Q&Ablog-auditsandmore

We receive a lot of questions about sales and use tax compliance. One area that causes confusion is the relationship between sales and use tax. For example:

What should I do when a customer asks me to credit sales tax on an invoice because they are paying the use tax on their own? Can I, as the seller, credit the tax and point to the email as evidence of due diligence?

It’s a good question. All states that impose sales tax also impose use tax. Use tax is owed to the state whenever sellers don’t collect sales tax at the point of sale (as when the vendor does not have nexus with the state and is therefore not required to collect). Sales and use tax rates are the same in most states, but that isn’t always the case. In Missouri, for example, most combined use tax rates are lower than the combined sales tax rates.

Sellers with nexus are obligated to collect sales tax unless the buyer provides a valid exemption or resale certificate. Exemption certificate rules vary by state, and auditors base their decisions on the state rules.

An email stating the buyer’s intent to remit use tax may be well-intentioned, but it may not hold up in an audit. Certain states, like Virginia, are starting to hold sellers accountable for uncollected use tax, meaning a seller could be held liable both for not having a valid exemption certificate on file and for the unpaid use tax.

Some purchasers — typically large companies — do have a direct pay permit, which is authorization from the state to pay tax directly to the state rather than to the seller.

However, a company cannot just decide to pay sales / use tax on its own rather than paying the seller. They must have permission from the state to do that, and sellers should see proof of that permission before granting an exemption.

Have a question of your own? Ask it here.