B. Exclude Transactions Where Supplier Collected Sales Tax

To identify transactions that can be excluded from the use tax accrual, the end-user organization can utilize a combination of basic sales tax rules and transaction data. It can generally be assumed that, if a cardholder makes a purchase from a supplier located in the same state, the supplier will collect sales tax on the taxable items. Also, certain transactions can be excluded based on the supplier type, as identified by the merchant category code (MCC) or similar code (e.g., SIC). For example, purchases from suppliers categorized as a restaurant, caterer, service station, fuel, cable services or utilities business are generally excluded because the assumption is these suppliers collected tax on those transactions. Numerous other reasons to exclude a transaction from the accrual may also apply, such as when a supplier passes Level 2 tax data.

C. Exclude Tax-Exempt Transactions  

This is particularly important for purchases of items used in the manufacturing process in the states that exempt items used or consumed in manufacturing. These items can include hand tools, ingredients, lubricants, machinery, and items that will be resold. Excluding these purchases can be accomplished using general ledger (GL) or cost center data, the name of the supplier, and comments (e.g., transaction notes) entered by the cardholder during the reconciliation process.

D. Calculate the Amount of Use Tax Due

Use tax is due on transactions for which there is no apparent reason to exclude them from the accrual. To calculate the use tax amount, the end-user organization should multiply the dollar amount of purchases by the applicable tax rate for each state and local jurisdiction. The organization would remit that amount to the state and local taxing authorities on the monthly tax return.