As an Advanced Certified QuickBooks Pro Advisor, I have helped hundreds of small businesses throughout the New York area set up their QuickBooks files in order to collect sales tax and remit, or pay sales tax payments to the state. One question has always alluded my clients and me: Using which of the methods below should we accrue, or put aside sales tax?
- "as of the invoice date"
- "upon receipt of payment"
To accrue sales tax "as of the invoice date" means:
"If I send out an invoice which includes sales tax but I haven't yet collected on that invoice when I have to file my sales tax return, do I still need to pay the state for the sales tax included on that uncollected invoice?"
To accrue sales tax "upon receipt of payment" means:
"Do I need to pay the state for sales tax collected on PAID invoices only, and not the ones that haven't paid yet?"
After consulting with a Senior Tax Policy Analyst for New York State Department of Taxation and Finance, I finally learned the answer. Ready for this? "Sales tax must be reported/remitted based on THE DATE OF THE TRANSACTION." This means you MUST accrue (put aside) and remit (pay) sales tax as of the invoice date for New York State. For all other states, you should call your state tax department, or ask your accountant.
So now you might ask, but I use the cash accounting method (meaning you only report income and expenses when you actually collect or pay), why must I remit sales tax I haven't yet collected? According to the analyst, "Although your business may be on a cash basis for accounting purposes, for sales tax purposes the tax is due at the time of the sale, whether or not payment is received."
If you are using QuickBooks and collect NYS Sales Tax, make sure the accrue sales tax "as of the invoice date" box is marked in your sales tax settings.
Disclaimer: The information provided herein is not intended to provide or be a substitute for specific accounting, tax, or legal advice. Where specific advice is necessary or appropriate, I recommend consulting with a qualified tax advisor, CPA, or attorney. The information presented is obtained from what are considered reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed and therefore should not be relied upon as such. Neither the author nor publisher shall be liable for any direct or consequential loss arising from any use of this information.