Common sales and use tax errors

2026-10-28 4 min read

Sales and use tax errors run in both directions. You can pay tax you did not owe, and you can fail to pay tax you did owe. Both leave a mark in your records. This article describes the common patterns and what to check. It is general information, not tax advice, and rules differ by state and by product. [VERIFY: current rules in each state where you buy or sell]

Tax charged on purchases that were exempt

If you buy goods for resale, or for a use your state treats as exempt, you normally give the supplier a certificate. If the supplier has no valid certificate on file, it may charge tax anyway. Check whether tax appears on invoices for items you believe were exempt. Then check whether your certificate reached the supplier.

Tax not charged, and not self-assessed

Use tax applies when you use a taxable item and sales tax was not collected at purchase. This often happens with out-of-state sellers and with items taken from inventory for internal use. Purchasers usually report it themselves. A common error is a purchase ledger with no process to spot untaxed invoices, so the tax is never reported. [VERIFY: use tax reporting method and filing frequency for your state]

Certificate problems on the selling side

If you sell to exempt customers, the certificate is your evidence. The Sales Tax Institute lists three typical faults:

Missing details, such as a date, a signature or a tax identification number
Wrong details, such as a mismatched name or an unaccepted signer
The wrong type of certificate for the transaction

Certificates also expire in some places. Track dates and ask for renewals before they lapse. If a sale is challenged and the certificate is defective, the tax may become your cost.

Wrong tax rate or wrong jurisdiction

Rates depend on where a sale is sourced, and they change. Errors appear when a system carries an old rate, or when an address maps to the wrong local authority. Compare a sample of invoices against the rates your system holds. Pay attention to new locations and to deliveries across state lines.

Taxing the wrong items

Some products and services are taxable in one place and not in another. Shipping, installation, software and bundled items are frequent trouble spots. When one invoice line covers several items, the tax treatment may differ for each. Review how your system classifies items, not only how it calculates the tax.

Credits and rebills

When you issue a credit, the tax on the original sale often needs to be adjusted too. A credit that skips this step leaves tax collected and never refunded, or tax remitted and never reclaimed. Test a handful of credit memos from each quarter.

A records review checklist

List the states where you buy, sell or deliver, and the registrations you hold in each.
Pull a sample of purchase invoices that show tax, and a sample that show none.
For untaxed purchases of taxable items, check whether use tax was accrued.
Match exempt purchases to certificates on file with each supplier.
For sales, confirm that every exempt customer has a complete, current certificate.
Compare the rates in your billing system with current published rates.
Test credit memos for matching tax adjustments.
Note where nexus may have changed, such as a new warehouse or employee in another state.

What a partner firm adds

Finding these errors across several years and several states takes specialist knowledge. A partner firm that reviews sales and use tax examines tax paid or accrued against the transactions behind it. Refund claims and corrections follow rules set by each taxing authority, including time limits. [VERIFY: refund claim time limits in the relevant states]

Our overview of accounts payable errors covers related controls on the purchasing side. To see how a request moves from you to a firm, read the how it works page.

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