Because Purchasing Cards are associated with a different purchase-to-pay (P2P) process than other payment methods, they also require a different approach to managing U.S. sales tax compliance. While tax is not a topic many people embrace, it can be satisfactorily addressed by focusing on basic sales tax concepts and P-Card transaction data. Your organization should involve the tax department to help establish a process that is both effective and efficient, while also allowing for P-Card program growth.
Additional Tax Content
About Sales Tax
Sales tax is generally collected by suppliers at the time a sale is made. The state in which the sale occurs, or the state where the goods are delivered, is the jurisdiction that imposes the tax. If all suppliers collected the sales tax on all taxable transactions in all states, there would not be any issues. However, not all suppliers collect sales tax in all states, creating the need for taxpayers to self-assess the use tax.
Obligation of Suppliers
Suppliers/merchants are only required to collect sales tax in the states where they have a physical presence or “nexus.” Nexus is created when a supplier establishes real estate, inventory, employees, vehicles, etc. in a state that imposes a sales tax. When a supplier sells to customers in other states (e.g., online purchases), there is a high probability that the supplier will not collect sales tax on those purchases. As such, the tax responsibility shifts to the buying organization.
Obligation of End-Users/Buying Organizations
The U.S. taxpayer (end-user/buying organization) must:
- identify transactions subject to use tax (the ones for which sales tax has not been collected by the supplier)
- accrue the tax
- remit the accrued amount to the state on the monthly sales tax return
P-Card Tax Help
Recharged Education worked with tax veteran Greg Anderson to compile the tax content within this website. He is happy to answer your questions about tax and P-Card programs. Please contact him at: firstname.lastname@example.org.
About Greg Anderson
Greg Anderson is a partner with Application Design Resource, LLP (ADR) and has over 20 years’ experience assisting clients implement tax management processes in P-Card programs. ADR has also created PCard Tax Manager, a software application that automates both the taxability determination and reporting for purchases made with cards. Additional educational material and an overview of PCard Tax Manager can be viewed at www.pcardtax.com.