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Consumer use tax scenarios

This article applies to:Avalara AvaTax Update

AvaTax Update provides support for common scenarios where you might want to calculate consumer use tax on a transaction:

  • You want AvaTax Update to calculate the tax to be accrued on a purchase or inventory transfer
  • You've calculated and accrued the tax outside of AvaTax Update, and want to include it on your tax returns or in AvaTax Update consumer use reports
  • You've paid tax to the vendor but want to verify your tax calculations so you can include underpayment on your tax returns or claim overpayment as a refund from the vendor

AvaTax Update consumer use reports calculate a tax variance for consumer use transactions, which means tax calculated by AvaTax Update minus tax provided by the user. The tax variance may be adjusted in Returns for certain cases, such as overpayments, which can't be claimed on your sales and use tax return because they represent tax paid directly to the vendor.

Terms related to consumer use tax

Scenario 1: No override, AvaTax Update calculates tax as normal

When you enter a purchase document with no tax override, AvaTax Update calculates consumer use tax accrued by the transaction. This includes both the tax amount for the transaction and the vendor tax paid, which should be equal to each other. If you use Returns, the calculated tax is automatically used on your returns.

To credit a previously calculated or reported accrual, enter a negative cost amount. If you import the purchase document, use process code 3 or 4.

Scenario 2: If you've already paid, override the tax amount

If you've already paid some consumer use tax, override the tax amount in the purchase document with the amount of tax you already paid. If you've underpaid, the difference between what you paid and what you needed to pay is reported as a tax variance in your reports and returns. Never enter a negative value as a tax amount override.

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

There are three possible outcomes with this scenario:

  • You paid the correct tax amount to the vendor. Tax is calculated and shows up in reports and returns as normal.
  • You didn't pay enough tax to the vendor, resulting in a positive tax variance that appears in the Tax Document Line Detail export report in AvaTax Update and on your returns in Returns. Pay this remaining tax when you file your returns.
  • You paid too much tax to the vendor, resulting in a negative tax variance that appears in AvaTax Update reports, but not Returns. If you want a refund or credit of some kind, get it from the vendor that you overpaid.

Scenario 3: If you've already calculated, override the accrued tax amount

If you've already calculated the consumer use tax outside of AvaTax Update and just want it included in AvaTax Update reports and Returns, override the accrued tax amount when you add the transaction to AvaTax Update. The total line item cost on a transaction with an accrued tax amount override has to be zero.

To reduce a previously reported accrual, enter a negative tax override amount. If you import the purchase document with the import template, use process code 5 or 6.

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