Recording transactions which will be taxed in the future

Jean-David Beyer jdbeyer at
Mon May 17 22:22:59 EDT 2004

Mark H. Wood wrote:
> I'm seeking advice on how to handle Indiana's "use tax".  Our state 
> legislators are too lazy to negotiate reciprocal tax collection
> agreements with the other states, but of course they want the money
> regardless. Anyway, a resident of Indiana who buys something from a
> business in another state (mail order, Internet, phone, fax, whatever)
> for delivery in Indiana owes Indiana sales tax on the purchase, but the
> seller is not obliged to collect the tax unless he has a physical
> presence in Indiana. Instead, the lucky citizen is required, at income
> tax time, to pore over his journals and find all such transactions, add
> them up, figure the tax, and send it in.  I don't mind paying the tax,
> any more than any other tax, but finding the relevant transactions is
> easily the most hateful part of filling the income tax form.
> So, what I'm looking for is a way to note out-of-state purchases in a 
> GnuCash register, in such a way that I can have GnuCash collate and
> total all such purchases for the previous tax year instead of having to
> hunt them down and remember who collects tax and who doesn't.
> Alternatively, perhaps there is a way to record a synthetic transaction
> as a split in the real transaction, transferring virtual money between
> the sales tax account and a sort of phantom escrow account that's
> merely used to total the tax owed but not yet paid.  At the end of the
> year, money is transferred as needed to zero out the phantom account in
> order to record the actual payment of the tax.  It's all rather vague
> -- I need more practice in "thinking like an accountant".  (One
> additional complication is that I've arranged my withholding so that
> the use tax is almost always entirely consumed by a charge against a
> refund of excess income tax paid, so there's actually no cash out, just
> less cash in later.)
> Suggestions?
If you live in New Jersey, it is completely hopeless to do this correctly. 
If you buy from out of state, you pay tax on the amount you did not pay to 
the other jurisdiction. So if I buy something from a state that collected 
4% tax from me, and since New Jersey charges 6%, then iff this is a 
taxable item, I would send 2% tax to New Jersey. Per contra, if I buy 
something in New York City (8.75% sales tax IIRC), I pay New Jersey 
nothing. I also have a 30 (or so) page booklet that lists some of the 
items that are taxable and some of the items that are not taxable. For 
example (and I may have this backwards) books are taxable and magazines 
are not. But the booklet makes a big point that the lists are not 
complete, so I assume you must read the entire tax code to really know. I 
know what most of my friends do: they ignore this. If you buy a car, they 
will catch you, but I imagine you can get away with almost anything else 
unless you do a whole lot of it. I pay the tax on my bills, for 
example, but I can not tell very well from my American Express bills which 
items have had tax withheld and which did not, nor is it easy to tell 
which items were taxable or which were not.

If I take a trip and eat in restaurants (taxable in NJ), and gain 10 
pounds, I am bringing that excess fat back to New Jersey. Do I pay tax on 
those meals if they were not taxed where I ate them? While this is not a 
completely serious question, you can see how hopeless the whole thing is.

   .~.  Jean-David Beyer           Registered Linux User 85642.
   /V\                             Registered Machine   241939.
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