Sales Tax | Use Tax
The tax nobody invoiced you for is still yours.
An out-of-state vendor with no obligation in your state does not charge you tax. The purchase is still taxable, and the liability moves to you as use tax you accrue and report. Bills are screened when they are captured, so the accrual builds through the period instead of being reconstructed from a year of invoices in the week before a filing.
What the system does
Capability, input, output.
| Capability | Input | Output |
|---|---|---|
| Screen at capture | Bill lines with no tax charged | Candidates flagged against the taxability of that item in that state |
| Accrue | A confirmed taxable purchase | Use tax accrued to the period and posted to the ledger, with the bill attached |
| Ship-to sourcing | Where the goods or services were used | Accrual assigned to the state that has the claim, not the billing address |
| Partial tax handling | A bill charged tax at a lower rate | The difference accrued, rather than the line being treated as covered |
| Fixed asset purchases | Capitalised items bought untaxed | Flagged as the highest-value category, since these are what audits open with |
| Return feed | Accruals for the period | The use tax figure on each state return, traceable to the bills behind it |
-
Screen at capture
- Input
- Bill lines with no tax charged
- Output
- Candidates flagged against the taxability of that item in that state
-
Accrue
- Input
- A confirmed taxable purchase
- Output
- Use tax accrued to the period and posted to the ledger, with the bill attached
-
Ship-to sourcing
- Input
- Where the goods or services were used
- Output
- Accrual assigned to the state that has the claim, not the billing address
-
Partial tax handling
- Input
- A bill charged tax at a lower rate
- Output
- The difference accrued, rather than the line being treated as covered
-
Fixed asset purchases
- Input
- Capitalised items bought untaxed
- Output
- Flagged as the highest-value category, since these are what audits open with
-
Return feed
- Input
- Accruals for the period
- Output
- The use tax figure on each state return, traceable to the bills behind it
Use Tax FAQ
What buyers ask.
Nobody has ever asked us about use tax. Does it matter?
It is under-reported almost everywhere, which is exactly why state auditors like it: it is reliable ground to find something on. Untaxed purchases are usually the first schedule requested in an audit, because most companies have no accrual process at all and the auditor knows it.
Is this the same as reverse charge?
Structurally similar, commercially not. Both make the buyer account for tax the seller did not charge. Under a credit-based system a reverse charge often nets to nil because the buyer recovers the same amount as input tax. US sales tax has no credit chain, so accrued use tax is money that leaves. Treating it as a paperwork exercise is how it becomes an assessment.
How does it know whether a purchase was taxable?
By screening the bill against the taxability position configured for that item category in that state, which is the same configuration the sales side uses. It flags candidates rather than deciding silently. The judgement calls come to a short review queue instead of every bill needing a human.
What about software and cloud services?
The most common source of missed accruals, and the hardest, because whether a subscription is taxable turns on the state and on how the service is delivered. Those lines are flagged for a decision rather than assumed either way, and the decision is recorded against the vendor so it applies to the next bill.
Does it cover expense claims and card spend as well?
Yes, through the same screen. Card spend is where untaxed taxable purchases hide most effectively, because nobody reviews a stack of small receipts for a tax that was never charged.
More in Sales Tax Compliance
Related features
Forward your last 50 bills. See the use tax candidates.
Connect your books, free. Bills with no tax charged are screened against your states, and the accrual is built from the ones that qualify.