How to Take Care of Sales Taxes Obligations
Even more complicated than paying income taxes is keeping up-to-date on local and state tax rates and paying your business’s share of those taxes to the government entities. Because tax rates vary from county to county, and even city to city in some states, managing sales taxes can be very time-consuming.
Things get messy when you sell products in multiple locations. For each location, you must collect from customers the appropriate tax for that area, keep track of all taxes collected, and pay those taxes to the appropriate government entities when due. In many states, you have to collect and pay local (for the city or county governments) and state taxes.
An excellent website for data about state and local tax requirements is the Tax and Accounting Sites Directory. This site has links for state and local tax information for every state.
States require you to file an application to collect and report taxes even before you start doing business in that state. Be sure that you contact the departments of revenue in the states you plan to operate stores before you start selling and collecting sales tax.
All sales taxes collected from your customers are paid when you send in the Sales and Use Tax Return for your state — you must have the cash available to pay this tax when the forms are due. Any money you collected from customers during the month should be kept in an account called Accrued Sales Taxes, which is actually a Liability account on your balance sheet because it’s money owed to a governmental entity.