Find the answers to common questions about consumer use tax and Avalara Consumer Use.
What is consumer use tax?
It is a tax that is self-assessed, reported and paid by the purchaser of those goods. It is most-commonly managed and reported by the tax manager or tax department, but sometimes by the purchasing agent or accounts payable manager or team.
If my vendor charges tax on my purchase, is that considered consumer use tax?
No, the tax that your vendor includes on the invoice for your purchases is sales tax.
What is the difference between consumer use tax and seller’s use tax?
Consumer use tax is determined after (sometimes well after) the purchase, and is representative of the ultimate and accurate use and location that the product was used or consumed. It is paid by the purchaser directly to the state and/or local taxing authorities. Seller’s use tax is determined and collected by the seller (similar to sales tax) and does not factor in the actual use, purpose, and location where that product was used or consumed.
Can consumer use tax be accurately determined at the time of purchase?
It sometimes can, but the best approach is to have a monthly process using the Avalara Consumer Use module. This will insure accurate capturing and reporting of all scenarios that trigger consumer use tax liability. The Avalara Consumer Use module also uncovers instances where overpayment of tax on purchases are occurring, resulting in significant cost reduction over time.
What is variance calculation in Avalara Consumer Use?
Variance is the difference between the calculated consumer use tax in the tool and the amount of vendor paid tax reported for the transaction.
How is variance calculation done in Avalara Consumer Use?
Variance calculation takes place in three steps during the initial transaction import and after any activity in the user interface which may change the line item taxability:
- Based on the original line item, recalculate the sales tax that the vendor should have paid (assuming that the vendor has nexus in the destination jurisdiction). If the sales tax calculated is less than the vendor reported tax, the positive difference of these two values becomes the variance of a vendor overpayment.
- If the vendor paid tax is less than the calculated sales tax from Step 1, calculate the consumer use tax that the buyer should owe on the line item. This is necessary because consumer use tax can be less than sales tax.
- If the consumer use tax calculated in Step 2 is greater than the vendor's reported tax for the line item, the variance is the reported amount minus the calculated amount. This is the default value to be accrued as consumer use tax liability if this line item is committed.
Is it necessary to set up Avatax for using Avalara Consumer Use?
Yes, Avalara Consumer Use is an add-on for AvaTax, so make sure you have set up AvaTax.
What is master data in Avalara Consumer Use?
Avalara Consumer Use utilizes a concept called Master Data, where essential information about entities, locations, or products are stored independently of transaction records. Once stored, Master Data records can be cross-referenced to automatically pull in other information whenever a specific transaction value enters the Avalara Consumer Use system.