identifying sales tax

[Maf. King]

On Thursday 12 May 2005 16:50, bri wrote:

Hi Bri,

Firstly, I'm in the UK, and also IANAA, and don't pretend to know how the IRS 
works, but bear with me...


In the UK, we have VAT, which is a sales tax at 17.5% on most things.  Some 
things are 0% rated (or exempt), and a very few things are 5% rated.  Vendors 
charge the sales tax on items "sold" (or services provided) and keep track of 
that.  Items purchases have the VAT added on to the net cost, and every 3 
months (usually) we add up the VAT we have paid, deduct it from the VAT we 
have charged and pay (reclaim if we have bought more than we have sold!) the 
balance to the Government.  This sounds something like what you describe.

If I'm on the wrong track, list please accept my apologies for the noise, and 
ignore the rest of this post!

> how are people handling sales tax? now that the IRS allows us to deduct
> sales tax on items purchased, i want to keep track of it. my first take
> was to do a split - $x to the actual expense category, then the $x that
> was the sales tax from the receipt. that would work great, but then i
> got to thinking... that means that my totals in the expense categories
> are 'wrong'. not that i'm overly anal about whether i spent $100 on
> something or $108.25 but.... it would add up and does create an
> inconsistency.
>

Thiat is exactly how I track my "input tax".  virtually every transaction has 
a split component to a VAT account, the total of which is used to calculate 
the sum owing to the government.

IMHO, you are thinking about the sales tax in the wrong way. Before the IRS 
concession, when you bought something for 108.25, the value of that expense 
was $100, and you had additional expense of $8.25 to the IRS. If you wanted 
to be _really_ anal, then you should have recorded that as a split anyway.  

Now, however, the IRS may regard the $8.25 more like a loan, which you reclaim 
later, presumably offsetting it against tax on earnings or whatever.  
Therefore, the tax has stopped being an expense, and has become a transfer to 
an asset account. 

Just my 2/100 of whatever currency you prefer!

Maf.