Sales Tax Credit
LAH
Member Posts: 3
I've searched the posts in this community chat regarding if I receive a credit from the gov't for filing sales tax early/on time. The response has been to: @RCraigB In this case, all you would need to do is make sure that you are reducing the balance on the Sales Tax Payable account by creating a journal transaction showing that funds have been moved from Sales Tax Payable to your bank account (as a credit) -- and this will reduce the balance of that particular account, and increase your bank account balance.
Have you tried this? A debit to the sales tax liability account works decreases the liability, but the credit to the bank account decreases the account balance. Are you doing 1 journal transaction or two? This does not make sense to me!! Thanks for any suggestions.
Comments
@LAH,
I believe the correct treatment would be to debit sales tax liability for the gross sales tax due, credit cash for the actual amount being remitted and credit other income for the rebate amount. Reasoning: You have collected more from your customers than is required to be submitted, the excess would be income to the business.
As a starting point, agree with:
1. This pays the initial debt, yes?
* debit sales tax liability for gross sales tax due, credit cash for the actual amount being remitted
2. This shifts "credit" govt gave me from account TBD?? to an income account:
* and credit other income for the rebate amount. Reasoning: You have collected more from your customers than is required to be submitted, the excess would be income to the business.
The credit from the govt isn't income - it's a rebate on a liability I collected for them. Don't want to pay taxes on that, true?
I'm missing something, as the explanation from post I found doesn't make sense, and your post is giving me 1/2 of the answer. I must really be missing something, or making this way harder. Thanks.
@LAH,
I do believe the rebate is income. I don't see how it can be treated any other way. It is cash that the company collected and is keeping. So as an example, you sell 100,000 subject to sales tax. Let's go with GA's highest rate of 8%. That means you would have collected and deposited 108,000. Debit cash 108,000 credit sales 100,000 and credit sales tax payable 8000. When you remit. GA offers 3% on the first $3,000, 0.5% on the remainder. So if I'm figuring correctly, 3000x.03+(8000-3000x0.5)=115. My entry would be
Debit sales payable 8000
Credit Other income 115
Credit cash 7885