Confused about sales and use tax laws? You are not alone! There are nearly 10,000 different taxing jurisdictions in the United States alone, and often each with their own set of rules. There are a wide variety of purchases to consider: materials for your products, maintenance on your machines, energy to run the machines and facility, computers and software, the list goes on.
Many, if not all, state budgets rely heavily on the sales tax they collect and they know they aren’t receiving all the tax dollars they are owed. Learning to play—and pay—by the rules can help keep your company out of the audit cross-hairs and positively impact your bottom line.
Sales tax is a tax imposed by the state at the point of sale—on the invoice or receipt from the register—collected by the vendor and submitted to the appropriate state’s Department of Revenue. It is due in the state where the product was received, or where the services were performed. Vendors are required to charge sales tax, unless they have no nexus in the state in which the goods are being delivered.
Use tax is self-imposed by the purchaser and accrued, to be paid on a quarterly basis to the appropriate state. It is due in the state where the material was used. Use tax is designed to allow businesses to buy materials without tax, store or inventory them, and then self assess use tax to the appropriate taxing jurisdiction at the time that they use or consume those materials and has become much more relevant with internet sales. In many states, use tax remittance is different than sales tax remittance and is submitted under a different certificate number.
Taking a detailed look at accounts payable and receivable can reveal both exposure and opportunities. Some areas of exposure include: lack of use tax certificate, filing goods consumed incorrectly, incorrect interpretation of exemption codes, failure to submit exemption certificates and filing incorrectly in other states.
Opportunities include missing exemptions, paying tax on exempt services or overpaying sales tax to a vendor. Manufacturers are typically provided with a lot of exemption opportunities and may easily miss some of the exemptions available to them.
Spending the time to take a deeper dive into these areas can lead to the opportunity for refunds of overpaid sales tax and best practices can be developed to prevent the overpayment of tax going forward. BerganKDV has a Sales and Use Tax Manager in-house that can help companies assess their sales and use tax compliance. Contact your BerganKDV representative to learn more.