Sales Tax Expense

 

If your financial statements show “Sales Tax Expense” on the P&L — your books are wrong. Period. 🚩

This week I reviewed two different sets of financials from two different prospective clients.

One prepared by a tax pro.

One prepared internally by the business owner.

Both had the same mistake.

Sales tax is NOT an expense.

❎ You are not the customer.

✅ You are the collector.

It is a liability you hold in trust for the state.

When it shows up as an expense, it tells me:

• No one understands the flow of sales tax

• The liability account isn’t being reconciled

• Payments are being dumped to the P&L

• Compliance is being treated like guesswork

• The reports cannot be trusted at face value

Harsh? Yes.

But incorrect books are harsher when the state comes calling.

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