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Sales Tax Paid on item to be resold? HELP!

Typically when purchasing an item that is to be resold to a customer, I don't pay sales tax on the item.  Today, however, I didn't have my certificate with me and ended up paying sales tax in the store.  What is the correct way of entering my purchase into quickbooks?   Typically since I don't pay tax, items for resale go into my COGS (costs of goods sold) expense account.  I am unsure what to do with the sales tax portions of the receipt though.  When I invoice the customer I charge them the full sales tax, so basically the state gets the tax twice.  How to I enter this so that my sales tax payable is correctly adjusted, I can receive credit when I file may report with the state, and don't end up claiming this as income?  

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Best answer 12-10-2018

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The way it was explained to me by an accountant:  When yo...

The way it was explained to me by an accountant:  When you make the initial purchase of the item, be sure to claim the entire expense (including tax paid) in quickbooks using the cost of goods sold expense account.  When you adjust the sales tax down to compensate for the sales tax you already paid, it is claimed as an income under parts/material sales.  This income increase basically cancels out the sales tax portion of the expense you claimed.  They zero each other out. 

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The way it was explained to me by an accountant:  When yo...

The way it was explained to me by an accountant:  When you make the initial purchase of the item, be sure to claim the entire expense (including tax paid) in quickbooks using the cost of goods sold expense account.  When you adjust the sales tax down to compensate for the sales tax you already paid, it is claimed as an income under parts/material sales.  This income increase basically cancels out the sales tax portion of the expense you claimed.  They zero each other out. 

View solution in original post

ProAdvisor

You should talk to your accountant about this. I'd go bac...

You should talk to your accountant about this.

I'd go back to the store with the receipt & my sales tax exemption certificate & get a refund from them for the sales tax you paid.

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Useless. Didn't answer the question.

Useless. Didn't answer the question.
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I believe you have to create an expense account for sales...

I believe you have to create an expense account for sales tax paid and code your sales tax to that account.

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That is similar to how I dealt with the same situation. I...

That is similar to how I dealt with the same situation. I had many expenses which I paid sales tax on and resold. I created a separate tax code to track the sales tax i had paid and adjusted it against the sales tax i paid on sales per reporting period.
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When I file my quarterly sales taxes the state asks if I...

When I file my quarterly sales taxes the state asks if I inadvertently paid any sales tax. They will take this off of the amount you owe in sales tax when you file. The state is not getting the tax twice if you file your taxes correctly. 

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Tammy, thank you, I do understand that the state allows m...

Tammy, thank you, I do understand that the state allows me to reduce the amount paid, but how do I enter that into quickbooks.  When I try to adjust the sales tax due, it requires me to put it in an income account like sales or service income.  It's not really an income so I'm confused on how to properly enter it
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You should have created an adjustment account as another...

You should have created an adjustment account as another post suggested. Since it reduces your total liability, that is where it goes. The accounts allow all of the above if you are making the adjustment through the "sales tax" (Vender) section.
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Re: Sales Tax Paid on item to be resold? HELP!

How do I invoice these items?  Do I invoice for the full amount I paid for resale plus the sales tax I paid?  Do I uncheck the box to tax the customer for the amount I invoice?

 

Thanks!

Community Contributor **

Re: The way it was explained to me by an accountant: When yo...

Almost every timestamp in this thread is 12/10/18 6:43pm, so I don't know how old this is and I can't follow the flow of the discussion ... but I'm facing a similar issue.

 

I know how to deduct "Tax-paid purchases resold prior to use" from my annual California sales tax return. Here's what I've worked out for entering it in QuickBooks.

 

I sell computer stuff. Let's say I buy a $100 hard drive and pay 8% tax. Maybe I resell it for more, or even less. Regardless, I don't owe the tax I paid, just the tax I collect from my customer.

 

I enter the purchase as a $108 credit card charge with two accounts:

 

5120 COGS $100 - Hard drive

2290 Sales Tax Payable $8 - 8% tax on $134 resold prior to use

 

This immediately _reduces_ my sales tax liability account. There is no adjustment to make to the sales tax at year end. The only trick is that I have to run reports and manually add up values in this category to complete the tax return, but I already do something similar for use tax.

 

 

Make sense? Am I missing anything?

Community Contributor **

Re: Sales Tax Paid on item to be resold? HELP!

How do I invoice these items?  Do I invoice for the full amount I paid for resale plus the sales tax I paid?  Do I uncheck the box to tax the customer for the amount I invoice?

 

This one I know, at least for California:  you invoice them the same way you invoice anything else. What you paid for an item has no bearing on what you charge for it. You could buy for $100 and sell it for $90 or $110. Charge tax on the $90 or $110.

 

This is only about a special situation where, if you sell an item before you use it, you can get the tax that YOU paid back by deducting the tax from your sales tax return. 

ERS
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Re: Sales Tax Paid on item to be resold? HELP!

I talked to my state's division of taxation (New Jersey) and they stated you can submit a form to get a refund for the sales tax that you paid. Just show them proof that tax was paid on an item that wasn't supposed to be taxed and get the refund for that. Otherwise the state is charging tax twice and you're paying extra (the additional sales tax) on your purchases.

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