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monibalhorn
January 31, 2019
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business income not from sales

  • January 31, 2019
  • 1 reply
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Our business has two different income streams: one is derived from the sales of products, the second is from licensing intellectual property to another company which involves receiving an upfront fee, milestone payments and annual royalty. I have two accounts receivable accounts - the typical one setup for receiving payment on product sale invoices and another one for receiving payments on invoices to company A involving our license agreement called "company A fees and royalties".  The product items sold are inventory parts, while the fees and royalty items are other charges.  I maintain separate income accounts with sales going to Gross Sales and license-related income going to a other income account, for which I will receive a 1099 from company A for reporting this income.  When I run a sales tax liability report, the income from company A is reported as sales tax revenue.  This is not however income from sales.  I can of course just manually subtract the amount when reporting sales tax revenue to my state's agency and on schedule C on our tax income returns, but I'm not sure this is correct.  What is the correct way to report income from non-sale sources so that it doesn't show up as sales tax revenue item or as gross sales income?

Best answer by Rustler
@monibalhorn

The company has two income streams, then you should have two income accounts as part of gross income
Other income is for things like sales tax discounts, early payment term income with vendors, interest income, etc

If you have actually checked with your state about the intellectual property and sales tax (some states will tax that), set the other charge item to non taxable, and set the customer to non taxable too.  You still report gross sales but you also report non taxable sales, and only have  a sales tax liability for taxable sales.  A sales audit will take exception to you not reporting non taxable sales, at least in my experience.

Whether or not you get a 1099 is immaterial a far as your accounting is concerned, it only comes into play when you file taxes and report gross sales.

1 reply

Rustler
RustlerAnswer
February 1, 2019
@monibalhorn

The company has two income streams, then you should have two income accounts as part of gross income
Other income is for things like sales tax discounts, early payment term income with vendors, interest income, etc

If you have actually checked with your state about the intellectual property and sales tax (some states will tax that), set the other charge item to non taxable, and set the customer to non taxable too.  You still report gross sales but you also report non taxable sales, and only have  a sales tax liability for taxable sales.  A sales audit will take exception to you not reporting non taxable sales, at least in my experience.

Whether or not you get a 1099 is immaterial a far as your accounting is concerned, it only comes into play when you file taxes and report gross sales.

    M
    monibalhornAuthor
    February 2, 2019

    thanks very much for your response.  I report all income on our Schedule C and the account for the two different income streams have separate everything.  After reading through your email, I think I understand the problem I'm having with sales tax liability reports.  I thought I had to fill in both Tax Code and Tax Item under Sales Tax Settings for the customer.  Once I left the Tax Item blank, it now reports the sales liability correctly.

    qbteachmt
    qbteachmt
    February 2, 2019

    You only need the One AR. Everything is already by Name and by Sales or Charge items.

     

    You can simply run your sales reports to see the differences. Your Sched C doesn't have these micro-managed accounts.

     

    Run, for instance, Sales by Customer Summary, columns by Item Type or even Item Detail.

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