What is a sales tax matrix?
A good sales tax matrix will free your mind.
Product and Services
A sales tax matrix is a collection of products and services for your industry. Each product and service is tagged as taxable, nontaxable or exempt. Each tax tag has a reference to a state law or regulation that defines taxability of that product or service.
Sales Tax Base
A sales tax base is the market basket of products and services that is taxable. For example, some states tax food and some states do not tax food.
A sales tax matrix is organized by state. Each state defines what through legislation the taxability of products and services. States have power to change the tax base.
What are the qualities of a complete sales tax matrix?
A complete sales tax matrix will include products and service descriptions that are granular. Granular means the item description is very specific. Food is a general term. Confectionary food is a more specific term.
Granular product and service descriptions
Drilling is a very general term. A matrix with general terms is not a granular matrix. There are many types of drilling. A complete sales tax matrix will include specific descriptions of all types of drilling – mud drilling, MWD, LWD, directional drilling, conventional snubbing services-drilling bridge plugs, coiled tubing – Drilling to list a few examples.
Granular product and service descriptions improve confidence that the sales tax determination is correct.
Product and service descriptions that are specific for the oil and gas industry is a valuable condition of a good sales tax matrix. “Drilling” could include drilling for a water well. Drilling an oil or gas well is a specific type of drilling.
Not all cements are created equal
Cement is a prime example of the benefit of product differentiation. Portland cement used to construct a patio or driveway is usually taxable. “Cement” as a product description is incomplete for the oil and gas industry.
Cement used to cement the casing
“Cement” is a general term and can mean portland cement or an adhesive product. “Cement used to cement the casing” is an industry specific description of cement used in drilling and completions. Cement used to cement the casing in the wellbore is sales tax exempt in some states.
GEM Pyramid of matrix attributes
How do I use a sales tax matrix?
The Traditional Method
The traditional method of applying a sales tax matrix is manually mapping each product and service you sell to the matrix. If your company’s operations are multistate then each product and service you sell must be mapped to each state.
Each new enactment or amendment in sales tax law requires a change in your general ledger account. There are 45 states that impose a sales or gross receipts tax.
The Modern Method
The modern method uses artificial intelligence and machine learning software to automatically map your products and services to the matrix.
Mapping your products and services occurs only when you request a sales tax determination. The modern method allows your operations to grow without the upfront cost of the traditional manual method of sales tax mapping.
Each item in a matrix is updated with new enactments and amendments so there is no disruption to your accounting system.
The traditional method versus the modern method: paying for every item in a warehouse or buying only the items that you need at that time. Modern matrix mapping is like just-time-inventory for sales tax determination.
Digital Transformation can reduce business cost and audit risk
GEM Expert Matrix upstream for oil and gas service companies, vendors and suppliers.
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Susette is the founder of GeoInvoice which provides sales tax solutions for the mobile workforce. Susette patented location-based sales tax calculation for sales to locations that do not have an address. U.S. Patent No. 9,589,259 B2.
Location-based sales tax calculation was derived from Susette’s experience in managing upstream oil and gas sales tax compliance.
She has worked to deliver sales tax content and services to help the upstream OFS segment get sales tax rights. Susette’s sales tax knowledge comes from her tax professional roles in the oil and gas industry.
Susette received a BBA in Finance, Magna Cum Laude from Sam Houston State University. She is a certified public accountant and certified global management accountant. Member of the AICPA, Texas Society Of CPAs, Petroleum Accountant Society of Houston