US Sales Tax Reconciliation
Receivables provides the US Sales Tax Report to assist you in preparing State Sales Tax Returns and in reconciling these returns to your general ledger.
Within the US, most states, as well as some local governments, collect a sales or use tax for items sold within the state. To ensure collection of sales taxes, each state requires periodic Sales Tax Returns detailing the gross, taxable, exempt and tax amounts for each state, county and city. These returns must be supported by reports which include all transactions for which sales tax should have been charged.
Suggestion: Not all businesses are required to collect and remit state sales and use taxes. You should seek the advice of a qualified tax professional to determine if your business has a legal requirement to collect these taxes.
Additionally, good accounting technique requires the sales tax liability owed to each state be uniquely identifiable within the general ledger. The activity of each of these sales tax liability accounts must equal the amount of sales tax owed to each respective state. To accommodate each state's sales tax reporting requirements, you should be able to:
- Report sales tax for all taxable transactions.
- Identify gross, taxable, exempt and tax amounts for each state, county and city.
- Calculate and review your tax liability to various tax authorities within the US.
- Prepare periodic Sales Tax Returns, as required by each state, from your receivables subledger transactions.
- Ensure the sales tax liability for each state is posted to a separate general ledger account or sub-account.
- Control whether receivable tax adjustments should be included in your state Sales Tax Returns or charged against revenue as a bad debt expense.
- Ensure all authorized sales tax transactions have been posted to the appropriate sales tax liability account and reported in the correct state Sales Tax Return.
- Reconcile your Sales Tax Returns to the tax liability accounts in your general ledger.
Before Reconciling US Sales Tax
Before attempting to use the US Sales Tax Report to prepare your Sales Tax Returns, you must perform the following:
- Define the Tax System Options
- Define Sales Tax Locations and Rates
- Define AutoAccounting for Tax
- Define Tax Exemptions and Exceptions
- Define Tax Profile Options
- Create International Customers and Sites
Receivables calculates sales tax on invoices, debit memos, credit memos and adjustments. Sales tax is not calculated on guarantees, deposits, finance charges or cash receipts. To calculate sales tax on freight, you must set up the freight inventory item.
Note: Because Receivables does not calculate sales tax on cash receipts, you cannot use the US Sales Tax Report for tax reporting on cash basis systems.
See Also
Implementing US Sales Tax
Overview of Tax Reconciliation
Tax Reports
