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Add Consumer Use Tax

This article applies to:Avalara AvaTax Update

The consumer use taxHoverTT.png enhancement allows accrued tax amounts to automatically flow to returns and AvaTax Update reports. Below are definitions, examples, and use case studies to give you a better understanding before you calculate consumer use tax or add a consumer use tax transaction.

AvaTax Update provides support for common scenarios clients encounter with consumer use tax transactions. For example:

  • You provide just the taxable amount of a purchase or inventory transfer and want AvaTax Update to calculate the tax amount to be accrued.
  • You've calculated and accrued the tax outside of AvaTax Update and simply want to include this tax amount on your tax returns and/or in the various AvaTax Update consumer use reports.
  • You've paid tax to the vendor but want to calculate or verify the correct amount of tax so that:
    • You can include any underpayment on your tax returns.
    • You can claim any overpayment as a refund from the vendor.

AvaTax Update consumer use reports calculate a tax variance amount for consumer use transactions. This tax variance is defined as “Tax calculated by AvaTax Update minus tax provided by user.” The tax variance may be adjusted in Returns for certain cases, such as overpayments (as in the third scenario above). Overpayments can't be claimed on your sales and use tax return because it represents tax paid directly to the vendor. In this case, the accrued tax amount passed to Returns would be $0.

Definitions

Here are a few terms to aid you in understanding how AvaTax Update handles consumer use tax.

Term

Definition

accrued tax

The amount of consumer use tax accrued for a period.

consumer use tax Transactional taxes paid by the buyer instead of the seller.

DocType

The type of document AvaTax Update processes. 

tax calculated

The tax amount for a transaction as calculated by AvaTax Update.

tax override amount

The tax override amount you entered on the transaction.

tax paid

The vendor tax paid for a transaction, entered as the tax override amount.

tax variance

Tax calculated by AvaTax Update minus vendor tax paid.

Examples

Example 1

You enter a purchase document with no tax override. In this case, AvaTax Update calculates the consumer use tax to be accrued. You can enter a negative cost amount when you want to credit a previously calculated or reported accrual. If you use Returns service, the calculated tax amount populates the tax amount on Returns.

  • AvaTax Update calculates tax
  • The resulting tax updates both tax calculated and tax paid
  • Tax variance calculated on consumer use reports is 0 (tax calculated minus tax paid)
  • Accrued tax reported on Returns equals the amount of tax calculated
  • If you import the purchase document with the import template, use process code 3 or 4

Example 2

You enter a purchase document with a tax amount override. In this case, you enter the vendor-paid tax as a tax override amount and it's compared to the tax amount calculated by AvaTax Update to determine if the correct amount of tax was paid. Never enter a negative cost amount because any tax differences related to these types of transactions need to be negotiated with the vendor.

If you import the purchase document with the import template, use process code 1 or 2.

There are three possible outcomes with this scenario:

Case 1

You paid the correct tax amount to the vendor. AvaTax Update performs as follows with no tax variance resulting:

  • Purchase amount is > 0
  • The AvaTax Update service calculates tax and updates tax calculated
  • Tax override amount updates tax paid
  • Tax variance calculated on consumer use reports is 0 (tax calculated minus tax paid)
  • Accrued tax reported on Returns equals tax variance
     

Purchase Amount

Tax Paid

Tax Calculated

Tax Variance

100.00

8.60

8.60

0.00

Case 2

You didn't pay enough tax to the vendor. The result is a positive tax variance that appears in the Tax Document Line Detail export report (found in Reports under both Sales Reports and Consumer Use Reports) in AvaTax Update.

  • Purchase amount > 0
  • AvaTax Update calculates tax and updates tax calculated
  • Tax override amount updates tax paid
  • Tax variance calculated on consumer use reports is greater than 0 (tax calculated minus tax paid)
  • Accrued tax reported on Returns equals tax variance
     

Purchase Amount

Tax Paid

Tax Calculated

Tax Variance

100.00

6.50

8.60

2.10

Case 3

You paid too much tax to the vendor. The result is a negative tax variance and only appears in AvaTax Update reports. The negative tax amount doesn't flow to the tax returns (for Returns customers) because any refund or credit must be obtained from the vendor.

  • Purchase amount > 0
  • AvaTax Update calculates tax and updates tax calculated
  • Tax override amount updates tax paid
  • Tax variance calculated on consumer use reports is less than 0 (tax calculated minus tax paid)
  • Accrued tax reported on Returns is adjusted to 0
     

Purchase Amount

Tax Paid

Tax Calculated

Tax Variance

100.00

10.00

8.60

-1.40

Example 3

You enter a purchase document with an accrued tax amount override into AvaTax Update. In this case, the goal is to simply pass tax accrued outside AvaTax Update for inclusion in the AvaTax Update reports and/or tax returns (for Returns customers). The cost amount for documents of this type must be zero (0). Enter a negative tax override amount when you want to reduce a previously reported accrual.

  • Purchase amount = 0
  • Accrued tax override amount is stored as tax calculated
  • Tax paid is set to 0
  • Tax variance calculated on consumer use reports is tax calculated minus tax paid, and equals the amount the user passed
  • Accrued tax reported on Returns equals tax variance
  • If you import the purchase document with the import template, use process code 5 or 6
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