Tax Planning & Compliance Flashcards

A company purchases raw materials tax-free using a resale exemption certificate but then withdraws some of the materials for internal use. What is the tax consequence?

Answer: The company must self-assess and pay use tax on the materials withdrawn for internal use

When exempt-purchased goods are subsequently used internally rather than resold, the original exemption no longer applies and the company owes use tax on the fair market value of those goods.

What is the Streamlined Sales and Use Tax Agreement (SSUTA) and how does it affect purchasing compliance?

Answer: A multi-state initiative to simplify and standardize sales tax rules, reducing compliance burdens for businesses selling in member states

SSUTA is a voluntary multi-state agreement that standardizes tax definitions, exemptions, and administrative procedures to reduce the complexity of sales tax compliance across member states.

When conducting a make-or-buy analysis, how should a purchasing professional account for tax implications?

Answer: Tax savings or costs (e.g., VAT recovery, import duties, property tax) should be included in the total cost comparison

A complete make-or-buy analysis must include all relevant tax impacts—such as duty costs on imported components, VAT recovery differences, and property tax on owned manufacturing assets—to ensure an accurate total cost comparison.

What is the significance of the 'country of origin' marking on imported goods under US customs law?

Answer: It is required by CBP for most imported goods and affects tariff rates and potential trade remedy duties

US Customs law (19 CFR Part 134) requires country of origin marking on most imported goods; the origin determines applicable tariff rates and whether antidumping or countervailing duties apply.

A purchasing team is evaluating two equivalent suppliers—one domestic and one in a country subject to a 25% tariff. At what price point does the foreign supplier's quote need to be to match the domestic supplier's landed cost of $100 per unit?

Answer: $80 per unit

If the tariff is 25%, the landed cost equals the foreign price × 1.25; solving $X × 1.25 = $100 gives $X = $80, so the foreign supplier must quote $80 per unit to match the domestic cost.

Which IRS classification of a purchased item determines whether it is expensed immediately or capitalized and depreciated over time?

Answer: Whether the item meets the capitalization threshold and has a useful life exceeding one year

IRS rules require items to be capitalized (and depreciated) if they exceed the company's capitalization threshold and have a useful life of more than one year; items below the threshold may be expensed immediately.

A purchasing professional is asked to review a vendor contract that includes a 'tax gross-up' clause. What does this clause require?

Answer: If a withholding tax is imposed on the payment, the buyer must increase the payment so the vendor receives the originally agreed net amount

A tax gross-up clause requires the payer to increase the payment amount so that after any mandatory tax withholding, the recipient still receives the full agreed-upon net sum.