Sales and Use Tax Treatment of Procurement Card Programs
Background: The Procurement Card (P-Card) program has become increasingly popular with many taxpayers, particularly in today's economic realities of corporate downsizing and outsourcing. In general, the program assigns P-Card privileges for purchasing a wide range of goods and services to individual employees or to entire cost centers (departments), with fixed or variable dollar limits, based on a predetermined singular or cumulative transactional basis. In certain programs, P-Cards can only be used with certain vendors or limited to a narrowly defined purpose (e.g., travel and entertainment).
There appears to be little doubt that regardless of the business size, utilizing P-Card programs offer a streamlined purchasing solution which tends to reduce internal processing costs and increase efficiencies at the micro as well as the macro operational levels. When implemented correctly, a well functioning P-Card program affords management enhanced tools to better control and track spending across all segments of the organization.
How Does the Program Work: A taxpayer enters into a contract with a bank card company and authorizes certain employees to make purchases using the P-Card. In general, designated employees are subject to strict compliance with predefined procedures and cannot exceed purchases above a pre-established maximum dollar amount. The authorized employees deal directly with the vendors who ship the purchased items directly to the designated cardholder, thus bypassing the purchasing department and its network of pre-approvals and paperwork requirements. This also tends to shorten the time interval required for obtaining the goods and services from the suppliers. The bank card company issues a monthly statement to the company's accounts payable department summarizing all P-Card purchases throughout the organization. Separate copies are also sent to each cardholder who is responsible for reviewing, reconciling and approving the purchases made under that particular P-Card. The statement is similar in format and content to typical credit card statements issued to private individuals, where each transaction is separately listed, showing date, amount charged, and merchant used. Many P-Card programs allow for customized account coding to better facilitate the monthly posting of the purchasing activities into the appropriate general ledger accounts of the overall organization. Suppliers receiving multiple orders from various company cardholders, are no longer required to issue separate invoices for each purchase, since all monthly purchases using the card are now summarized on the credit card statement.
Sales and Use Tax Treatment: In Wisconsin, sales and use taxes are imposed in accordance with Chapter 77, Subchapter III and Subchapter V of the Wisconsin Statutes. The purchasing method used to obtain goods and services in Wisconsin is entirely irrelevant to the taxable status of the items purchased. Consequently, P-Card purchases are subject to or exempt from Wisconsin sales and use taxes in the same manner as any other purchase would be, without any distinction.
Record Keeping: The requirements for records and record keeping are addressed in sec. Tax 11.92, Wis. Adm. Code as amended by CR 09-090. This rule can be found in SECTIONS 270 through 279 of CR 90-090 at: http://www.legis.state.wi.us/cr_final/09-090.pdf. In general, taxpayers are required to keep any records which were used in the preparation of the sales and use tax returns. Any record keeping system (electronic or otherwise) should have the capability of producing visible and legible records which will allow for verification of the taxpayer's tax liability. Taxpayers should maintain the ability to trace any transaction back to the original source or forward to a final total. An audit trail must be designed so that the details underlying the summary financial data may be identified and made available to the department upon request. At a minimum, supporting documents for purchase transactions may include the following; 1) vendor issued invoice, receipt or statement detailing total amount purchased, date purchased, general ledger account being charged and associated sales tax charged (where applicable), 2) cancelled checks or other records indicating amount actually paid for the purchase, 3) computations of self assessed use tax accruals (where applicable), 4) location where the goods and services are used or consumed and 5) appropriate information to support a claimed exemption (where applicable) for the given purchase (e.g., resale, printed advertising material, farming etc.). Purchases made under a P-Card program are not afforded any particular preferential advantage over any other purchasing method and are subject to the same record keeping and record retention requirements as outlined in sec. Tax 11.92 of the Wis. Adm. Code.
Auditing Procurement Card Programs: The Department routinely audits taxpayers who have implemented P-Card programs for a portion of their purchasing activities. A variety of auditing techniques are employed to examine a taxpayer's purchasing activities, including P-Card purchases. Every audit is specifically tailored to address the unique circumstances of a taxpayer's accounting system, record filing methods, record retrieval systems, volume of records being examined and a host of other pertinent factors. The department has extensively utilized sampling methodologies to develop effective audit strategies in examining taxpayer's purchasing activities, including but not limited to; 1) random statistical samples, 2) stratified systematic samples and 3) various block type samples. Although sampling strategies are widely used, there may be special circumstances where a specific review of purchases is warranted. As a rule, regardless of the auditing strategies ultimately selected, the purchasing universe being examined includes all Wisconsin purchase transactions, including P-Card purchases. In some circumstances, P-Card purchases may even be examined separately from other purchase transactions. This is especially true where certain taxpayers maintain separate accounting systems to track their purchase transactions by major categories (e.g., capital additions, P-Cards, purchase orders, manual, etc.). Taxpayers are encouraged to maintain supporting documentation for their P-Card transactions similar to those which are maintained for all other purchase transactions and in compliance with the requirements outlined in sec. Tax 11.92 of the Wis. Adm. Code.
Last updated May 25, 2010