identifying sales tax

[Rod Engelsman]

Maf. King wrote:

>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.
>
>  
>
For our overseas friends a bit of clarification:

The tax structure in the U.S. is complicated by the relative sovereign 
status of the states. So each level of government has certain taxing 
authority and the types of taxes vary by level of government as well.

The Income Tax is the primary Federal level tax, but there are a very 
few specific sales taxes as well, notably fuels and tires. These are 
called "excise" taxes. Probably the most appropriate name for a tax ever 
coined.

Most states have an income tax as well, totally separate from the 
federal tax, but generally using the same input numbers. Most states 
also have a sales tax which is levied solely at the retail level. If 
you, as a consumer, go into an auto parts store and buy a new muffler 
you will be charged a sales tax, but if a repair shop buys the same 
muffler, they do not. But they will charge the sales tax to the customer 
instead.

A very few local entities (towns & counties) have income taxes and quite 
a few have a small sales tax, but their main income is from property taxes.

So the IRS (Federal level) actually allows you to deduct taxes (sales) 
that have been paid to the state. They also allow deductions for local 
property taxes.

You may bitch about your VAT or GST or whatever, but our "system" is 
infinitely more complicated. In fact our tax system is similar to our 
health system in that the defining characteristic is the lack of any 
real "system".

Rod