Energy Tax Filers Survival Guide: The Benefits of Preparing Excise, Sales, and Use Tax Together

While fuel excise taxes are typically handled separately from sales and use taxes, more companies are realizing how combining these compliance processes can improve efficiency.


Midstream and downstream energy companies often need to collect sales and use tax in addition to motor fuel excise, environmental, and alternative fuel taxes. And in many cases, there are different departments involved in managing these complicated taxes which have rates and rules that vary by jurisdiction. Many states require sales and use tax collection on bulk fuel sales, while others require sales and use tax only be charged when there is an exemption from excise tax. Also, some fuel suppliers sell non-fuel products that are subject to sales and use tax. Due to the interrelationships between these taxes, many companies would find an integrated filing process beneficial to their business.

How are Excise, Sales, and Use Taxes Related?

Excise tax managers are responsible for filing multiple indirect tax returns and reports including federal, state, and local excise tax returns, environmental storage tank fees, and federal and state terminal operator reports. Sometimes an excise tax manager is also responsible for sales and use tax returns for both state and local jurisdictions. Having a single person responsible for these filings can be effective due to the need to handle inter-dependent taxes, such as gross receipts taxes (sales tax calculated on top of excise) and excise exempt transactions (sales tax required to be charged on motor fuels). Of course, depending on the company, there can be multiple filing processes and reporting requirements, along with multiple resources and systems required to manage these properly.

Since the same raw transaction data is used for both excise tax returns and sales tax returns, a combined process simplifies tax data management, increases filing productivity, and reduces tax-related errors. In addition, it is crucial to calculate both excise and sales taxes from raw transaction data and reconcile tax returns with invoices and accruals prior to filing. This enables the detection of invoicing and accrual errors, further improving tax accuracy and reducing audit liability.

Since most solutions for sales and use tax filing don’t support excise returns, tax managers often use a combination of manual, spreadsheet-based processes or use two different tax automation solutions for excise and sales tax returns. This complexity typically results in a range of challenges that limit the efficient management of excise, sales, and use tax filing.

The Challenges of Independent Filing Processes

Managing independent filing processes for excise and sales taxes can be problematic to your business. If multiple people and departments are involved in filing these returns, they likely are not communicating effectively to ensure that they are filing consistently based on the same transaction data. And, if your company is using one system or platform for their excise taxes and another for their sales and use taxes, they may be accessing different data extracts or need to make adjustments independently, increasing the risk of manual errors.

In addition to an increased opportunity for errors, managing independent filing processes for excise tax and sales and use tax can result in process redundancies and duplication of effort. When multiple people are involved, it is more difficult to have centralized ownership of tax responsibility and as your business grows, the process is less scalable. However, you may be able to improve productivity and reduce your risk of errors by enabling a single tax analyst to handle all returns easily, without the complexity or cost of spreadsheets or multiple tax solutions.

The Advantages of an Integrated Filing Process

While many companies use tax accruals to calculate taxes owed for a reporting period, both excise tax and sales tax should be determined independent of accruals based on the raw transaction data. This can provide a check against tax accrual errors and will improve tax accuracy

In an integrated filing platform, once transaction data is imported, built-in rules handle schedule determination and tax calculation. Tax managers can also configure sales tax nexus and provide custom mappings of product codes to tax codes. After taxes are calculated, all returns can be generated and can all be accessed within one

Filing processes for sales and use tax returns should be managed by the same customizable workflow and filing calendar used for excise returns. With one integrated process, once your internal approvals are completed, your returns can be printed for mailing or filed electronically.

With this process, sales and use return data can also be accessed for reporting, supporting easy tax analysis and audit support.

When evaluating integrated filing platforms for your business, you want to ensure that monthly tax rules, rates, and forms are current for both fuel, sales, and use tax, and are kept up-to-date to support on-going compliance. Tax and IT departments shouldn’t need to try to track regulatory changes to ensure tax calculations stay up-to-date.

In addition, it’s important that the system you choose supports signature-ready tax return generation for sales and use taxes at all jurisdiction levels, in addition to excise taxes. Another big advantage to one platform is taking one extract from your backoffice and having that one platform determine what is excise and what is sales and use tax. A single person can complete both returns for your business, without going back and forth between different tax systems.

Finally, when you choose a single integrated system that can handle both your excise tax and sales and use tax, you eliminate the need to manage multiple vendors. With one system and vendor, there is a single implementation, a single support center to contact and keep track of, and employee training for only one system.

Increasing Efficiencies with Integrated Filing

While fuel excise taxes are typically handled separately from sales and use taxes, this is an inefficient process. Due to the interrelationships between these taxes, an integrated process is much more efficient for any business. In addition, having a single platform where you can access data for both types of taxes, provides the necessary visibility to ensure consistency and minimize the opportunity for errors.

Many excise tax professionals may say, “Why should I care about sales tax? That isn’t my job,” or “I only care about my excise compliance process”. Conversely, sales tax professionals may be concerned that they could be responsible for making excise tax errors within an integrated process. But both professionals and more importantly, your business can benefit from an integrated system and platform that works to reduce errors, supports accountability, and helps streamline the monthly process of preparing your excise, sales, and use tax returns together. 

With Avalara, businesses can reduce implementation time and cost through available back-office integrations, built-in jurisdiction support, and a flexible scenario-based architecture to help accounting, finance, and tax professionals manage excise and sales tax compliance. 

If you are interested in adding sales and use tax to your existing excise compliance process, or if you are an energy company looking to manage your excise returns more efficiently, contact your Avalara Account Manager.

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