Can a company's electronic 'CPC Sales Tax Reporting' system, generated through a corporate procurement card, replace paper vendor invoices as acceptable documentation for Texas sales and use tax compliance?

Plain-English summary

A company introducing a new "Corporate Purchase Card" ("CPC") product asked the Comptroller's Tax Policy Division to rule on whether its "CPC Sales Tax Reporting" feature could substitute for paper vendor invoices when a business customer needs to document sales and use tax compliance.

CPC is a procurement card system meant to reduce costs and improve controls over low-dollar, indirect purchases by eliminating requisition forms, letting employees ("Cardmembers") pay suppliers directly with the card instead of a company check, and consolidating many supplier invoices into a single monthly bill. The catch: businesses ("Clients") had historically relied on paper invoices not just for payment, but to determine (1) whether they owed self-assessed use tax on a purchase and (2) whether the vendor had already correctly charged sales tax, especially during an audit. To let Clients go fully "paperless," the Company built CPC Sales Tax Reporting to recreate that documentation electronically.

The reporting combines data already on the Company's own database (vendor name, vendor state/zip, Cardmember name, Cardmember city/state/zip, Cardmember cost center) with data entered by the vendor at the point of sale, either through a "Computer" or "Terminal" submission system: the charge amount, tax amount, processing date, transaction date (Computer only), destination zip code (or "99999" for shipments outside the USA) or the zip code where a purchased service was rendered, and a description of the purchase (either free text or a "canned" numeric code). Clients could also capture optional free-text fields (Cardmember Reference, Computer Open Field, Supplier Reference). Clients would receive this data monthly, either electronically (diskette/modem, "PC Reporting Option") or on paper ("Paper Reporting Option"), in each case in a "Standard Format." The Company also flagged that roughly 99% of taxing jurisdictions can be identified from state, city, and zip code, but for some shipped transactions only a zip code (no state/city) would be available, which could make it impossible for the system to pinpoint the exact taxing jurisdiction.

The Company asked the Comptroller to rule that (1) where its system can precisely identify the taxing jurisdiction from the point-of-sale data, CPC Sales Tax Reporting is an acceptable substitute for vendor-generated invoices to substantiate sales/use tax compliance, and (2) where it cannot, the data CPC Sales Tax Reporting does provide is acceptable as accurate, and the Client may combine it with other satisfactory evidence to establish the correct taxing jurisdiction.

The Comptroller's response: based on the facts presented, the system as described will meet the office's data reporting requirements — but only "if data required to be entered electronically by the vendor at the point of sale is actually entered." The item description field was singled out as being of major importance to auditors, so it is imperative that vendors complete that field for each different item sold, or that the "canned description" selected is sufficient. The Comptroller asked to receive any training materials or brochures explaining these field-completion requirements to vendors, and noted interest in attending any Texas client training seminars. Critically, if an item description is omitted from the record and the auditor cannot otherwise determine it, the burden of proof shifts to the purchaser and/or vendor to show the item was not taxable. The letter closes with the standard caveat that the opinion is based on the facts presented and other, similar facts could produce a different result.

What this means for you

Businesses considering procurement/purchasing card systems

An electronic sales tax reporting feature tied to a procurement card can be used in place of paper vendor invoices for Texas sales/use tax compliance purposes — but the protection only holds up if every required point-of-sale data field is actually populated by the vendor on every transaction. A card program that lets vendors skip fields (especially the item description) creates real audit risk for the cardholder's employer.

Accountants and tax professionals advising cardholder-employers

Treat the item description field as the linchpin of audit defensibility. If a transaction record lacks an adequate description of what was purchased and the auditor can't otherwise figure it out, the burden of proving the item wasn't taxable falls on your client (the purchaser) or the vendor — not on the state. Build internal procedures to catch and correct missing or inadequate item descriptions before an audit, not during one.

Vendors accepting procurement cards

Completing all point-of-sale fields required by the card issuer's reporting system — particularly a meaningful item description or a sufficient "canned" code — is what allows the buyer to rely on your electronic transaction data instead of a paper invoice. Incomplete data entry undermines that reliance and can shift audit exposure back onto the transaction itself.

