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Community Contributor **

Paying Sales Tax to the State

Here is the scenerio:  Landscaper purchases materials for a project.  The landscaper pays sales tax on the materials.  When the project is completed the invoice shows plants, trees, mulch, etc as taxable.  The client pays amount which includes the sales tax.  

 

Question is:  Why am I having to report sales tax collected to the State when in reality the client just payed the landscaper back for the sales tax that they payed for in the beginning?

 

Should it not be the difference of the sales tax of the landscaper and the client because of % of markup?  ex: (landscaper price with a 6% sales tax: $100.00*6%=106.00  Client price is: $110.00*6%= 116.60)  So the difference is 10.60.  Would that be the amount to report to the State for sales tax?

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Best answer 03-28-2018

Accepted Solutions
Established Community Backer ***

Re: Paying Sales Tax to the State

Because logic does not apply in the US. We do not have input and output sales tax, VAT in other words.


The landscaper should download, fill out, and hand to the nursery a resellers permit which allows them to sell to the landscaper sales tax free.


Other wise sales tax (and any other fees) paid to get the item is part of the items cost as far as the IRS is concerned. And then you charge sales tax on your retail amount - regardless of whether you mark it up or not.


Most states allow you take a credit for sales tax paid on items you resell - BUT that also requires that you track sales tax paid on ONLY those resale items as an expense, and then when filing sales tax, you adjust the amount due by the amount paid using that expense account as the adjusting account, zeroing it out. Take my word for it, I tried doing it that way, it is not worth the hassle.

Established Community Backer ***

Re: Paying Sales Tax to the State

Not sure about the vendors up there, but here, when I buy and have a resellers permit on file with the vendor I remind the sales clerk before she starts ringing up the purchase.

13 Comments
Established Community Backer ***

Re: Paying Sales Tax to the State

Because logic does not apply in the US. We do not have input and output sales tax, VAT in other words.


The landscaper should download, fill out, and hand to the nursery a resellers permit which allows them to sell to the landscaper sales tax free.


Other wise sales tax (and any other fees) paid to get the item is part of the items cost as far as the IRS is concerned. And then you charge sales tax on your retail amount - regardless of whether you mark it up or not.


Most states allow you take a credit for sales tax paid on items you resell - BUT that also requires that you track sales tax paid on ONLY those resale items as an expense, and then when filing sales tax, you adjust the amount due by the amount paid using that expense account as the adjusting account, zeroing it out. Take my word for it, I tried doing it that way, it is not worth the hassle.

Community Contributor **

Re: Paying Sales Tax to the State

The landscaper does have a resellers permit and was still charged sales tax!  This is in Michigan.  I am going to call the State in the morning to see what the heck is going on.

And you are right about trying to keep track of the sales tax difference especially with the amount of product that is purchased throughout the season.

Established Community Backer ***

Re: Paying Sales Tax to the State

Not sure about the vendors up there, but here, when I buy and have a resellers permit on file with the vendor I remind the sales clerk before she starts ringing up the purchase.

Senior Explorer *

Re: Paying Sales Tax to the State

I used to do that type of transaction with my business. I called it "pass through" taxation, although I don't know if that is the official term. 

 

I would buy products and pay tax at time of purchase, then sell to my customers at the same price that I paid, including the sales tax. I would then report that I had zero sales to the state, since I wasn't paying tax to them this way. This was all before I was using QBO, but if I had done it within QBO, I would have treated my customers as tax free, since I already paid the tax on their behalf. As you can see, it isn't too kosher to do it this way.

 

Later in my biz I transitioned to tax-free purchases and then collecting tax from my customers at time of sale. Quickbooks keeps track of these things very easily. At the end of the quarter, I run a report and remit to around 15 different entities. It takes me about 1.5 hours to do all these payments, mostly online, a few on paper that get mailed to the cities. There are QBO vendors that will do this for you, but it is very expensive. If you are lucky to live in an area that doesn't comprise multiple taxing municipalities, you will have it much easier than me. 

Community Contributor **

Re: Paying Sales Tax to the State

I don't think my transactions will be that in depth.  The State of Michigan told me I need to use the tax exempt form so I don't pay sales tax for materials.  All of my transactions are "on time" purchases so I don't get statements from vendors.

