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CCH Whitepaper: Self-Assessment of Consumer Use Tax

Overlooking consumer tax could end up costing you an audit.

October 29, 2009
Sponsored by CCH

For most companies, the imposition of sales tax is a normal part of business operations. However, consumer use tax is often overlooked, leading to costly transactional audit penalties and interest, or unnecessary overpayments. Consumer use tax associated with untaxed purchases often represents the greatest portion of a transactional audit assessment for many businesses. Consequently, allocating resources to ensure accurate consumer use tax reporting is not only advantageous in terms of trying to follow state and local use tax law, but it is also wise from a management and financial perspective as well.

Over time, most companies become fairly knowledgeable with respect to the taxability rules of their own products and services, and today’s fairly robust sales tax software technology increases the level of sales tax compliance even more. On the purchase side of a transaction, however, the same level of taxability knowledge may not exist. Purchase transactions that flow through an accounts payable system may not only be more complex from an implementation standpoint, but they are often given less priority by the relevant decision makers because they don’t directly impact customers or revenue. These “internal,” back-office transactions may not get the attention that is needed or they are sometimes ignored altogether.

Ironically, for businesses that do attempt to address consumer use tax reporting, the responsibility of deciding which purchase transactions are subject to use tax and which ones are not is often shouldered by the accounts payable department rather than by qualified tax professionals. This approach may make sense from a workflow perspective, but it is problematic because accounts payable personnel are usually not tax experts; consequently, the risk of either under or over self-assessing consumer use tax is high.

Because a manual process is both labor-intensive and error-prone, an automated consumer use tax reporting system is actually more cost-effective than it may initially appear. This whitepaper examines self-assessment and reporting of consumer use tax and offers practical solutions for economically automating the process.

Read more of this whitepaper online.