Sales tax in the books
Sales tax you collect is a liability you hold for a state or local agency. It is not revenue and it is not federal income tax.
General information, not tax or legal advice. Whether you must collect, which rate applies, and when you file are state and local questions. This page does not list rates and does not decide nexus. The calculator only applies a rate you type.
Three different taxes people mix up
Federal income tax is computed on taxable income and, for many owners, paid through estimated tax or withholding. Self-employment tax is the Social Security and Medicare tax on net earnings, estimated on its own page. Sales tax is neither. It is a tax on a transaction, collected from the buyer, that the seller remits. Putting it on the profit and loss as income overstates revenue and margin.
The entries, in words
- You invoice or make the sale. Debit accounts receivable or cash for the full amount the customer pays. Credit revenue for the pre-tax price. Credit sales tax payable for the tax. On a $100 sale with an 8.25% rate you already confirmed, revenue is $100, tax payable is $8.25, and the customer owes $108.25.
- The customer pays. Debit cash. Credit accounts receivable. Sales tax payable does not move.
- You remit. Debit sales tax payable. Credit cash. If the agency charged a small discount or a penalty, that difference is income or expense. The original collection is still not revenue.
On the cash method you might not record revenue until the payment. You still should not call the tax piece revenue. A clearing account that holds the tax from the day cash arrives is enough, as long as the month-end close checks that the liability matches what you still owe.
Where people create a false profit
Recording the entire deposit as sales, then recording the remittance as “taxes” expense, can accidentally land near the right net profit and still wreck gross margin. It also hides a payable. If you collected tax and have not remitted it, the balance sheet should show the debt. Cash that includes someone else’s tax is not all spendable. Runway that treats it as yours will run out early.
Use tax is the mirror image
When you buy a taxable item and the seller did not charge sales tax, some states expect you to accrue use tax. That amount is part of the cost of the item or an expense, plus a liability, until you pay it. It is still not federal income tax. Confirm the rule with the state agency or a preparer before you book a number this site did not calculate.