business income not from sales

monibalhorn · ‎January 31, 2019

Our business has two different income streams: one is derived from the sales of products, the second is from licensing intellectual property to another company which involves receiving an upfront fee, milestone payments and annual royalty. I have two accounts receivable accounts - the typical one setup for receiving payment on product sale invoices and another one for receiving payments on invoices to company A involving our license agreement called "company A fees and royalties". The product items sold are inventory parts, while the fees and royalty items are other charges. I maintain separate income accounts with sales going to Gross Sales and license-related income going to a other income account, for which I will receive a 1099 from company A for reporting this income. When I run a sales tax liability report, the income from company A is reported as sales tax revenue. This is not however income from sales. I can of course just manually subtract the amount when reporting sales tax revenue to my state's agency and on schedule C on our tax income returns, but I'm not sure this is correct. What is the correct way to report income from non-sale sources so that it doesn't show up as sales tax revenue item or as gross sales income?

Rustler · ‎February 01, 2019

@monibalhorn

The company has two income streams, then you should have two income accounts as part of gross income
Other income is for things like sales tax discounts, early payment term income with vendors, interest income, etc

If you have actually checked with your state about the intellectual property and sales tax (some states will tax that), set the other charge item to non taxable, and set the customer to non taxable too. You still report gross sales but you also report non taxable sales, and only have a sales tax liability for taxable sales. A sales audit will take exception to you not reporting non taxable sales, at least in my experience.

Whether or not you get a 1099 is immaterial a far as your accounting is concerned, it only comes into play when you file taxes and report gross sales.

View solution in original post

qbteachmt · ‎February 02, 2019

They are already Separate. Run your Sales reports, such as Sales by Customer Summary, Columns by Item Type. And you don't need separate AR. You already told us you know it by Charge Item and by Name. AR is part of managing payments being on time and part of banking. Not really Sales Separation. And yes, you control Sales Taxes by Customer name, and by Item status. The program then figures out if you sold something taxable to someone subject to taxes.

View solution in original post

Rustler · ‎February 01, 2019

@monibalhorn

The company has two income streams, then you should have two income accounts as part of gross income
Other income is for things like sales tax discounts, early payment term income with vendors, interest income, etc

If you have actually checked with your state about the intellectual property and sales tax (some states will tax that), set the other charge item to non taxable, and set the customer to non taxable too. You still report gross sales but you also report non taxable sales, and only have a sales tax liability for taxable sales. A sales audit will take exception to you not reporting non taxable sales, at least in my experience.

Whether or not you get a 1099 is immaterial a far as your accounting is concerned, it only comes into play when you file taxes and report gross sales.

monibalhorn · ‎February 01, 2019

thanks very much for your response. I report all income on our Schedule C and the account for the two different income streams have separate everything. After reading through your email, I think I understand the problem I'm having with sales tax liability reports. I thought I had to fill in both Tax Code and Tax Item under Sales Tax Settings for the customer. Once I left the Tax Item blank, it now reports the sales liability correctly.

qbteachmt · ‎February 02, 2019

You only need the One AR. Everything is already by Name and by Sales or Charge items.

You can simply run your sales reports to see the differences. Your Sched C doesn't have these micro-managed accounts.

Run, for instance, Sales by Customer Summary, columns by Item Type or even Item Detail.

monibalhorn · ‎February 02, 2019

thank you for your reply. I like keeping inventory product sales separate from money received from intangible assets such as payments for royalties, which are not sales, in my QBs record keeping. It's really not that difficult to do. I spoke to my accountant about it, and there is a spot on the schedule c for other income that is not sales, but he said it can be reported with gross sales or other income - either way is fine - either way we are reporting the total income received. Whether I report it to the CA sales and use agency as sales doesn't really matter either. I only pay to our state the sales tax I collected from customers in our state. Since the money received for the intangible assets come from an out-of-state company, I don't collect any sales taxes from them, and I subtract that out of the total sales on which I have to pay to the state.

qbteachmt · ‎February 02, 2019

They are already Separate. Run your Sales reports, such as Sales by Customer Summary, Columns by Item Type. And you don't need separate AR. You already told us you know it by Charge Item and by Name. AR is part of managing payments being on time and part of banking. Not really Sales Separation. And yes, you control Sales Taxes by Customer name, and by Item status. The program then figures out if you sold something taxable to someone subject to taxes.

monibalhorn · ‎February 02, 2019

just noticed that I'm listed as an experienced member - I'm a scientist, not an accountant and far from experienced in accounting and QBs, though I try my best. I looked up what our state says on reporting intangibles for sales tax purposes: (c) Intangible assets and rights are exempt from taxation and, except as otherwise provided in the following sentence, the value of intangible assets and rights shall not enhance or be reflected in the value of taxable property. Taxable property may be assessed and valued by assuming the presence of intangible assets or rights necessary to put the taxable property to beneficial or productive use.

qbteachmt · ‎February 03, 2019

"I'm a scientist, not an accountant"

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business income not from sales