Taxable purchases are one of the most misunderstood topics as it relates to sales & use tax. While it is a line item on almost all sales & use tax returns, most business owners do not know what they are.
Taxable purchases are taxable items or services that you purchase for your own use for which the vendor has not charged the appropriate sales or use tax. If the vendor doesn’t charge the appropriate sales tax, you must accrue use tax and remit it to the applicable taxing authority. For more information, view the video below.
When reviewing taxable purchases, business owners should:
1. Confirm that the vendor charged the appropriate sales or use tax. If you do not know, do a little research. Information regarding taxability can be obtained from various sources, including the applicable taxing authority personnel, website, etc.
FYI- A good rule of thumb is when making purchases from an out of state vendor (who may not be permitted to collect the tax in your jurisdiction) is to research if a vendor located in your state would have charged sales tax on the purchase.
For big purchases, consider asking a state consultant. I consider a purchase to be “big,” if paying sales tax later would be a hardship.
Another tip is your vendor may not charge sales tax because they are not registered to collect sales or use tax. This is a common issue. You can make this a non-issue by remitting sales or use tax on your own behalf.
2. Once you have calculated what should be reported to the taxing authority, verify what the applicable tax rate is for your jurisdiction. Also, make sure that all taxable items and services are included in the amount that is being reported as taxable.
3. Report taxable purchases in the designated section of your sales & use tax return and remit the use tax when you file your return.
4. Maintain all documentation relating to purchases reported on the sales tax return for at least the statute of limitations in your jurisdiction.
Every business has taxable purchases. It is important that you understand what they are and report them to the taxing authority.
If need more information on taxable purchases visit, Don’t Forget Use Tax!
For a class on how to complete your Texas Sales and Use Tax Return, visit Understanding Your Texas Sales and Use Tax Return
Our mission to provide a resource so business owners, accountants and bookkeepers can understand sales & use tax compliance. We know that sales and use tax laws are not the easiest to understand. Our focus is on empowering you with a framework and general understanding, so you know what questions to ask and where to go to get the information you need to stay on the right side of sales and use tax compliance.