Tax/Accounting Treatment

Good Morning, I have a question and hopefully you could help me with. Our tax department collect $2 in sales tax (make believe) from each transaction sold. Then, they turn around and only report $1 to sales tax department and keep $1 by claiming that they work with the tax department and that is what they both agreed upon. So i am wondering that $1 that they keep, is this reduction of the cost or this should be considered as the revenue? Thank you,

Answers

Wayne Spivak President & CFO • June 24, 2016

The % the Tax Department let's you keep for accounting purposes should be recorded IMHO as Other Income. Collecting taxes is not what you are in business, and not all taxes you collect on behalf of the government (payroll comes to mind) permit you to keep a % for doing work on their behalf.

Len Green Performance Improvement Consultant and ERP Strategist • June 25, 2016

Anon
What exactly do you mean by "make believe" sales tax?

If you are required by law to collect a "true" sales tax from customers, it's not your revenue, period. You collect $2 and then you pay it over to the government agency that administers that tax.

There may be an exception where the agency allows you to retain a % for your administrative effort (I think some vehicle sales taxes may be like this).

Can you clarify?

Wayne Spivak President & CFO • June 25, 2016

NY Sales tax does that. I've always recorded it as "Other Income"...

eden meng Senior Accountant • June 28, 2016

Thank you so much for all your helps. I truly appreciate it.

Want to join the conversation? Submit an answer or ask a question by emailing us at [email protected]

Submit an answer

Tax/Accounting Treatment

Answers

Reach our audience

Related Publications