Effectively addressing sales and use tax requirements for a U.S. card program is one of those foundation elements that can nag at an organization for years. Even if you have a strategy in place, you might be looking for something different. This is why Recharged Education invited industry veteran Robin Anderson to share her insight. Earlier in 2023, Robin spoke at the Annual NAPCP Commercial Card and Payment Conference about sales and use tax and how to automate the process for all payments.
Options for Managing U.S. Sales and Use Tax
by Robin Anderson
When I started a purchasing card program years ago, I worried about how I was going to handle the sales and use tax. I approached my boss with questions around the current tax process. He understood my position and questions, and he was used to me coming up with solutions. He mentioned the state tax auditors were coming in the next week and opened a door for me to consult with our internal tax accountants.
Do you currently have a card tax strategy in place for your company? If not, now is the time to delve into this issue and the best way to pass an audit in the future. Based on my experiences, following are things to consider. Since I am not a tax advisor, I strongly suggest you work with your tax team and/or tax attorney before making any changes to your existing process.
Strategies
Most companies only have the strategy of point-of-sale tax capture. If your company allows the supplier to charge the sales tax, then your company can be overpaying, underpaying or improperly paying taxes.
Example: A book bought for research purposes will be non-taxable, but a periodical such as the Wall Street Journal is taxable. Your supplier typically will charge tax for both.
Below are suggestions to get you started thinking about what can be done.
Do you currently have a sales/use tax strategy for other payments today, such as Taxware, Vertex or some other method? If you do, think about your card feed interface directly to your aged-trial-balance rather than directly to final posting to the general ledger (GL). Interfacing to a tax system already in place can use the same logic to ensure all payment types are using the same strategy.
Macro tax, or sometimes called estimated tax, is a solution I created while I was at Reynolds Metals Company (now ALCOA). This solution, which can be applied to all of your payment types, will self-assess your taxes.
Your ERP/financial system will ensure your expense types have the taxable/non-taxable indicator, so all payments can be automated. Then it will calculate the payable tax once a month. Each state will typically grant you the ability to follow this method to pay your taxes.
Keep in mind you will need a tax-exempt number to provide to suppliers to not charge tax. When I implemented the macro/estimated tax method for my company, I had the tax-exempt number imprinted on each purchasing card, and I gave each cardholder a tax-exempt certificate they could keep with them to present to the suppliers from which they were buying. For companies such as Walmart, Home Depot, Lowes, etc., I suggest you have this negotiated for the locations your employees will be frequenting to make their purchases.
There is a lot to consider when implementing a tax solution. To discuss sales and use tax strategies further, please contact me at (804) 305-2600 or robinfanderson@gmail.com.
About Robin Anderson
Robin's experience as a practitioner with Richmond-based Reynolds Metals Company (now ALCOA) propelled her business consulting career. Her background in purchasing, accounts payable and travel has helped many clients in all industries. She also developed a sales/use tax strategy adopted by many large and mid-sized companies, and she created the concept of buyer initiated payment (BIP) for American Express.
Robin earned her MBA and BBA at Averett University and, in 2017, earned her APPM (Accredited Procure-To-Pay Manager) honor. She has worked for several providers, including JPMorgan Chase, American Express, Truist, MUFG Union Bank and Texas Capital Bank. Robin is available to help clients directly with business consulting needs. Contact her at (804) 305-2600 or robinfanderson@gmail.com.
Photo by Alexander Grey on Unsplash
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Lynn Larson, CPCP, is the founder of Recharged Education. With more than 20 years of Commercial Card experience, her mission is to make industry education readily accessible to all.