Accounting for Gross Receipts Taxes

@Nathan40 

Taxes collected should not appear on a P&L as either income or expense - taxes collected are a balance sheet item.  The gross receipts tax should be treated like any other tax that is collected and then paid to the state.  It is an increase in a liability when collected and a reduction of a liability when paid. 

So, when the tax is collected: debit cash, credit gross receipts tax liability.  When the tax is paid to the state: debit gross receipts tax liability, credit cash.

Thanks for your response, Rainflurry. I understand what you are saying with regard to a 'collected' tax, like sales tax. A gross receipts tax seems different to me. Isn't a gross receipts tax more akin to an income tax?

@Nathan40 

I have no experience with GRTs, so take my response with a grain of salt.  It appears to me that the NM GRT functions more like a sales tax than an income tax.

Since they are booking the tax payment to a contra-revenue account, they must be passing this tax along to their customers and booking it as revenue, yes?  That works, although it still seems more appropriate to book the tax collected as a liability unless they do not break it out on the customer invoice, in which case, booking it to revenue when collected and to a contra-revenue account when paid seems appropriate.  You could just as easily book it to an expense account as to a contra-revenue account - they are both debits for your journal entry - and the net effect is the same.