Consumer Use Taxes and Why You Should Care About Them

Consumer use tax is a complementary or compensating tax to sales tax and does not apply if the sales tax is charged to the item you purchase. However, use tax should be applied to all purchases that are exempt from sales tax but are used in a taxable manner. Sound complicated? it is!

Use tax reporting has become more and more complicated over the years. As more and more county and city jurisdictions apply their sales tax on top of their state’s sales tax which ultimately impacts the use tax.

Why should you care about consumer use tax? All 45 states that have a sales tax also have a use tax, which in most cases are both the same rate but not in all states. Many times auditors see sales/use tax as low-hanging fruit when examining a business’s books.

Here are a few sales and use tax scenarios that can impact your business:

• You’re a manufacturer and you purchase components from another state and the seller did not charge sales tax for those components; you will owe tax for those components to your state.

• When you buy some goods that go into your inventory for resale, you don’t pay sales tax on those goods because that tax will eventually be collected when the goods are sold. However, if some of those goods are used for display or are used in your operation; then you will owe use tax on those goods. Because now have you become a “consumer” of those goods versus a reseller.

• There are also instances where you may have overpaid sales tax and are owed a refund. If you purchase goods in one jurisdiction and pay sales tax in the process and then use those goods in another jurisdiction. If the sales tax rate is lower in the jurisdiction than the one where you purchased the goods, then you are due a refund.

Each industry can have different tax obligations based on their product or service. For example:

• Software companies very often deliver software and cloud-based services all over the U.S. and with over 13,000 sales and tax jurisdictions in the U.S.; not having a good process and system to track each transaction can have a detrimental impact on the bottom line.

• Manufacturers face complicated sales and use tax obligations thanks to the nature of the varying rules around equipment, parts, drop shipping, consumer direct sales, installation and repair services, and direct pay permits. Also, different sales tax obligations for selling to B2B customers versus B2C customers.

These are just a few of the examples of where a sales tax software system can support the ins and outs of sales and use taxes.

NetSuite has partnered with Avalara and their AvaTax product. AvaTax works within the NetSuite user interface. Working with your existing NetSuite workflow processes accurately calculating sales and use taxes based on regularly updated tax data. AvaTax for Accounts Payable is a reliable, verifiable, and scalable way to assess and report the consumer use tax you owe. Click here to learn more about Avalara.

Interested in learning more about how AvaTax can help your business? Reach out to us directly to chat with your Zastro consulting team to learn more!