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Online sales tax collected and remitted by sales platform (like facebook marketplace, etsy, etc)

Forum|Forum|4 years ago
April 16, 2022
2 replies
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Hello,

I'm entering monthly online sales amount into QB Online.
The reported total gross sales includes sales tax amount that the platform collected from the buyer and the platform will remit that to tax authorities. For example total gross sales is $5,500, including $600 sales tax. The net amount I receive from the platform is $4,900 ($5,500-$600)
What should my journal entry be for that transaction (I'm not including any fees / other expenses because they are straight forward to expense account). I believe the $600 sales tax shouldn't go to sales tax payable since it is not my liability because the platform deduct that from my payment. Can I include the $600 as the merchant fees?
Thank you

QuickBooks Online

Best answer by Pete_Mc

If the 1099 is showing the full Gross Sales, then it looks like you're going to have to show that full Gross Income and then show the reduction of the Sales Tax. There are a couple of ways to do it and your Accountant may have a preference, but with a couple of restaurants I've worked with before the used a a couple of Sub Accounts. It looked something like this:

Sales (parent Acct)

- Credit Card Sales (Sub Acct: your $5,500 Gross sales goes here)

- Sales Tax Owed (Sub Acct: this was a negative entry that reduced Gross Sales)

Sales Tax Liability (this is where the above "Sales Tax Owed" went to show what was owed in taxes)

In the above scenario when they wrote a check to the City/State for the Sales Taxes owed it would reduce the Liability Acct. But you're not writing the check. So I'd strongly suggest you make a quick call to your Accountant for how they want the payment shown. I'm guessing a General Ledger entry, but I've seen a lot of Accountants say the last thing they use is a GL entry. And you don't want them trying to figure out what the huge balance is in the Sales Tax Liability Acct during tax season

Also... This time you mentioned Merchant Fees (or I missed it before). So obviously that gets broken out into an Expense Acct and the full $600 does not go into the ST Liability Acct. Probably a Sub Acct under Fees, but you might ask your Accountant when you speak to them. (Anything you can do to get the accounts the way THEY want to see them will just speed up the process at tax time.)

P

Pete_Mc

Is the merchant service collecting and paying the tax in YOUR CO. name, or are they collecting it in their name as the "seller" and submitting the funds to the appropriate Tax Authority.

If you are just getting the Gross Sales of $4,900 and your provider is collecting AND submitting the taxes for the sale, then I would just enter the $4,900 Sales. Be sure you keep all the statements that shows the provider is the one collecting the taxes (and therefore is responsible for submitting them).

If the Sales Tax is being held in a Liability Acct in your companies name by the provider, then I would set up Sales Tax Payable Liability account and track it on your books per their statements.

V

VianiAuthor

Hi Pete-Mc,
The merchant is collecting in their name and submitting the funds to the appropriate tax authority. The problem is when I receive the 1099, the amount will include the sales tax as well. So the 1099 will say I have $5,500 gross sales. However the net I receive from the Merchant is $4,900. If I make my journal entry as bellow, is it correct?

Gross Sales $5,500 (credit)
Merchant fees - sales tax collected and submitted by merchant $600 (debit)

Bank account $4,900 (debit)

P

Pete_McAnswer

If the 1099 is showing the full Gross Sales, then it looks like you're going to have to show that full Gross Income and then show the reduction of the Sales Tax. There are a couple of ways to do it and your Accountant may have a preference, but with a couple of restaurants I've worked with before the used a a couple of Sub Accounts. It looked something like this:

Sales (parent Acct)

- Credit Card Sales (Sub Acct: your $5,500 Gross sales goes here)

- Sales Tax Owed (Sub Acct: this was a negative entry that reduced Gross Sales)

Sales Tax Liability (this is where the above "Sales Tax Owed" went to show what was owed in taxes)

In the above scenario when they wrote a check to the City/State for the Sales Taxes owed it would reduce the Liability Acct. But you're not writing the check. So I'd strongly suggest you make a quick call to your Accountant for how they want the payment shown. I'm guessing a General Ledger entry, but I've seen a lot of Accountants say the last thing they use is a GL entry. And you don't want them trying to figure out what the huge balance is in the Sales Tax Liability Acct during tax season

Also... This time you mentioned Merchant Fees (or I missed it before). So obviously that gets broken out into an Expense Acct and the full $600 does not go into the ST Liability Acct. Probably a Sub Acct under Fees, but you might ask your Accountant when you speak to them. (Anything you can do to get the accounts the way THEY want to see them will just speed up the process at tax time.)

Fiat Lux - ASIA

@Viani

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