I now realize that I was suppose to collect sales tax for certain services that I was performing for my business. Our business is located in New York State. If we failed to collect sales tax when we should have, does it become a liability to our company and do we have to submit the funds to the state? If so, how do we account for it?

ANSWER

Expert William Richmond's Answer:

Yes, any sales tax owed to the state would be a liability of your business. If your business is using the accrual basis of accounting, you should charge the expense to an appropriate expense account (e.g., sales tax expense, taxes and licenses, etc.) and create a corresponding liability. The liability would be reduced or eliminated when the tax is remitted to the state. If your business is on the cash basis of accounting, you would expense the payment when remitted. I would encourage you to resolve this issue as soon as possible, as penalties and interest may accrue.

William Richmond, CPA

Tennessee

35 yrs experience

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