State Sales Tax Bookkeeping Info

It has been years since I have had to be concerned with state sales taxes because the type of services my employers provide to their customers have not been taxable. To begin with, you should be crystal clear on what services you will be providing and to what type of customers. Go to your states sales tax website and do your research to determine if your services or some of your services are taxable. In my state, it is the Comptroller’s office website. If needed, call them to get clarification. It is important that you get this right.

How your bookkeeping software handles sales taxes will vary from one software program to another. Use the Help section and find out how to set up sales taxes. Some software has 2 switches that need to be set. You might need to set up certain customers as taxable and also certain income items will be taxable, although it may not be all of them. As an example at the commercial painter I work for, new commercial construction is not taxable but residential might be. Some remodeling work is taxable and some is not. If we work for a school or hospital that has a tax exempt status, then we would not charge them sales tax.

You can ask your customers for a Resale or Exemption Certificate so that you will know whether to charge them sales taxes. Your business may need to use these forms as well, when you make purchases so your vendors will know whether to charge you sales tax. You can find these forms on the Comptrollers website for your state.

I am speaking here of charging your customers sales tax on the work you do and bill them for. When you charge sales tax and the customer pays you, you will then need to send the amount of sales taxes in to the state with your sales tax return. You are temporarily holding those funds to be paid out later. Sales tax money is not yours and is not part of your profits or expenses.

You will find there are different rates of sales taxes for different areas. The rate may depend on where your business is located or it may depend on the location of the work. You will need to find out which it is and what those rates are.

You will want to set up your sales taxes so they can be automatically applied and calculated when you create an invoice. This is a good time to tell you there is a reason to do your invoices line by line, putting a single service or item on each line. Don’t combine items on a single line. That way you can apply sales tax to certain lines as needed and leave it off of other lines when it is not a taxable item.

Now, similar to Accounts Payable, you will have a Sales Tax Payable account. In that account the sales taxes collected (or paid to you) and the amounts you send in to the state are tracked. Depending on your volume of sales, you may need to file a sales tax return monthly, quarterly or annually. The state will tell you which it is and they will mail you a paper return to use for reporting and paying your sales tax.

This is complicated to get set up correctly and you may want to hire someone to help you with it on a temporary basis. Find someone familiar with sales taxes and your software program. Once it is set up in your system and they have shown you how to charge your customers and track what you will owe, then you should be able to handle it on your own.

If you find out you do not need to charge sales taxes on any of your services, then you can turn off any switches in your bookkeeping software so that you don’t get error messages about sales taxes. All of your customers can be set up as not taxable and your income items too.

As you may have guessed, I can’t give you specific help on this because it varies so much from one business to the next.