Business use tax can arise when a business uses a taxable purchase and the appropriate sales tax was not collected. It belongs in the purchasing and accounting workflow, even for a company that makes few taxable sales. Review the item, location of use, tax already paid and any exemption before recording an accrual.
Key takeaways
A supplier charging zero tax does not prove that the purchase is exempt.
Review purchasing cards, employee expenses and inventory withdrawals as well as accounts payable.
Credit for tax paid elsewhere depends on the jurisdiction's rules and supporting evidence.
Reconcile accrued liabilities to reported and paid amounts each period.
Distinguish consumer use tax from tax collected on sales
Sales tax collected from customers and use tax on the company's own purchases have different source records. The first begins with sales invoices; the second begins with what the business acquired and used. New York's business use-tax bulletin describes situations including untaxed out-of-state purchases and taxable property withdrawn from resale inventory. Those are useful examples of exposures a sales-only review would miss.
The analysis is transaction-specific. An invoice with no tax might reflect a valid exemption, a nontaxable item or a supplier that did not collect a tax the buyer still owes. Mark it for classification rather than automatically multiplying every untaxed expense by one rate. The place of use, applicable date and item treatment must be identified before the amount can be calculated.
Build an untaxed-purchase review from all payment channels
Extract invoice lines from accounts payable with vendor, invoice number, purchase description, delivery address, cost center, asset or expense account, amount and tax charged. Add procurement-card transactions and employee reimbursements because those purchases may bypass the normal invoice process. Obtain the underlying receipt when a card feed contains only a merchant name and total; that total cannot show what was bought or how much tax was included.
Prioritize large capital purchases, recurring software, equipment sent to remote staff and suppliers that regularly bill without tax. A broad general-ledger label such as 'professional services' is not enough to classify an invoice that combines consulting and software. Keep a review outcome and explanation for each material exception, and assign follow-up requests to the employee who knows where the item is actually used.
Calculate the taxable basis and eligible credit
For a hypothetical taxable equipment purchase of $2,000 at an assumed 8% combined rate, the preliminary use-tax amount is $160. If $100 of tax already paid qualifies for a credit under the applicable rules, the remaining accrual is $60. If that payment does not qualify, the same subtraction would be wrong. Store the original invoice, destination and credit analysis next to the calculation rather than recording only the net amount.
Review whether delivery, installation or other charges belong in the taxable basis. When property moves between jurisdictions, determine whether a further liability, exclusion or credit applies; movement alone does not supply the answer. New York specifically discusses differences in local rates and credits in its business guidance. Do not transfer those state-specific rules to every other state without checking its authority.
Catch inventory withdrawals and changes in business use
Inventory purchased for resale can later be used by the business as office equipment, internal supplies, demonstrations or gifts. Record the withdrawal event with item, quantity, original acquisition cost, date and destination, then apply the relevant state's rule. An internal transfer has no customer checkout, so a sales tax engine may never see it. Link warehouse adjustments to the purchasing review instead of relying on sales reports alone.
Manufactured property and mixed business uses can have special valuation or exemption rules. A company making furniture for its own office should not assume that the retail selling price or raw-material cost is automatically the correct tax base everywhere. Record how the amount was selected and retain the applicable authority. This also prevents the accounting team from repeatedly reconsidering the same fact pattern without knowing the prior decision.
Post, report and clear the accrual with a traceable ledger
Use a workpaper that separates the purchase basis, calculated tax, eligible credit, net liability and reporting jurisdiction. Under the company's accounting policy, the offset may belong in an expense or in the cost of an asset. The payable should remain separately identifiable so it can be reconciled to the relevant return and payment. Ask the accounting owner to approve journal treatment rather than embedding it silently in a spreadsheet formula.
At period close, reconcile opening use-tax liability plus new accruals, less reversals and payments, to the ending balance. If a supplier later issues a corrected invoice with tax, investigate and reverse any duplicate accrual through a documented adjustment. Preserve the original and revised invoice together. Use the state's prescribed return or purchaser reporting process, and retain submission and payment evidence so an auditor can follow the purchase from receipt to settlement.
Frequently asked questions
Do I owe use tax whenever an invoice shows no sales tax?
Not necessarily. First determine whether the purchase and use are taxable, whether an exemption applies and whether qualifying tax was paid elsewhere.
Can a company owe use tax without selling taxable products?
Yes. Liability can arise from its own taxable purchases and use of property, independently of whether its customer sales are taxable.
How do I avoid paying tax twice?
Compare supplier tax and eligible credits before accruing, match later corrected invoices to the original purchase, and reconcile accruals to filed returns and payments.
Official sources
Reviewed against the following primary sources on Sep 18, 2026.