Moderated by Kate, Financial Technology Consultant at Hyperbots
Kate: Hello, everyone. My name is Kate. And I’m a financial technology advisor here at Hyperbots today. I’m delighted to have Jon Naseath with me. Hey, Jon, how are you doing?
Jon Naseath: Hey, Doing Good thanks.
Kate: That’s great. So a little bit about Jon, he is the COO at Canto Capital, Inc. Today Jon and I will be discussing sales tax computation and transaction dates. So let’s dive right in. Coming to the first question, which date is generally used to determine the applicable sales tax rate on a purchase and why?
Jon Naseath: Yeah, when you, when I saw the topics for today, the question of like some could say, “Well, who cares?” But let me tell you why we care a little bit first. Sales tax actually especially coming into the year-end, or whenever your year-end is, depending on the date of what you recognize as the sales tax rate, and which rate’s going to be applied, can be different one year to the next. And so, you know, are you trying to? In some ways, it could be manipulated. If you’re trying to push it out to be a certain date or pull it in to be a certain date recognizing what date is required for tax is critical for sales transactions. So the answer is that most commonly what you’d use for tax requirements is the invoice date.
Kate: And so again to say, the invoice date. That’s different than revenue recognition rules in most cases.
Jon Naseath: And so the date is typically used by tax authorities as the official date for recording the sale. Confirming that the buyer’s obligation to pay is engaged. That’s really when there’s viewed as an agreement locked in for the first time. When that’s established, they want to use it for tax purposes as a transaction. So just to clarify if the invoice date is October 15th, even if the shipment happens later, say, for Black Friday happens later, October 15th is the date that you’re going to determine the sales tax rate, not other dates.
Kate: That makes a lot of sense. Moving on, why isn’t the shipment date usually used to determine sales tax?
Jon Naseath: Yeah. And then the shipment date is usually a key one for revenue recognition. You know, everyone’s focused on, do you get this product shipped out before, in this case, the quarter-end or the New Year fiscal cut-over. But yeah, for tax purposes, this is again where you have kind of different accounting rules for tax versus for accrual accounting. For tax purposes, it really is the invoice date, not the shipment date. The main reason is that while the shipment date reflects when the goods are sent, it’s not regarded as the final point of sale for tax purposes. And so most tax authorities, again, would focus on the invoice date because it signifies the completion of terms. That’s when you’re now ready to, the work’s been done. It’s confirmed that you’re ready to be paid, and the tax wants their money when you invoice.
Also, tax authorities do so again. If the goods are shipped on November 20th, right before Thanksgiving, but are invoiced on November 15th, the November 15th date is when you’d apply the tax rate or recognize it for tax purposes.
Kate: Completely agree with you, Jon. So could the date of receipt ever influence sales tax calculations, or is it mostly irrelevant?
Jon Naseath: Well, the beauty of accounting is you talk about “ever” or “always.” You know, those absolute terms. There might be scenarios, and you have to be open to that, to figure it out with your technical accounting rules. But generally, and mostly relevant, would be the date of receipt isn’t applicable for tax calculations. Again, the tax is typically based on the finalized sale, which is captured by the invoice date. There are unique situations where payment of tax obligations is contingent on receiving goods. So people can get creative in how they set up their contract terms, and there’s always exceptions or contingencies. So in that example, the receipt date might play a role. But it’s rare and certainly wouldn’t be a standard tax calculation.
Kate: That is a very interesting point. Coming to the next question, why is the payment date generally not considered for determining sales tax rates?
Jon Naseath: Yeah, same thing. And my blunt answer is, the payment date can be manipulated. If you’re trying to, and tax authorities don’t like being manipulated. They want a locked-in consistent number that they can rely on, not whenever you do get paid. If you happen to get paid, like if you don’t get paid, if the payment date never happens or is stretched out over long periods of time, and they pay chunks over time, it just gets too complicated. So the payment date isn’t reliable. It’s not relevant for sales tax obligations. Taxes are, I know this sounds complicated because it’s unique, different from revenue recognition rules, but taxes are usually actually simpler, and they want simpler black-and-white rules. So the sales tax is calculated and remitted based on the invoice date, regardless of when the payment occurs. Also, just to recap. It’s not the shipment date. It’s not the payment date. Invoice date.
Kate: Understood. Are there any exceptions where a date other than the invoice date might determine sales tax applicability?
Jon Naseath: Again, with accounting, there’s always going to be exceptions, and that’s really where the art of accounting comes into play. You just have to get your tax authority on board. So really, it’s whatever the tax authority says is going to be the date. There might be some local exceptions in a local jurisdiction or something, but it would be rare, just depending on what country you’re in or what state you’re in. In those examples, shipment or receipt date could be used. We mentioned it as a contingency before any exceptions would be specific, based on unique requirements. Particular state tax rules, perhaps, but those are uncommon. I remember when there were exceptions for buying things online, and so were lots of companies because there weren’t many online sales happening. That’s really been locked down now. So where there are exceptions, I wouldn’t expect them to last very long. Do what your tax authorities tell you. Do what your tax accountant advisor tells you to do. Do not rely on this video for your tax advice.
Kate: Yes, you’re right. We have almost reached the end of our discussion today. So to wrap things up with our final question, can you summarize why the invoice date is the primary date for determining sales tax?
Jon Naseath: Sure. It’s the most clear locked-in trigger when you know the work has been performed, and there’s an expectation of money coming, so that agreement to be paid is confirmed. It’s evidence of confirmation that money is due, and the government wants their money. They want their piece of the pie. It marks the official sales transaction confirming the buyer’s obligation to pay. It’s one that isn’t manipulated, and tax authorities see that as a kind of clear signal, black-and-white trigger, as a finalized point of sale, making it reliable for tax calculations. So again, just another example, you know, an item is invoiced December 1st but is shipped December 5th just in time for Christmas. They might not pay for something until January. That’s when you might get paid for it later, and that’s common. But the government doesn’t want to wait until the next tax season. They want their money in this example in December. They want it specifically based on when it was invoiced to reflect the completion and legal obligation of the sale. The key call-out here is the reason we’re kind of harping on this point about the invoice date is that it’s usually different than revenue recognition dates. It’s not when the services are completed because that might be the shipment date, for example. It’s the invoice date.
Kate: That was really impressive and insightful, Jon. So with this, we have come to the end of our discussion. Thank you so much, Jon, for joining us today and sharing your insights, and a very big thanks to our listeners. I will see you soon. Goodbye, and have a great day ahead.
Jon Naseath: Thank you.
