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Managing Sales Tax
If your business sells a product or provides a service that is taxable, and if you are in a "sales tax" state, you will need to collect and pay sales taxes and file sales tax returns periodically. Sales taxes are due and payable, in most cases, when the merchandise is given to the customer or when the work is performed, not when payment is made. However, we recommend you refer to the laws of each state you collect sales tax.
Once you begin to collect sales tax you must show the tax amount separately, so the customer can see the amount of the tax; these amounts will be shown on the invoice.
You will need to be sure that the sales tax account you will use for both collecting and paying the sales tax is linked correctly to the customer and the invoice.
If you are selling in multiple locations or delivering in different locations, you must include the correct sales tax for each location. For example, if you are selling products in several cities or counties within your state, the correct amount must be collected from each locality. This gets complex if you have many places where your products are being sold. If you are selling in several states, you must also select the correct amount for each location within each state if you have Nexus for that state. Nexus means you are required to collect sales tax for that state. The best way to do this is to create a list of tax codes.
After you have collected the sales taxes, you must keep records on how much you have collected (these amounts go into the "Sales Tax Payable" liability account). Each tax code you create gives you the ability to link the sales tax directly to the Sales Tax Payable account. This keeps invoicing and record keeping easy and more accurate.
Check with your state to see when you must pay sales taxes. The frequency of payment depends on the volume of your sales. In most states, you must pay monthly if you have a high volume of sales, but at least quarterly in almost every state. Some states may require you to file annually if your sales volume is low. Be sure you pay on time to avoid fines and penalties for late payment.
Money collected for sales tax is not revenue. It is only an amount of money received temporarily that you later transfer to the government. Therefore, a business's income and expenses are not affected by sales tax. Businesses simply collect and deliver the tax money.
Related Topics
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How to manage your sales tax
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Entering sales
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Receiving payments
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Customizing forms
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