Sales Tax Discounts.

Question:

I need to make a General Ledger entry to correct my Sales Tax Payable account, but I don't have an accounting background so I'm not sure how to do it....Currently, I have sales tax accumulating in account 2200 Sales Tax Payable (other current liability). This is working fine except that Colorado allows businesses a deduction for handling the taxes.

Example:

Taxes collected from clients for Month of May

county tax = $1
city tax = $2
state tax = $535
=================
$538
service fee <$12>
=================
paid to CO = $523

I need to back out the $12 service fee from the Sales Tax Payable account, but I don't know which accounts to debit/credit. I get an error message when I try to credit the Sales Tax Payable account - "you must specify a vendor name for the sales tax account".

Answer:

First of all, if you want to get the service fee out of the liability account, you need to debit that account not credit it. The liability account should have a credit balance…so a debit would reduce it. Your credit would be to miscellaneous income or you can set up an income account just for these sales tax discounts… its up to you.

Because QuickBooks tracks sales tax, it requires that you specify a vendor when you make a journal entry. (This ensures that your reports will be correct). I am not familiar with Colorado, but the vendor would be whoever you pay the tax to…in Virginia this is the Virginia Department of Taxation.