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.


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


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

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.