The Overlooked Risk: Sales and Use Tax Compliance in Accounts Payable

When most people think of Accounts Payable (AP), they picture invoice approvals, payment runs, and vendor communications. But there’s a silent, often-overlooked responsibility within AP that can expose a company to serious financial risk: sales and use tax compliance. While it may not be a top priority for every AP team, failure to handle these taxes properly can result in costly penalties and time-consuming audits.

What Is Sales and Use Tax—And Why It Matters in AP

Sales tax is charged by vendors at the time of sale for taxable goods and services, and it’s collected on behalf of state or local governments. Use tax, on the other hand, applies when sales tax wasn’t collected—usually on out-of-state or online purchases. In these cases, the burden falls on the buyer (your company) to self-assess and remit the tax.

Since AP is responsible for processing payments, it’s often the last line of defense before money leaves the company—and the last opportunity to catch sales and use tax errors.

Common AP Mistakes That Create Tax Risk

AP teams, especially when understaffed or undertrained in tax, may unknowingly contribute to compliance issues. Common pitfalls include:

• Paying invoices without reviewing tax lines

• Assuming vendors always calculate tax correctly

• Failing to accrue use tax on tax-free invoices for taxable items

• Leaving tax responsibility entirely to purchasing or finance teams

Each of these mistakes opens the door to missed tax payments, which can be uncovered years later during a state audit.

Best Practices for Compliance

To reduce risk and improve accuracy, AP departments can adopt these practices:

• Educate AP staff on which items and services are typically taxable

• Use AP software that can flag invoices missing tax where expected

• Partner with tax or finance teams to establish clear tax review workflows

• Create use tax accrual procedures and document decisions for audit readiness

When and How to Accrue Use Tax

When an invoice doesn’t include sales tax but the purchase is taxable, AP should:

• Identify the taxable amount

• Apply the appropriate use tax rate based on the buyer’s location

• Accrue the tax amount in the accounting system

• Record supporting documentation, including why use tax was applied

This ensures the company remains compliant and avoids surprises during audits.

The Cost of Getting It Wrong

Incorrect or missing tax payments can add up quickly. State auditors may go back several years, and penalties often include interest and fees. In addition to financial risk, companies may face reputational damage with vendors, reduced negotiating power, and strained relationships with tax authorities.

Final Thoughts

Sales and use tax compliance may not be glamorous, but it’s essential. AP teams are in a unique position to prevent errors before they become liabilities. With a little training and a few smart processes, AP can become a key player in keeping your organization tax compliant—and audit-ready.

If your AP department isn’t reviewing sales and use tax today, it’s time to start. Your future self (and your tax team) will thank you.

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Robert Ruhno

Director

Accounts Payable Professionals Group