How to Do Small Business Accounting Sales Taxes

Three Methods:Learning When to Charge Sales TaxPreparing the DataPreparing the Remittance Forms and Liability Accounts

Currently, there are 44 states in the USA that impose a sales tax. Local governments can levy sales taxes as well. Whether you are an accounting firm responsible for filing your clients' sales taxes or you are a small business filing your own sales taxes, there are ways to simplify the procedure. You can program accounting software to reflect a specific municipality's sales tax situation, and the sales taxes are automatically calculated when the data has been entered. Remittance forms still need to be processed and either the firm or the client can process such forms. Before the remittance forms can be processed, however, the firm must organize and treat data in a manner that will enable the accountant to process remittance forms easily.

Method 1
Learning When to Charge Sales Tax

  1. Image titled Do Small Business Accounting Sales Taxes Step 1
    Know when you need to charge sales tax. There are several instances where you would not charge sales tax. They include when someone buys a product with the intent to resell it (wholesale purchases), raw materials, and sales made to non-profit organizations.[1]
    • For example, if you are a florist you would buy the flowers from a wholesaler and then resell them in your shop. You do not pay sales tax but your customer does.
    • For raw materials, if you manufacture and sell goods that will be used as parts to produce other goods, these items are usually considered to be exempt from sales tax.[2]
    • Non-profit organizations are also exempt from having to pay sales tax. They need to present a sales tax exemption certificate that they obtain from the state department of finance when making a purchase.
  2. Image titled Do Small Business Accounting Sales Taxes Step 2
    Determine if the buyer is out of state. In days past, operating an online or mail order business meant you did not have to charge sales tax for out-of-state customers. [3]. Now states are changing business taxation laws and being designated as origin-based or destination-based for sales tax. The difference is critical to understanding what sales tax you will need to charge an out-of-state customer.[4]
    • Origin-based sales tax states mandate that businesses charge local sales tax to all customers, regardless of the customer's state of residence. Destination-based states do the opposite.
  3. Image titled Do Small Business Accounting Sales Taxes Step 3
    Learn the sales tax rules and rates. There may be special circumstances where the sales tax rate may vary, and when you do not need to collect it. For example, some states only charge sales tax on clothing if it is priced over $500. Many states do not charge sales tax on food, but do charge tax on other items that can be purchased in a grocery store such as paper goods and toiletries.
    • Contact your state department of Finance to find out the sales tax rate and when to charge it.

Method 2
Preparing the Data

  1. Image titled Do Small Business Accounting Sales Taxes Step 4
    Obtain the state remittance form. This can be obtained from your state department of Finance and Taxation. Before any data is entered into the spreadsheet, design the spreadsheet around the informational requirements set forth in the remittance forms. Line descriptions should precede all data. Determine which cells will contain the formulas to calculate the sales tax.
    • You will need to calculate sales taxes for a specific month or quarter. Create different tabs on your spreadsheet for different months and quarters.
  2. Image titled Do Small Business Accounting Sales Taxes Step 5
    Determine if the client is a business or contractor. In states such as Arizona, it matters whether the client is a retail business or a contractor. For contractors, every single transaction that resulted in revenue, whether taxable or nontaxable, must first be entered line by line on the spreadsheet. For retail businesses the sum total of all revenue, both taxable and nontaxable, should be entered into the spreadsheet with line descriptions that give the nature of the revenue.
  3. Image titled Do Small Business Accounting Sales Taxes Step 6
    Enter data into the spreadsheet. Create separate columns to report all taxable sales, exempt sales and amount of tax due. Enter a formula to add up the total for each column at the bottom.

Method 3
Preparing the Remittance Forms and Liability Accounts

  1. Image titled Do Small Business Accounting Sales Taxes Step 7
    Set up sales tax liability accounts. The business owner serves as a conduit of revenue between the consumer and the governmental entity. This relationship requires setting up sales tax liability accounts for each client, such as Sales Tax Payable. When the sales tax payment is made, the liability is satisfied.
    • If you are a contractor, you would record your sales tax as an operational expense.
  2. Image titled Do Small Business Accounting Sales Taxes Step 8
    Complete the remittance forms. Once you have completed the forms using the data from the spreadsheet, mail them to the governmental entity with the sales tax payment. Or the client may wish to receive the forms and make the payment directly.
  3. Image titled Do Small Business Accounting Sales Taxes Step 9
    Keep detailed records. All back-up documentation such as invoices and sales receipts need to be kept for seven years. This documentation will be required for sales tax audits.


  • Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not impose a state sales tax, but Alaska has local areas that do.
  • It is good for an accounting firm to have its own specialized set of spreadsheets for each client dealing specifically with sales taxes, as clients may have precise questions that the accountant would need to be able to answer on a moment's notice.

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Categories: Taxes and Fees