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How do I account for the prepayment of Sales Tax?

I purchase large quantities of fuel in California, the sales tax is prepaid to the vendor. At the end of the quarter I file a sales tax return and calculate what I have already prepaid in sales tax for fuel. Should the pre-payment still be considered a liability or is it a prepaid asset which is then applied to the liability?

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Best answer 10-15-2018

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Sales tax paid is typically just a cost of the item being...

Sales tax paid is typically just a cost of the item being purchased unless that item is held as inventory.

If you are reselling fuel, then you can get a sales tax credit against that purchase (though typically you fill out hand to the vendor a reseller permit so he can sell to you sales tax free).  Book the sales tax amount as a sales tax paid expense, and later when you pay sales tax, you adjust the amount due by the expense amount for that reporting period - zeroing out the expense.

But, CA does have some weird rules, I would suggest you get with a state tax accountant and insure that you can take a sales credit for the purchase of fuel.  Last thing you want, is to do it wrong and incur a sales tax audit.

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Hi I am facing a similar issue. How did you got about it ?

Hi
I am facing a similar issue. How did you got about it ?
Established Community Backer ***

Sales tax paid is typically just a cost of the item being...

Sales tax paid is typically just a cost of the item being purchased unless that item is held as inventory.

If you are reselling fuel, then you can get a sales tax credit against that purchase (though typically you fill out hand to the vendor a reseller permit so he can sell to you sales tax free).  Book the sales tax amount as a sales tax paid expense, and later when you pay sales tax, you adjust the amount due by the expense amount for that reporting period - zeroing out the expense.

But, CA does have some weird rules, I would suggest you get with a state tax accountant and insure that you can take a sales credit for the purchase of fuel.  Last thing you want, is to do it wrong and incur a sales tax audit.

View solution in original post

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