sales tax as a expense

US QuickBooks Pro for Windows

In quickbooks-is sales tax included in the total income on the PL? or not- I always thought that it was not-our accountant wants to use it as an expense, and I thought it was a liability?

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LKeithJordanCPA

Contributor

04/14/11 11:04am PDT

Sales tax collected from customers IS a liability to be remitted to the government. Sales tax paid for items used or consumed by the business is an expense (assuming the item is not an asset) -- but it is normally recorded as part of the purchase price and not as a separate item. Under normal circumstances, there is no reason to record tax on purchases separately from the purchases since it is not generally considered a manageable cost.

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Sandy Powers

Allstar

04/14/11 11:20am PDT

This is generally true, however in the State of California, the State has begun to actively collect Use Tax on items purchased outside of the State of California for example when purchased over the internet, on items that would normally be taxed but were not at the time of the purchase, so in this case the Use Tax would be an expense if it is not on the purchase of an asset, or it could be added to the cost of the items purchased by journal entry for example if all of the items purchased and taxed subsequently were office supplies you could record the use tax paid as an office supply or a tax expense, either way would be appropriate.

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LKeithJordanCPA

Contributor

04/14/11 11:46am PDT

That's interesting, Sandy. Here in Texas, we don't have that problem (yet). I still believe I would choose to record the tax to the purchase account -- but I can certainly see where you might want to view these amounts separately (similar to those who choose to record purchase discounts missed to a separate account in some cases).

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Sandy Powers

Allstar

04/14/11 12:10pm PDT

I guess the saying is "To Each His Own", everyone is different and chooses to do things differently. I just wanted to present the fact that there could be a reason why Sales or Use Tax was separately stated as an expense. I also recall in my earlier years having a discrepency between what was collected by a vendor and what was actually due on the tax return and having the extra sales tax expensed.