Sales and use tax overview

Depending on where you do business, you might need to collect and report on sales and use tax in Accounts Receivable, Order Entry, or Purchasing.

About sales tax

While there's no federal sales tax, most states in the United States, plus the District of Columbia, impose a sales tax on retail sales and some services. Most states also allow counties, cities, and other local areas to levy a sales tax.

There are approximately 8,000 state, county, and city jurisdictions in the U.S. that charge a sales tax. Some states, such as Florida, Texas, and California, tax services in addition to tangible items.

Businesses are required to collect sales tax in the following cases:

  • The customer is in the same state
  • The business has an economic nexus in the customer's state

Tax rates vary between states and also on what goods and services are taxable. For example, food is not taxed in some states. Clothing might have a lower tax than other items in the same state. In addition, most states allow counties, cities, and other local areas to levy a sales tax, too. So, businesses must keep records of sales in each city, county, and state in which they do business.

About use tax

Use tax is applied when sales tax is not collected or differs from the tax owed in the jurisdiction where goods are used. Businesses are required to account for use tax in the following cases:

  • You purchase goods in one state or province but use them in another jurisdiction with different tax rates.

  • Vendors do not charge sales tax at the time of purchase, requiring you to self-assess use tax.

Use tax rates generally mirror the applicable state and local sales tax rates. Businesses and consumers are responsible for determining whether use tax applies and for maintaining records that support accurate reporting and remittance. For example, if a business purchases equipment from an out-of-state vendor that does not collect the required tax and then uses that equipment in a jurisdiction where tax is due, the business may be required to calculate and pay the corresponding use tax.

Sales tax calculation methods

Sage Intacct offers three very different approaches to applying sales tax during transaction entry: Simple, Advanced, and AvaTax.

The tax calculation method that you decide to implement depends on the number of jurisdictions for which you must collect taxes, the locations of your customers, and the types of goods you sell.

  • Simple Tax: Manually calculate and enter a tax amount in the subtotals section for invoices in Accounts Receivable. You can automatically or manually apply a flat tax (an amount or percentage) for transactions in Order Entry and Purchasing.

    If you sell similar goods that all have the same tax rate in one geographic area, Simple Tax might be a good solution.

  • Advanced Tax: Automatically calculate sales tax for transactions in Order Entry and Purchasing. You set up and maintain the tax jurisdictions and tax rates in Intacct using tax groups, tax details, tax schedules, and tax schedule maps. Taxes are automatically determined in the applicable transactions.

    If you sell goods and services in a limited area, perhaps one or two states, and you can easily keep track of the different tax jurisdictions and tax rates, Advanced Tax might be a good solution.

  • Avalara AvaTax: Automatically calculate sales tax for transactions in Accounts Receivable, Order Entry, and Purchasing. When you use the AvaTax integration from Avalara, Avalara is responsible for managing and maintaining all the tax rate tables for the different jurisdictions. Taxes are automatically determined in the applicable transactions by Avalara, who calculates the taxes on their system.

    If you sell in all 50 states in the United States and must collect taxes from them along with many counties and cities, AvaTax can provide a more cost effective tax solution that alleviates your administrative overhead.

With either Advanced Tax or the AvaTax integration, variable tax rates are automatically applied in Accounts Receivable, Order Entry, and Purchasing. The difference between these two tax methods is the amount of work that you have to do. Although Advanced Tax is included in your subscription and Avalara charges you for using their system, price-performance considerations favor AvaTax for the more complicated tax situations.

In companies that do not have a Taxes subscription, you can use Advanced Tax in Accounts Receivable, Purchasing, and Order Entry. If your company is subscribed to Taxes, you can only use Advanced Tax in Order Entry and Purchasing.

Sales tax in multinational organizations

If you are a multinational organization, you might have entities in which you need to capture sales tax and entities in which you need to capture VAT or GST.

You can use the Taxes application, which supports using different tax solutions in different entities. You set up tax solutions that use Advanced Tax, Avalara AvaTax, or both and assign those tax solutions to the entities in which you need to capture sales tax. You set up VAT and GST tax solutions and assign those solutions to the entities in which you need to capture VAT or GST.

For example, if you are headquartered in the United States and have foreign subsidiaries in the United Kingdom, you can set up Avalara AvaTax for your entities in the United States and use the pre-configured United Kingdom VAT tax solution for your entities in the United Kingdom.

With the Taxes application, Advanced Tax is not supported in Accounts Receivable.