Best Accounts Payable Compliance Practices: TIN Solicitation, Sales Use Tax & Unclaimed Property

Taxpayer Identification Number (TIN) solicitation is a foundational accounts payable compliance requirement that directly affects 1099 reporting accuracy and backup withholding obligations. Best practice requires collecting a completed Form W-9 from every vendor before making any payment—not after, when leverage to obtain the form is significantly reduced. The W-9 must document the payee's name, entity type, and TIN (SSN for individuals, EIN for entities), and must be retained in the vendor master file as documentation of good-faith TIN collection. When a W-9 is not obtained prior to first payment, or when the IRS notifies the payer that a TIN is incorrect (via a B-Notice), backup withholding at 24% must be applied to future reportable payments until a corrected W-9 is received. AP teams should validate TINs through the IRS TIN Matching program before year-end to identify and resolve mismatches before 1099 filing deadlines, avoiding B-Notice cycles entirely. Vendor onboarding workflows that require W-9 completion as a prerequisite to vendor master record creation are the most effective systemic solution to persistent TIN compliance gaps.

Sales and use tax compliance is one of the most complex and frequently undermanaged AP compliance obligations, particularly following the Supreme Court's South Dakota v. Wayfair decision (2018), which allowed states to impose sales tax collection requirements on out-of-state vendors based on economic nexus rather than physical presence. From an AP perspective, use tax—the consumer-side complement to sales tax that applies when taxable goods or services are purchased from vendors who do not collect applicable state sales tax—is the primary compliance focus. AP teams must review invoices from out-of-state vendors to identify purchases where sales tax was not charged, calculate the applicable use tax rate for each jurisdiction, accrue the liability, and remit it with state use tax filings. Common use tax traps include purchases of software, digital goods, equipment, and services where the taxability rules vary significantly by state. Automation through tax determination software (Vertex, Avalara) integrated with the AP system dramatically reduces the manual burden of use tax compliance for organizations purchasing across multiple states. Without automation, periodic use tax audits by state taxing authorities can result in substantial back-tax assessments plus interest and penalties.

Unclaimed property (also called abandoned property or escheat) laws require holders—including businesses with accounts payable obligations—to remit dormant, unclaimed financial assets to state governments after a specified dormancy period. From an AP perspective, the most common unclaimed property types are outstanding checks (checks issued but never cashed by vendors or employees), credits held on vendor accounts, and unredeemed gift cards. Dormancy periods vary by state and property type but commonly range from one to seven years. The compliance process involves identifying dormant items in the AP subledger, attempting to contact the owner to reunite them with their property (due diligence), and filing an annual unclaimed property report with the appropriate state(s) accompanied by remittance of the property value. Multi-state operations face complexity because the applicable state is typically the owner's last known address, not the company's state of incorporation. AP teams that do not systematically track and report unclaimed property face significant exposure during state audits, which often look back 10 years and apply estimated liability methodologies that can produce assessments far exceeding the actual liability.

Accounts payable is one of the highest-risk areas for both fraud and error because it involves authorizing outgoing payments—often under time pressure and with large transaction volumes. The foundational internal control is segregation of duties: the employees who create vendor records, approve invoices, and authorize payments should be different individuals wherever staffing permits. Three-way matching—verifying that every invoice matches its corresponding purchase order and receiving report before payment—catches errors and fictitious invoices before disbursement rather than after. Positive pay services from banks, which validate check number and amount against a company-issued file before clearing, prevent altered and counterfeit check fraud. Vendor master file controls—requiring dual approval for new vendor additions and regular reviews for inactive or duplicate vendors—address the most common AP fraud scheme (fictitious vendors). Periodic AP aging analysis and outstanding check reviews surface payment anomalies early. AP metrics including average days to pay and exception invoice rates, reviewed regularly by management, create visibility into process health without requiring transaction-level review. Aurora Training Advantage's AP compliance webinar provides a comprehensive internal control framework for teams at any size organization.

1099 reporting is among the most consequential compliance obligations managed by AP departments, with penalties for failures starting at $60 per return and escalating to $310 or more per return for significant delays or intentional disregard. Form 1099-NEC (Nonemployee Compensation) must be filed for payments of $600 or more made to non-corporate vendors for services during the calendar year—this includes contract workers, freelancers, attorneys, and others. Form 1099-MISC covers rents, royalties, prizes, medical payments, and other specific payment types with varying thresholds. Both forms must be furnished to payees by January 31 and filed with the IRS (electronically for 10 or more forms) by the same January 31 date for 1099-NEC; 1099-MISC paper filing is due February 28 and electronic filing by March 31. Corporate payees are generally exempt from 1099 reporting (with important exceptions, including attorneys and medical providers). The penalty for failure to file correct information returns can be substantially reduced by correcting errors within 30 days, making early reconciliation and pre-filing TIN verification critical components of an effective 1099 compliance program.