What are Direct Pay Permits?
Purchasing a variety of supplies from one vendor is common practice for manufacturers. Some of these items may be exempt from sales tax while others are taxable. Working with vendors on the taxability of multiple monthly purchases is a headache!
One cure is to purchase everything tax exempt from vendors and then self-accrue use tax for taxable items. A direct pay permit allows companies to do this. But obtaining a permit is not easy and the permit holder should be aware of the requirements and risks.
Reduce the administrative work of determining taxability; collecting, verifying, calculating and/or remitting the tax;
Provide for improved compliance with the tax laws of the jurisdiction;
Provide for accurate compliance in circumstances where determination of taxability of the item is difficult or impractical at the time of purchase;
Provide for more accurate calculation of the tax where new or electronic business processes such as electronic data interchange, evaluated receipts settlement, or procurement cards are utilized;
Provide for more accurate determination and calculation of tax where significant automation and/or centralization of purchasing and/or accounting processes have occurred and applicant must comply with the laws and regulations of multiple state and local jurisdictions.
Also, in some states direct pay permits are not allowed to be used for every purchase. For example, they are usually not permitted to be used for motor vehicles, enumerated services, and many other transactions which are documented in the state statutes.
And remember to keep good records because it is the responsibility of the direct pay permit holder to maintain all of the records necessary to determine the correct tax liability has been paid.
Want to learn more about Direct Pay Permits? Cherry Bekaert is ready to help! Send us your questions and one of our sales tax experts will contact you.