Monday, August 03, 2009

The Process

Here is the entire process (at a very high level) for making sure you accrue for sales and use taxes.

- The user sends in requisition to purchasing.

- Purchasing orders and decides at that time on the taxability of the purchase (yes, purchasing makes the decision -- I hear wailing and gnashing of teeth).

- The vendor ships or performs service and bills you.

- AP reviews the invoice and the PO and determines if taxes were charged and if they needed to be charged.

- If taxes weren't charged, and item really is taxable (contact your vendor to make sure you don't over-accrue), then AP codes and enters the invoice with a debit to tax expense and a credit to use tax liability.

- The tax return is prepared by accounting and the use taxes on purchases come from the accrual by AP. You may want to have a system where AP forwards copies of accrued invoices to validate the accrual, but that's up to you.

Done. How hard was that? What could be simpler?

Oh, yeah. Purchasing is the one who gets to make that decision about taxability (there's the wailing and gnashing of teeth again).

Why? Because purchasing already knows what was purchased and how it is being used. These are two things that AP doesn't necessarily know, and it probably isn't obvious from the paperwork or accounting codes. So they have to contact Purchasing. Which annoys everybody. If purchasing knew what the rules were, problem solved. "But wait!" you say, "Purchasing doesn't know the rules." That's where a taxability matrix comes in handy (don't worry, future article).

Hmm, I wonder how many of you AP folk are emailing this article to your purchasing pals right now. Go ahead, you know you want to.

Sales Tax Guy

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