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Level 1

How do I account for COGS items for which I paid taxes? I purchased some software that I'm reselling to a client. My supplier charged tax for the cost of goods.

Normally when I purchase a product for resale, my vendors do not add tax. I then  add my markup and applicable taxes for the resold amount before invoicing the client. I recently purchased a product that I intend to resell but my supplier withheld taxes on the COGS amount. Once I add my markup and figure the taxes on the full sale amount, I need to decrement the taxes due by the amount that I paid my vendor. The only way I can figure to do that is to have two line items on the invoice. The first is the COGS amount with no taxes applied and the second is my markup with tax applied. But then I give my client visibility into my margins. Is there another way to do this without giving the client that visibility?

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Best answer 12-10-2018

Accepted Solutions
Level 15

The IRS says any amount paid to get an item, including sa...

The IRS says any amount paid to get an item, including sales tax, shipping, etc or to make it ready for sale is part of item cost - so as far as the IRS is concerned it should be added to item cost and received at a price that includes all costs

States have what is often called a resellers permit, you download it, fill it out, give it to your vendor and then he can sell to you sales tax free for items you sell - that is the easiest way to deal with this in my opinion.

But if you want to track sales tax paid and claim a reduction in sales tax due when you file. When you receive inventory, on the expense tab, select a sales tax paid expense account (you will probably have to create it the first time).

This is the amount you will claim on the sales tax form, and this same amount has to be used to lower sales tax due in the pay sales tax module, using the adjust button.

This amount will not show on the sales tax liability reports though, you will just have to remember to use sales tax adjust.



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Level 15

The IRS says any amount paid to get an item, including sa...

The IRS says any amount paid to get an item, including sales tax, shipping, etc or to make it ready for sale is part of item cost - so as far as the IRS is concerned it should be added to item cost and received at a price that includes all costs

States have what is often called a resellers permit, you download it, fill it out, give it to your vendor and then he can sell to you sales tax free for items you sell - that is the easiest way to deal with this in my opinion.

But if you want to track sales tax paid and claim a reduction in sales tax due when you file. When you receive inventory, on the expense tab, select a sales tax paid expense account (you will probably have to create it the first time).

This is the amount you will claim on the sales tax form, and this same amount has to be used to lower sales tax due in the pay sales tax module, using the adjust button.

This amount will not show on the sales tax liability reports though, you will just have to remember to use sales tax adjust.



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Level 2

Rustler's response is correct, but depending on where you...

Rustler's response is correct, but depending on where you are located, the actual process of claiming the credit may be convoluted:  specifically, if you are in a state that has several "district" taxes (county or city sales tax or even sub-sets of those) the amount of tax you are going to claim to reduce your next sales tax report might well need to be able to identify each component of the tax you paid to apply the credit into each "district".  California sales tax is a nightmare with this.

Yes, create a separate GL to show "Sales Tax Paid on Resale Items", and this would most appropriately be a contra-liability account (a liability that normally would carry a debit balance), and then maybe prepare a spreadsheet to be able to support the reduction you claim on your monthly / quarterly / annual return.

I also recommend Don Patron Tequila or Jameson Irish Whiskey ....
Level 15

crown royal, or chivas with the silver bullet as a chaser

crown royal, or chivas with the silver bullet as a chaser
Level 8

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