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I am trying to determine my sales tax.

In a given quarter, let's say I close a deal for $2000 and collect $500 as a deposit. Which number is considered in my "Gross Sales", the $2000 or the $500? It doesn't make sense for me to be paying sales tax to the state for money I haven't received, so I am assuming/hoping the answer is $500.

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$500, this is called "cash basis" accounting. A large company might handle it otherwise, counting shipments/billings as revenue. Not you. Yet.

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It depends on if it is a non-refundable deposit, retainer, etc.

The remaining $1,500 is not included in that quarter's sales, because you have not yet received it and it is not guaranteed.

The question is really if you should count the $500 toward the quarter where it is received, or during the quarter where you invoice. This deposit might be categorized as a liability until you invoice, and there is no sales tax to be calculated until the invoice for the total.

I say 'might' because this can vary by state and the type of transaction or business. For example, if someone makes a cash down payment on a lease for a car, some states will require that sales tax be charged on this.

  • It's Massachusetts and it's a photography business. All sales are subject to sales tax. The deposits are non-refundable. When we create the invoice, we get a deposit (otherwise we wouldn't create the invoice at all). Up to this point, all our sales "included" tax, so I am backing out the tax that is due. For example, we collect $500 deposits on each contract. I am backing out $29.41 per $500 deposit as if it was a $470.59 deposit and filing it that way. Make sense? – Brian David Berman Oct 26 '11 at 0:23
  • Sales tax is 6.25% in MA. – Brian David Berman Oct 26 '11 at 0:23
  • Sounds like only the tax on the $500 is due then. It sounds like it might depend more on what the fees are per 2011 Directive 11-4: mass.gov/… – Hemm Oct 26 '11 at 1:33

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