Unlike use tax accruals, you generally have very little control over what your vendors are doing from a sales tax perspective. Below are some of the more common and reoccurring invoicing issues we tend to see happening to our clients.
Do Your Vendors Do This?
Use the Buyer’s Address or Headquarters’ Address, Rather Than Ship-To Address
If you’re a multi-state company, it’s likely your buyer address and/or headquarters’ address will not always be the same as your ship-to address for many purchases. So, if your vendor fails to use the correct address information for their sales tax calculation, they’re likely to get the tax wrong from BOTH a rate and taxability perspective. As such, it’s always a good idea to pull and check some random invoices to see how often this might be happening with your organization. The results may surprise you.
Include Multi-state Sales on the Same Invoice
Due to different state and local nexus requirements, not all vendors have a filing obligation in every jurisdiction they sell products and services. Therefore, if a single invoice contains purchases going to multiple states, but that vendor only has nexus in a single jurisdiction, you’re likely to be charged too little tax on the invoice. If this type of scenario is common with your organization, you may want to contact the vendor and request that purchases going to multiple locations should not be co-mingled on the same invoice. This should allow your use tax automation to perform much better, as many organizations are not setup to accrue tax when tax is present on the invoice.
Charging Tax without any True Knowledge of Actual Use
Since many exemptions are “use-based,” it’s important to ensure your vendors have up-to-date exemption certificate information on file. It’s also equally important for your purchase information to clearly provide which purchases should be covered under the certificates. Failure to do either of these tasks is likely to cause your vendors to potentially charge tax unnecessarily. You’re then forced to either live with the over-payments or spend additional time and money to try to recover them.
Bundle Taxable and Nontaxable Purchases on the Same Line?
To make things easy on themselves, some vendors like to group or “bundle” multiple related purchases into a single invoice line. Although this may simplify their process, it can be costing you serious dollars. Since sales tax is a form over substance tax, when taxable and nontaxable items are bundled together, the entire line becomes taxable. Therefore, it’s always a good idea to pull and check some random invoices to see if you have vendors bundling your invoices. If so, contact them immediately to have them to stop.
Increase Your Chances of Accurate Tax Payments
If you’re not looking out for these situations, there’s a good chance they are happening to your company right now. These situations, and others, are more common than you think, and they can be a major reason for being under or overcharged on your invoices.
By using an audit tool like TaxView, you will be able to easily identify issues and ultimately prevent these vendor mistakes from harming your business.