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Calculating Sales and Excise Tax on the Same Invoice

  • Aug 17, 2016 | Gary Davis

Fuel distributors pay excise tax. Retailers collect and remit sales tax. But what happens when both excise tax and sales tax must be collected on a single invoice? Suddenly an already-challenging calculation can become a profoundly complicated process.

To see what I mean, take a look at the following video to see how one simple transaction can easily send a sales tax-centric ERP into overdrive:

For fuel companies, understanding the nuances that differentiate these two very different types of taxes is critical to achieving compliance

First, there’s the sticky business of calculating excise tax based on fuel volume and sales tax based on a percentage of the product price. Then, in some jurisdictions, excise taxes must be determined first so they can be factored into sales tax calculations — a complex equation often referred to as “tax on tax.”

Even MORE complicated: When incorporating excise and sales taxes into a single invoice, a number of state-specific variables that are unique to the fuel industry can surface at any time. Because each jurisdiction takes its own approach to excise taxes and sales taxes, the requirements can change frequently for a company that sells products in multiple municipalities.

For example:

  • In California, a tax engine may need to apply different requirements to the same product depending on how it’s altered or refined. Pure biofuels, for instance, are subject only to excise tax until they’re blended with fossil fuels—at which point both excise tax and sales tax must be applied.
  • A fuel company that sells lubricants will need to be prepared to calculate both excise tax and sales tax in states like Alabama and Texas, but only the excise tax in nearby Arkansas.
  • In some states, excise tax must be rolled into the product price first so that sales tax can then be calculated as a gross receipts tax. Other states require all excise taxes and fees at both the federal and state levels to be tallied individually.

The differing rules and regulations mean that the same excisable product transaction can undergo wildly different calculations depending on the jurisdiction. Yet for all its complications, mastering these multi-tax challenges is critical for any business where day-to-day operations involve filing both excise and sales taxes.

For more details on the challenges associated with dual tax calculations, download our new white paper: The Multi-Tax Challenge of Managing Excise Tax and Sales Tax. This complimentary resource goes into detail about:

  • The 4 Critical Challenges of Multi-Tax Complexities
  • State-Specific Examples of Excise Tax and Sales Tax Calculations
  • Multi-Tax Coping Strategies for Compliance

Download the white paper here.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Gary Davis
Avalara Author Gary Davis
Gary Davis is the Senior Product Manager in the Excise Tax Division at Avalara. He has more than 20 years of software industry experience as a programmer, business analyst, support specialist, pre-sales systems engineer, and product manager. Prior to joining Avalara, Gary was a product manager at FuelQuest, where he led several fuel order management, pricing, and business intelligence initiatives. Gary holds an MBA degree and a B.S. in mathematics.