Companies designing card or e-invoicing reporting products

The Comptroller evaluated this system on its specific, detailed facts (the exact data fields captured, how and when they're entered, and how they're delivered to the client). A similar product with less complete data capture, or without a comparably rigorous description field, would not automatically get the same treatment — this letter is not a blanket approval of "paperless" purchasing documentation in general.

Common questions

Q: Can electronic procurement card records replace paper vendor invoices for Texas sales tax documentation?
A: Yes, according to this letter, if the described CPC Sales Tax Reporting system is used and all data required to be entered electronically by the vendor at the point of sale is actually entered.

Q: What happens if a vendor skips the item description field on a transaction?
A: If the item description is omitted and the auditor cannot otherwise ascertain it, the burden of proof shifts to the purchaser and/or vendor to show that the item is not taxable.

Q: Does it matter whether the vendor uses a "Computer" or "Terminal" submission system?
A: The letter describes both: Computer submissions allow a 160-byte free-text description field, while Terminal submissions let the vendor pick up to nine one-digit codes tied to "canned" descriptions on the Company's database. Either can work, but the Comptroller stressed that whichever method is used, the description (free text or canned) must be sufficient.

Q: What about transactions where the taxing jurisdiction can't be precisely identified from the data (e.g., zip code only, no state/city)?
A: The letter does not give a separate, explicit ruling resolving this exact scenario the way it resolves the general data-sufficiency question; the response addresses the overall system meeting data reporting requirements when point-of-sale data is properly entered, conditioned on completeness of the data (especially item description).

Q: Is this ruling a general approval for any "paperless" purchasing card program?
A: No. The ruling is based on the specific facts presented about this Company's system, data fields, and reporting formats, and the letter explicitly notes that other, similar facts could produce a different result.

Citations and references

No specific Texas statutes, administrative rules, or case law were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9507L1366A01

Original ruling text

July 31, 1995

Dear **:

Thank you for your letter requesting a ruling on the a new product,
Corporate Purchase Card ("CPC"), that ** (the "Company") is
in the process of introducing. I have restated your facts below followed by my
response:

FACTS: PRODUCT DESCRIPTION

CPC is a procurement card system that offers companies a new way of
purchasing goods and services. CPC is designed to reduce costs and improve
controls in the area of low-dollar, indirect business purchases by eliminating
requisition form processing and consolidating payments to suppliers.

In brief, CPC provides these principal benefits to Corporate Purchasing Card
Clients ("Clients"):

Elimination of Paperwork. The Client's employees contact suppliers
directly, eliminating the need to issue and process requisition and
purchase order forms.

Ease of Payment. Client employees ("Cardmembers") use the **
Corporate Purchasing Card as the means of payment instead of a company check.

Consolidation of Invoices. Instead of paying hundreds of invoices
generated by numerous suppliers, the Client receives a monthly billing
statement from the Company. Each month the Client pays its CPC bill
with a single check. As a result, the Client's cost of writing multiple checks
and reconciling multiple invoices is reduced.

SALES TAX REPORTING

The CPC eliminates the business need for vendors to generate paper invoices,
thereby promising significant cost savings. The full savings can only be
realized if the Client has no other need for paper invoices. Currently the
client does have such a need: it uses paper invoices to determine if it has an
obligation to self-assess sales or use tax with respect to its purchases and to
determine during audit if appropriate sales or use tax was paid to the vendor
at the time of purchase. In order to achieve a "paperless" purchasing
environment the Company has developed CPC Sales Tax Reporting to replace
paper invoices.

How the Sales Tax Information is Gathered ("Inputs"). The Company's
software will generate Sales Tax Reporting based on (1) information resident
on its data base; and (2) information entered electronically by the vendor at
the point of sale.

The following information is designed to reside on the Company's data base
and be part of the Sales Tax Reporting with respect to each transaction effected
with the Purchasing Card:

_ Vendor name.
_ Vendor state and zip code.
_ Cardmember's name.
_ Cardmember's city, state and zip code.
_ Cardmember's cost center.

The following information is entered electronically by the vendor at the point
of sale ("POS") using a "Computer" submission system or a "Terminal"
submission system. It also is part of Sales Tax Reporting for each transaction.

_ Total amount of the charge (the billed amount).
_ The tax amount.
_ The processing date.
_ The transaction date, where the vendor uses a Computer submission.

