic
exemption certificate system, but we do not require that you adapt your system
to our �hardcopy� exemption certificate system. Therefore, we approve your generic form as outlined.

We appreciate your willingness to
work with our staff in the development of an improved electronic exemption certificate that we believe will meet the
needs of retailers and taxing authorities alike.

Please contact us if you have
further questions or comments.

For
the Commission,

Joe
B. Pacheco

Commissioner