Sales taxes

Definition

Sales taxes are compulsory financial charges collected by businesses on behalf of the government from consumers at the point of sale for goods and services. These taxes are then remitted to the appropriate tax authorities periodically.

5 Must Know Facts For Your Next Test

1. Sales taxes collected by a business are recorded as a current liability until they are remitted to the government.
2. The amount of sales tax is determined by applying the applicable tax rate to the sales price of taxable goods and services.
3. Businesses must keep accurate records of all sales and sales taxes collected to ensure proper reporting and compliance with tax laws.
4. Failure to remit collected sales taxes can result in penalties, interest, and legal consequences for businesses.
5. Sales tax rates can vary widely depending on the jurisdiction (e.g., state, county, or city).

Review Questions

• How are sales taxes classified on a company's balance sheet?
• What determines the amount of sales tax that must be collected on a sale?
• What could happen if a business fails to remit collected sales taxes?

Related terms

Current Liabilities: Obligations that a company expects to settle within one year or within its operating cycle.

Accounts Payable: Amounts a company owes to suppliers for items or services purchased on credit.

Unearned Revenue: Money received by an entity for goods or services not yet delivered or performed.