• When goods are shipped within the USA, the destination zip code;
  when they are shipped outside the USA, a code so indicating (i.e., "99999").

_ When services are purchased, the zip code of the location where the
services are rendered.

_ A description of the purchase.

_ When a vendor submits its CPC charges to the Company using
a
"Computer" submission, the description of the purchase can be captured in a
160 byte field accommodating free text (the "Computer Open Field").

_ When a vendor submits its CPC charges to the Company using a "Terminal"
submission, the vendor selects up to nine one-digit codes that correspond
to "canned" descriptions resident on the Company's data base.

Optional POS Entries. In addition to the data listed above, the following fields
allow users at the point of sale to enter additional information as free text.
The information is included in the Sales Tax Reporting.

_ Cardmember Reference Field.

• Computer provides 17 bytes for text.
• Terminal provides 9 bytes for text.

_ Computer Open Field.
-160 byte field.

• When goods are shipped, at Client's option, part of this field can be used
  to capture more detailed "ship to" information.
• This option is not available at vendors using a Terminal.

_ Supplier Reference Field.

• Computer and Terminal, 9 bytes.
• For order number or other vendor information.

How Sales Tax Reporting is made to Clients. The Company will provide the
Client with monthly Sales Tax Reporting containing the data detailed above
by one of the following methods, whichever the Client elects:

_ "PC Reporting Option"-- Purchase Power.

• Data is transmitted on diskette or via modem.
• Data will be provided in "Standard Format" on a tamper proof diskette.
• The Standard Format is described in the Presentation Material.

_ "Paper Reporting Option."

• Data is presented on paper.
• Data is provided in "Standard Format."

Special Issue: Identifying the taxing jurisdiction when goods are shipped. The
Company understands that nearly 99 percent of taxing jurisdictions can be
identified by reference to state, city name and zip code. The Company will
have this data with respect to most "take" transactions and some "ship"
transactions. However, for certain transactions the Company will have access
to only zip code information (no state and city name). In such circumstances,
Company's systems (which wil use "AVP Systems" software) may or may
not be able to identify the precise taxing jurisdiction in which the purchaser
accepted the goods (in a "take") or into which goods were sent (in a "send").

In cases where zip code alone does not correspnd to a single taxing
jurisdiction, the Company understands that, by using information about its
business (other than CPC provided data, a Client may be able to identify the
appropriate taxing jurisdiction and satisfy the state in this regard. However,
the Company makes no representation that any Client will be able to do so.

RULING REQUESTED

The Company requests your ruling that:

_ With respect to those transactions where the Company's system can
precisely identify the appropriate taxing jurisdiction based on the POS data
it receives, CPC Sales Tax Reporting constitutes an acceptable substitute for
vendor generated invoices for purposes of substantiating compliance with
state sales and use tax laws.

_ With respect to those transactions where the Company's system cannot
precisely identify the appropriate taxing jurisdiction based on the data it
receives, the data that CPC Sales Tax Reporting does present concerning
the transaction is acceptable as accurate information concerning the
transaction; and that the Client may use CPC Sales Tax Reporting and
satisfactory evidence other than CPC provided data to establish the correct
taxing jurisdiction.

RESPONSE

Based on the information provided the system described above will meet the
data reporting requirements of this office, if data required to be entered
electronically by the vendor at the point of sale is actually entered. Of major
importance to auditors is the item description of items sold, therefore it is
imperative that this field be completed by the vendor for each different item
sold or that the "canned description" entered is sufficient. To this end, we
would appreciate receiving any documents (including brochures, training
materials, etc.,) provided to the Client by **, that explain the
requirements/necessity of completing all pertinent fields. If an item
description is omitted and cannot be ascertained by the auditor, the burden of
proof will fall on your client (purchaser and/or vendor) to show that the
item is not taxable.

Additionally, we would be interested in possibly attending any training
seminars that you may have for clients in Texas in the near future.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

You may call me toll-free at 1-800-531-5441, extension 3-4502. The direct line
is 512/463-4502. You may also write to Tax Administration, Comptroller of
Public Accounts.

Sincerely,

Gilbert Zamora
Tax Administration Division

NOTE: Previous Accession Number 9507412L