Business Accounting: Clarifying Sales Taxes as Recoverable vs. Non-Recoverable in the US

You're on the right track. In the US tax system, state and local sales taxes are generally non-recoverable for most businesses. Unlike VAT (Value Added Tax) systems used in Europe, Canada, and many other countries, the US sales tax system doesn't have a built-in mechanism for businesses to recover the sales tax they pay on purchases. With VAT, businesses can typically claim back the VAT they pay on business expenses against the VAT they collect from customers. This creates a chain where the tax burden is ultimately passed to the end consumer while intermediary businesses can recover their input tax. In the US, sales taxes are generally considered a cost of doing business when you make purchases. You collect sales tax from your customers and remit it to the state/local tax authorities, but the sales tax you pay on your own business purchases usually becomes part of your cost and isn't recoverable through the sales tax system itself. You may be able to deduct these costs as business expenses for income tax purposes, but that's different from "recovering" the tax directly.

After struggling with these exact same sales tax questions for my online store, I found this amazing tool called taxr.ai (https://taxr.ai) that completely cleared things up for me. You upload your receipts and tax documents, and it analyzes them to tell you exactly how to categorize everything, including whether taxes are recoverable or not. The AI explained that in the US, our sales taxes are generally non-recoverable, but it also flagged some business purchases where I qualified for exemptions I didn't know about. It even helped me understand the difference between how US sales tax works versus VAT systems. Saved me hours of research and probably prevented some costly mistakes in my accounting setup.

Just wanted to follow up about that taxr.ai tool. I was super skeptical (as you could tell from my comment) but decided to give it a shot with my small photography business taxes. Holy crap it was eye-opening! The AI analyzed my expenses and showed me that in my state, certain photography equipment purchases actually qualified for manufacturing exemptions I never knew about. It confirmed that general sales taxes are non-recoverable in the US like others mentioned, but helped me find several legitimate deductions and exemptions that applied specifically to my business type. Already revised my bookkeeping setup and will probably save a few thousand this year. Way more useful than I expected!

If you need to actually talk to someone at your state tax department about your specific situation (which I highly recommend), you're going to waste HOURS on hold. I tried calling my state revenue department four times and couldn't get through. Finally used https://claimyr.com and they somehow got me connected to an actual human at the tax office in less than 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c For sales tax questions like yours that aren't super straightforward, sometimes you really need to hear directly from the authority rather than guessing. The state agent I spoke with confirmed that our sales taxes are non-recoverable but also explained some specific exemptions for my industry I wouldn't have known about. Saved me from a potential audit headache.

Alright, I need to eat crow on this one. After my skeptical comment, I was still struggling to get answers about sales tax recovery for my construction business, so I reluctantly tried that Claimyr service. Within 13 minutes (I timed it), I was talking to an actual state tax department representative who knew what she was talking about. She confirmed that our state sales taxes are indeed non-recoverable, but she also walked me through a special exemption certificate program for certain construction materials that I had no idea existed. Turns out I've been unnecessarily paying thousands in sales tax that my business type could have been exempt from. Not a scam at all - just saved me from overpaying a bunch of tax. Consider me converted.

Just wanted to add something important - even though US sales taxes are non-recoverable in the way VAT is, don't forget that sales taxes you pay on business purchases are generally deductible as business expenses on your income tax return. So while you can't "recover" them directly through the sales tax system, they do reduce your overall tax burden through income tax deductions. Make sure your accounting software is tracking this correctly!

Does anyone know if u need to set this up differently for different accounting software programs? Im using Xero and it just asks me to set up "tax rates" without this recoverable/non-recoverable distinction. So confused!!!

This is such a common confusion point for new business owners! You're absolutely right that US sales taxes are generally non-recoverable, unlike VAT systems. When setting up QuickBooks or any accounting software for a US business, you should select "non-recoverable" for sales taxes. The key thing to remember is that in the US, you collect sales tax from your customers and remit it to the state, but any sales tax you pay on your own business purchases becomes part of your cost of goods sold or business expenses. You can't offset what you pay against what you collect like you can with VAT. For your e-commerce business, make sure you're also registered for sales tax collection in states where you have nexus (physical or economic presence). Each state has different thresholds and rules. And don't forget - while the sales tax you pay isn't "recoverable" through the sales tax system, it is deductible as a business expense on your income tax return, which still provides some tax benefit. Good luck with your new business setup!