A State By State Accounting Guide

Recording Sales Tax

Posted March 8th, 2012 by admin and filed in Uncategorized

Not all states have sales tax. But if your company sells goods or services that are taxable in your state, sales tax must be collected from customers. Sales tax also applies if your company sells goods or services in any state in which it has an office or warehouse as well. The company may also have to charge, collect and remit sales taxes to the customers’ home state if you do business out of your own state. After collecting the sales tax, the money must be given to state tax authorities.

Recording Sales Tax

Interestingly, sales tax is neither income or expense but it is considered a liability. Sales tax is used when both the customer and the goods or services you’re selling are taxable. Occasionally, the customer and/or the goods or services aren’t taxable. Track sales tax by creating a liability account named “Sales Tax Payable.” Enter the sales tax into this account every time you have a sale that requires it. Next, send a check for the total amount in the liability account to the state.

However, it does get more complicated than this. Most state require a lot more information to be included with the sales tax payment. Some states also have special sales tax rates for specific goods or services and require that these amounts be reported separately. Set up your sales tax recording to reflect the specific information your state requires when reporting sales tax. These days, most states only accept sales tax reports and remittances online. Of course,  you always need to have good records behind the figures you send.

Many states have a base tax rate and may include additional tax known as surtax. The total of these rates is applied to the sale of taxable goods and services.  The surtax is based on location. Tax rates may also vary because some states apply different tax rates for different types of goods or services. You then must calculate the sales tax on a line-by-line basis rather than calculating the tax for the total sale.

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