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Senior Explorer **

Sales Tax Liability Account Balance

Hello,

 

We use a third-party sales tax compliance software that is integrated through QuickBooks Online.  Up until now when we've been remitting sales tax to jurisdictions, we've been categorizing those remittances in an expense account.  I've now realized that those sales tax remittances should not be categorized as expenses.  I'd like to confirm if I'm supposed to be categorizing those remittances in the Sales Tax Liability account?

 

For example:  I've collected $1,000.00 in sales tax for the 1st quarter, so now my Sales Tax Liability account has a balance of $1,000.00.  If I need to remit sales tax to five different jurisdictions at $200 each for a total of $1,000.00, I would put those sales tax payments into the Sales Tax Liability account with the idea being that the account balance would go back to $0?

 

Thank you!

Solved
Best answer 12-28-2018

Accepted Solutions
Moderator

Re: Sales Tax Liability Account Balance

Thanks for coming back to the Community, R_Crane.

 

I'll this thread to help you record the sales tax payments in QuickBooks Online.
 

Yes! When recording a sales tax credit or discount, you would need to use an Other Income account. For the steps on how to enter a journal entry, please check this link:  How to create a journal entry.

 

You can also refer to this article for more details in entering sales tax manually: Enter sales tax amount manually.

 

That should get you on the right track. If you have questions, I would be happy to answer it. Just post it here as a comment and I'll take a look at it.​ Enjoy your weekend.

6 Comments
Moderator

Re: Sales Tax Liability Account Balance

Hello,

 

In QuickBooks itself, yes that's exactly correct.  You want to double check with your 3rd party APP though to make sure you can configure it to hit the correct accounts in QuickBooks when it syncs your information.  When you make a tax payment it should Debit(decrease) the sales tax liability account and Credit(decrease) your bank account you're making the payment from.

Senior Explorer **

Re: Sales Tax Liability Account Balance

Great!  I had one other question regarding vendor discounts when remitting sales tax.  I know there are some jurisdictions that will give a discount to companies who file their sales tax on time.  When this happens, I would assume then that the Sales Tax Liability Account will never reach $0, correct?  Would any type of journal entry need to be made to bring the Sales Tax Liability Account back to $0?

 

Thank you!

Moderator

Re: Sales Tax Liability Account Balance

I would recommend checking with your accountant on which accounts to use, but yes you are correct.

 

Especially if you have a 3rd party app that is recording the entries and payments and then importing into QuickBooks, you would need to make some kind of JE to account for the credit your tax agency is giving you.

Senior Explorer **

Re: Sales Tax Liability Account Balance

Hello,

 

We've been using Avalara for our sales tax solutions.  I've been reading online about using the adjust command button when paying sales tax.  I assume that since I am not using QuickBooks to calculate sales tax, the adjust button would not be an option.

 

If I'm understanding correctly, would I need to create an "Other Income Account" and create a Journal Entry for the sale tax vendor discount amount? 

 

Then after the sales tax remittence has been applied to the "Sales Tax Liability Account", a Journal Entry would apply the vendor discount to the "Other Income Account" since it would now be considered income?   

 

Thank you again!

Moderator

Re: Sales Tax Liability Account Balance

Thanks for coming back to the Community, R_Crane.

 

I'll this thread to help you record the sales tax payments in QuickBooks Online.
 

Yes! When recording a sales tax credit or discount, you would need to use an Other Income account. For the steps on how to enter a journal entry, please check this link:  How to create a journal entry.

 

You can also refer to this article for more details in entering sales tax manually: Enter sales tax amount manually.

 

That should get you on the right track. If you have questions, I would be happy to answer it. Just post it here as a comment and I'll take a look at it.​ Enjoy your weekend.

Senior Explorer **

Re: Sales Tax Liability Account Balance

Hi again,

 

I just had a few other thoughts that came to mind regarding accounting for sales tax within QuickBooks.

 

1. Unfortunately I've discovered the hard way that I've been delinquent on sales tax remittance in the past.  If that were to happen again, how would I go about categorizing the penalty and interest that is applied to my sales tax remittance?  I assume that this cannot be applied to the sales tax liability account, since this is money that I am not holding from purchases to remit sales tax with.  Would it apply to the other income account that I'd be using for vendor discounts?

 

2.  What happens when taxing jurisdictions round up or down when remitting sales tax?  Sometimes I'd wind up owing a few pennies more or less.  Would that money be applied to the sales tax liability account?

 

3.  I'm looking to start my QuickBooks Online company over for 2019.  If I do, should I start my sales tax liability account with my 2018 4th quarter total?  This way I can apply the sales tax remittences to this account when I pay them in January 2019.

 

Thank you again for all your help!