Many businesses don’t intentionally ignore sales and use tax requirements. In fact, most compliance issues develop gradually as companies grow, adopt new technology, or change the way they operate.
A new software subscription gets added. Equipment is purchased from an out-of-state vendor. An employee makes purchases using a corporate credit card. A new service line launches without anyone considering whether it’s taxable.
Individually, these situations may seem insignificant. Collectively, they can create years of unrecognized sales and use tax exposure.
The good news? Most of these risks are preventable once you know where to look.
1. Out-of-State Purchases
One of the most common audit findings involves purchases from vendors that did not charge sales tax.
Many businesses assume that if tax wasn’t included on the invoice, no tax is owed. In reality, the responsibility may shift to the purchaser through use tax.
Common examples include:
- Office furniture
- Computers and technology
- Manufacturing equipment
- Tools and supplies
- Software purchases
- Equipment ordered online
If your accounts payable process doesn’t identify these transactions, use tax can quietly accumulate for years.
How to reduce the risk: Review purchases from out-of-state vendors regularly and establish procedures for identifying invoices where sales tax was not charged.
2. New Products and Services
Businesses evolve over time. You may introduce consulting services, maintenance agreements, software subscriptions, or bundled offerings that didn’t exist a few years ago.
The problem is that taxability doesn’t always remain the same.
A product or service that wasn’t taxable yesterday may become taxable because of changes in state law—or because you’ve changed how you deliver it.
How to reduce the risk: Whenever you launch a new product or service, include sales tax as part of the planning process rather than addressing it after the fact.
3. Employee Purchasing and Corporate Credit Cards
Many organizations have strong accounts payable controls but overlook purchases made outside the traditional AP process.
Corporate credit cards, procurement cards, employee reimbursements, and online ordering platforms often bypass the normal tax review process.
As a result, taxable purchases can easily slip through without anyone recognizing a use tax obligation.
How to reduce the risk: Include credit card and reimbursement transactions in your periodic sales and use tax reviews—not just invoices processed through accounts payable.
4. Software, SaaS, and Digital Products
Technology has changed dramatically, and tax laws continue to evolve alongside it.
Software subscriptions, cloud-based platforms, digital downloads, and online training programs may all have different tax treatment depending on the state.
Many businesses assume these purchases are automatically exempt because there’s no physical product involved.
That’s often not the case.
How to reduce the risk: Periodically review your technology purchases and work with an advisor who understands how digital products are taxed in the states where you operate.
5. Exemption Certificates
Selling to tax-exempt customers doesn’t eliminate your documentation responsibilities.
If an auditor requests an exemption certificate and your business can’t produce a valid one, the taxing authority may assess tax against your company—even if the customer legitimately qualified for the exemption.
Common issues include:
- Missing certificates
- Expired certificates
- Incomplete forms
- Certificates that don’t match the transaction
Managing exemption certificates consistently can significantly reduce audit risk.
How to reduce the risk: Create a process for collecting, reviewing, and periodically updating exemption certificates before they expire.
6. Assuming Your Accounting Software Handles Everything
Modern accounting systems can automate many aspects of sales tax compliance—but they’re only as accurate as the information they’re given.
Software doesn’t automatically determine whether a new service is taxable, recognize when your business creates nexus in another state, or know when use tax should be accrued on an untaxed purchase.
Automation is a valuable tool, but it doesn’t replace periodic review.
How to reduce the risk: Treat your accounting software as part of your compliance process—not the entire process.
A Simple Sales & Use Tax Health Check
You don’t have to wait for an audit to identify potential issues.
Ask yourself:
- Have we purchased equipment or supplies from out-of-state vendors?
- Have we introduced new products or services in the past few years?
- Do employees regularly make business purchases using corporate credit cards?
- Have we added software subscriptions or digital services?
- Are our exemption certificates complete and up to date?
- Have we reviewed our sales and use tax processes recently?
If you answered “no” or “I’m not sure” to several of these questions, it may be time for a closer look.
Bottom Line: Small Issues Can Become Big Problems
Most sales and use tax assessments don’t result from one major mistake. They result from dozens—or even hundreds—of small transactions that go unnoticed over several years.
Regular reviews of your purchasing processes, taxability decisions, and internal controls can help identify issues early, before they become costly audit findings.
Not sure where your biggest risks are? Contact us today!
