Self-Assessment tax is an extension of use tax in which companies obtain an exemption status and can pay the tax directly to the tax authorities and not to the vendor.
Self-assessment tax is a common practice for large corporations. Basically, large corporations take responsibility for accruing taxes for all sales and purchases both intrastate and interstate.
To be able to calculate self-assessment tax, a company must hold either a Direct Pay Permit or a similar exemption certificate. States that allow Direct Pay Permit issue exemption certificates to a company. In turn, the company communicates their exemption status to their vendors. This means that the vendors are not liable for taxes on transactions with the Direct Pay Permit holder.
In addition to Direct Pay Permits, there are other business scenarios in which a company is provided an exemption. For example, raw materials that will be used in a manufacturing process are typically not taxed. Some states make essential foods, such as fruits, vegetables and milk tax-exempt.
Self-Assessment Tax - Tax Accrual for Use Tax
Company 1 is a Direct Pay Permit holder and notifies the vendor, company 3, of this status. When Company 3 sells products to Company 1, it does not charge tax on the transaction due to the exemption. Instead, Company 1 accures taxes on the transaction and remits them to the tax authorities.