Accounting & Bookkeeping & Small Business Forum

[Guest]

I have recently ran into a situation where a company was paying sales tax which will be deducted from their sales tax payable. I went to see their bookkeeper to better understand how it was handled. They informed me that all sales tax paid was put in sales tax expense rather than debiting sales tax payable. Their explanation was that that was the preferred method for IRS. Has anyone heard of such a thing. I guess as long as you're tracking it somewhere it's alright but it seems misleading to put in an expense account. Their explaniation seemed absurd since I don't see why IRS would concern theirselves with sales tax per se. Sure would appreciate some ideas.

Thanks.
Alan

[Guest]

I'm confused. Who were they paying the sales tax to? Normally, when you are paying a vendor for an invoice that includes sales tax, the tax is charged to the same expense that the item was for. For instance, if a supplies invoice is 10.00 plus 60 cents in sales tax, all $10.60 is charged to Supplies Expense. If you wish to break the 60 cents out to sales tax expense, there is no law one way or another. The individual state income taxes may require you to break out the sales tax paid, but the IRS doesn't require it.

[Guest]

Bryan I gues I need to be clearer. These are sales taxes paid on merchandise for resale that will be subtracted from any sales tax payable but for some strange reason their putting this sales tax in sales tax expense. I realize that when any supplies are puchased the entire invoice is expensed. It just seems logical that if you don't have a resale certificate and must account for sales taxes paid that you would debit sales tax payable rather than an expense account. By the way it confuses me too!