Do the Taxes and Do the Time
Did it ever occur to you, as a fleet manager, just how many hours are spent, either by you or one of your purchasing staff, dealing with sales
tax? I am referring to the time spent figuring out how to enter the sales tax, using a computerized Purchase Order system, and have the total match the invoice from all the
vendors dealt with during the course of a year. Sound like a petty gripe? Does your accounting department insist that the P.O. total amount and the invoice total
amount match? Ok, you receive your parts, close out the Purchase Order, look at the totals, and they don't match. What do you do? Savvy programmers say it is near
impossible to create a program to handle all the variables involved to make it happen.
Do you think your computerized purchasing system handles the sales tax calculation properly? Chances are it does not and you let it go,
thinking it's just pennies and you definitely have bigger issues to worry about. However, it is a labor problem if you want accurate accounting of unit cost, and it gets bigger as
the number of vendors you deal with increases. Recent inquiries show the average number of vendors listed for a fleet size of 100 power units is close to 100 vendors,
from multiple states. Out of this number, 10 or 15 vendors are used regularly while the others are used for specialty items or are listed just in case.
In most fleets the accounting department does not deal with unit cost as you do in your maintenance program, they just add total invoice amounts to
account codes in a general ledger. Their main concern is that everything balance to the penny. Therefore, the total of your unit cost numbers, or your facility
cost numbers never come close to matching their numbers. Here's some of the reasons why when it involves calculating sales tax on parts. If your computerized purchasing system
calculates sales tax on each line item and your vendor calculates sales tax on the total amount, then the odds are the sales tax amount will vary. It can vary from a few cents to
several cents depending on the number of line items. What if the vendor rounds every sales tax calculation up to the next cent regardless of whether it is greater than $.05 or
not. It happens more than you think. What about sales tax on freight? Some states charge sales tax on freight and others do not. Do you add freight charges to the
price of the part? Do you include the sales tax? Do you know which vendors in which states are adding sales tax to freight? To get the sales tax calculated right, it
takes somebody's time to look at each invoice and figure out how to handle each vendor, and then remember or record how it was accomplished. It's just labor, right?
Getting the correct price to charge out on a work order from your inventory can be difficult. It really does not matter which inventory method you use.
LIFO, FIFO, or weighted average, they are all affected. For instance, if you are expecting to have your computerized purchasing system add the sales tax to the part so it will
get charged to the vehicle, you have to add the sales tax to each line item as you receive the part into your inventory. If your vendor uses this method as well, then you won't have
a problem, provided the vendor calculates each item using the same number of digit to the right of the decimal as your purchasing system uses. If you use two digits to the right of
the decimal and a vendor uses three digits to the right of the decimal you will have a problem getting the totals to match.
Say your vendor adds the sales tax to the subtotal instead of each line item and you add the sales tax as a line item when you enter it into your purchasing
system. You do this just to make the totals match, (to satisfy the accounting department) now you have a sales tax total that is not divided among the line items on the
invoice. You could have a part master record created in your inventory just for sales tax, but this "sales tax part master" dollar amount would grow with no easy way to relieve it from
inventory. Your inventory would never balance. You could receive the sales tax as a non-stock item or a one time buy, but how do you get the sales tax amount on each
line item charged out when you use the part? In both options it is difficult to manage. It's just labor, right?
What is the answer? Buying your parts from fewer vendors will decrease the amount of time figuring out how to apply the sales tax on parts and freight.
Another option is, buy your parts online through a portal where you get one invoice regardless of what manufacturer provides the parts. Can't do it yet? Well, maybe it's
closer than you think.
A. Richard Massengill