How to record sales taxes. (Financial Management) (column)

How to Record Sales Taxes

A majority of the 50 states and many cities or other local jurisdictions have sales taxes. In some cases, both state and local taxes are assessed. It is usually the duty of the retailer to collect these taxes.

A number of factors complicate the collection and recording of sales taxes. Few, if any, states have one flat sales tax rate for all sales. There may be more than one tax rate, depending on the type of items sold, and some items may be entirely exempt from the sales tax. There are also exemptions based on the status of the purchaser. These might include sales to governmental agencies, certain public institutions, foreign diplomats, and persons who will resell the goods. Often, individual sales of very small amounts are tax exempt.

The element of "breakage" also complicates the recording …