Compared Sales Tax to Income on P & L

[Maria]

Hello,

I have a practical question.

Have you guys compare sales reported on the sales tax returns to sales reported on P & L when preparing business tax returns? The lady who checks my work always ask for it. I have never run into any client who has that two numbers agree. There are many reasons, I presume, some clients do not code correctly taxable and non-taxable items on the P & L but somehow they have another system to keep track of sales tax; some clients' Accounts Receivable just totally messed up so the taxable item on P & L is not correct, maybe the sales tax returns are correct? Some clients only report taxable items but still not agree; Also, clients constantly change prior period numbers, QuickBooks is just way too easy. ....So everytime she instructed me to run by the boss.

As part of the tax return engagement, we always make sure the balance sheet items correct. For example, bank account balances have to be supported by bank statements and reconciliation. Our work involves major, major clean up.

I ask her why don't we just send a letter to all clients and make them aware that those two numbers have to tie but it seems over 25 years things never changed. She sometimes suggests that I make a journal entry to make P & L sales tie to sales tax but I don't feel it is a good way since balance sheet items are correct I have to post the offsetting entry to a P & L account.


Thanks.

[Jiggers]

Sales matching Sales Tax Reports

Hello,

I have a practical question.

Have you guys compare sales reported on the sales tax returns to sales reported on P & L when preparing business tax returns? The lady who checks my work always ask for it. I have never run into any client who has that two numbers agree. There are many reasons, I presume, some clients do not code correctly taxable and non-taxable items on the P & L but somehow they have another system to keep track of sales tax; some clients' Accounts Receivable just totally messed up so the taxable item on P & L is not correct, maybe the sales tax returns are correct? Some clients only report taxable items but still not agree; Also, clients constantly change prior period numbers, QuickBooks is just way too easy. ....So everytime she instructed me to run by the boss.

As part of the tax return engagement, we always make sure the balance sheet items correct. For example, bank account balances have to be supported by bank statements and reconciliation. Our work involves major, major clean up.

I ask her why don't we just send a letter to all clients and make them aware that those two numbers have to tie but it seems over 25 years things never changed. She sometimes suggests that I make a journal entry to make P & L sales tie to sales tax but I don't feel it is a good way since balance sheet items are correct I have to post the offsetting entry to a P & L account.


Thanks.

This could be a problem. However, there could be an explanation. Maybe one is reportedon the cash basis, the other reported on the accrual basis. I haven't ever had an auditor try to match the sales.

However, you could have trouble with the state if the sales tax returns are audited. I have had clients audited by the state. They will match the sales tax returns to the income tax return. If more income is reported on the tax returns, and they were in this case, the state assessed additional sales tax on the difference.

[JohnH]

Recent Sales Tax Audits

Recently, I've been through a couple of sales tax audits, both of which went without a hitch because the sales tax paid figures tied back to the reported taxable sales. In my case this wasn't an issue even though both clients had significant non-taxable sales and maybe the auditor just wasn't up to digging through the invoices. Possibly the match between taxable sales & sales tax paid also helped.

However, both auditors spent a great deal of time reviewing & cross-checking purchases in an effort to find out-of-state purchases so they could assess use tax. This is definitely a sales tax audit hot button in my area.

[BOB W]

Out of the thirty years+ that I have been doing this work I spent 20 years using a work sheet that tied in sales tax return sales with the sales in the general ledger. I did this for the fourth qtr sales tax return. Several issues can change what has been reported in the past for gross sales. My worksheet allowed me to match all 4 quarters with the G/L.

I don't remember why I stopped but your post brought it all back to me. NYS has an off calander quarter (Feb, May, Aug & Nov) so sales would never match any income tax return. But I was very concerned that they were close. There is nothing worse than a Sales Tax audit. They share info with NYS income tax (they use the same auditors) who in turn would involve IRS.

[Maria]

Sales Tax

Thanks for the reply.

Yes we are aware accrual and cash basis QuickBooks does.

None of all client match, even the one we prepare sales tax. Since after we prepare last quarter, when is time for this quarter, they changed last quarter again. I really feel our clients are just not trained for the basic bookkeeping. This could be easily solved with month-end closing. Not sure why my firm let all clients the way they are forever and put the stress on our firm.