Established Community Backer ***

Re: Paying Sales Tax to the State

on time purchase, you still get a receipt, that is your paperwork to back up the accounting entries.

 

Statements, unless they show actual puchase details, are summaries and are not supporting documentation for purchases anyway.

 

Just like a bank or CC statement is not supporting documentation for accounting expense or income entries.

Community Contributor **

Re: Paying Sales Tax to the State

Yes,  I have TONS of receipts.

Frequent Contributor *

Re: Paying Sales Tax to the State

The Texas Comptroller told me to reduce Taxable Sales by the amount of tax we paid ourselves on material.  Since only a select few sales are taxable, it's easy enough for me to track which related purchases we paid tax on.  How do I make this adjustment in QBO?  It doesn't seem to want to reduce  taxable sales.  It will make a credit adjustment to the total owed, but that's not agreeing with the State calculation.  If I use Reason as "credit", which account do I use?  I tried the same "material income" that I assumed QBO used to calculate the original tax on, but that gave me a really weird balance due.  

Established Community Backer ***

Re: Paying Sales Tax to the State

@RhondaQBUser

 

I am in Texas too and while I have not asked that question that way, I would not expect that response either.


Short answer is you can not affect taxable sales from the pay sales tax module at all.


This area is a quandary


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.

 

Frequent Contributor *

Re: Paying Sales Tax to the State

Thank you.  I appreciate your response.  Do you think I did it wrong when filing with the State by reducing taxable income?  If so, how do you do the credit with the State?

 

We don't use inventory.  We are an electrical contractor and I code all materials to COGS.  I understand what you said elsewhere about the IRS recognizing the full cost, and not to reduce COGS by the sales tax already paid amount.  So I'm still unsure where to create the account I need to credit.  We only have to charge sales tax on specific jobs, and we rarely have them, so I just need a quick fix.  It's also costing more in my time to fix and adjust it than it's worth, but I've got to somehow get the correct payment entered.

 

Since QBO doesn't have any way to add the taxing Agencies I need for the various cities jurisdictions, I just manually enter the full 8.25% on the customers invoice.

Established Community Backer ***

Re: Paying Sales Tax to the State

@RhondaQBUser

 

Do you have sales tax turned on in QBO? If so do you have the auto sales tax beta test, or do you have the original sales tax (which works)?


You can tell if it is the original by click add/edit sales tax items in the sales tax part, and if you can create sales tax item then you have the orginal.

Frequent Contributor *

Re: Paying Sales Tax to the State

I have the dumb auto one.

Established Community Backer ***

Re: Paying Sales Tax to the State

@RhondaQBUser

 

As I said in another community, this auto sales tax thing is going to get some company in trouble. QBO project managers do not seem to understand they are experimenting with real people and real businesses (with ZERO knowledge of running a business) - and a sales tax audit is going be a mess for those with this auto sales tax SNAFU


Hopefully if that happens to someone, that person has a lawyer or judge in the family and has the guts to sue and not settle with a non disclosure agreement attached. For this situation, with no input from the user, intuit is directly responsible.


Anyway, for the current problem if it was me I would bite the bullet and just pay the sales tax due


Going forward, I would not use banking downloads to make entries for you.
Take the time and set all items in products & services to non taxable, set all customers to non taxable, and try to change the tax setting to no you do not collect sales tax (I do not know if you can do that with auto sales tax)
create a current liability account called my-sales-tax-payable or something
create a service item called sales tax, enter 0.0825 in the rate and select the my-sales-tax payable account as the income account


On the sale, enter your service items with the price you normally charge (not including sales tax
If there is more than one item use a sub-total to get the total amount
then enter that sub total amount in the qty block of the sales tax item

That will post income from your services items, and post the sale tax to the my-sales-tax-payable account


at tax time do a sales income report for the period. If you have plus, you could set the location tag for the zip code and use that to sort sales by jurisdiction assuming you tagged the transactions as they occur, other wise it will have to be kept outside of QBO, spreadsheet maybe? Fill out the sales tax reporting, the tax due should be less than the tax collected if you are filing before the deadline (early payment discount). Make the sale tax payment in QBO, and use the my-sales-tax-payable account as the expense (reason) for the payment.