What Is Sales Tax Reconciliation? A Complete Guide for Controllers and Tax Directors

Introduction

Sales tax reconciliation — also called reconciling your sales tax payable account — is the process of ensuring that the sales tax you collect from customers aligns with what you record in your general ledger, report on compliance filings, and remit to tax authorities.It’s more than just a bookkeeping exercise. Done correctly, reconciliation reduces audit risk, strengthens your month-end close, and helps uncover errors in billing, reporting, or payment systems before they turn into costly problems.

Why Sales Tax Reconciliation Matters

• Accuracy → Confirms collected sales tax matches what’s posted in your general ledger.• Compliance → Ensures filings and payments are correct, lowering risk of underpayment penalties or overpayments.• Audit Preparedness → Clean reconciliations create an audit trail that supports your filings.• Risk Reduction → Identifies upstream issues, such as invoicing errors, tax engine configuration problems, or timing mismatches.For most multi-state taxpayers, reconciliation isn’t optional — it’s an essential control step that keeps compliance processes audit-ready.

Core Data Sources in a Sales Tax Reconciliation

To perform a complete reconciliation, controllers and tax teams typically pull from four systems:1. Sales Tax Engine Reports (Avalara, Vertex, OneSource, SureTax, etc.) – Shows calculated and billed tax.2. General Ledger (GL) – Reflects what was posted as sales tax payable activity.3. Compliance Filings – Returns filed with each state or jurisdiction.4. Bank Payments – Confirmation that payments cleared and matched liabilities.Each source tells part of the story. Only by comparing all four can you ensure accuracy end-to-end.

Step-by-Step: How to Reconcile Your Sales Tax Payable Account

1. Gather Reports – Export liability reports from your tax engine. Pull GL activity for your sales tax payable account. Collect filing confirmations and bank records.2. Match Engine vs. GL (Billed Tax) – Compare invoiced/billed sales tax to GL postings. Investigate variances (timing, manual entries, configuration issues).3. Match Engine vs. Compliance Filings – Ensure what was calculated and billed matches what was filed.4. Match Compliance vs. GL Payments – Verify that amounts filed equal what was posted as paid in the GL.5. Match GL vs. Bank – Confirm that payments actually cleared the bank and reduced payable balances.6. Document & Adjust – Post correcting journal entries where necessary. Keep notes on each adjustment to maintain an audit trail.7. Confirm Zero Balance After Filing – After remittance, the payable account should reset to zero (or roll into the next accrual period).

Common Challenges in Sales Tax Reconciliation

• Timing Differences → Cutoff issues between billing, GL, and filings.• Manual Errors → Data entry mistakes, transposed journal entries.• Format Differences → Reports that don’t align across systems.• Resource Constraints → Teams relying on spreadsheets spend hours chasing variances instead of analyzing root causes.

Best Practices

• Reconcile monthly as part of your close process.• Standardize data pulls and reports.• Track recurring exceptions to fix root causes (not just patch month to month).• Keep reconciliations audit-ready and repeatable.

Why Software Matters

Many companies rely on spreadsheets for reconciliation. While flexible, spreadsheets are time-consuming, error-prone, and difficult to audit.Avex Rec was built specifically for sales tax reconciliation. Unlike generic reconciliation tools, Avex Rec:• Integrates directly with tax engines, GLs, compliance filings, and bank data.• Automates matching across all four sources.• Uses AI-powered exception handling to identify anomalies and reduce manual review.• Provides a repeatable, auditable process that reduces audit risk and shortens close cycles.

Conclusion

Sales tax reconciliation isn’t just about balancing an account — it’s about ensuring accuracy, compliance, and risk reduction across your entire tax reporting process.By embedding reconciliation into your monthly close and leveraging purpose-built software like Avex Rec, controllers and tax directors can move beyond spreadsheets, save time, and gain confidence that their filings and payments are accurate.