The Sales Tax Calculation Process

Sales tax is a kind of tax that is to be paid by the consumer and the seller receives it on the behalf of Government and has to pay all the accumulated sales tax to the government account. Whenever a new customer makes purchases the company designs a new sales tax policy for that customer. For existing customer the sales tax calculation follows the following structure:-

  • The first step is the determination of the nexus for the customer. This means whether your business area comes under government jurisdiction
  • If you have nexus for the customer you need to record exact percentage of sales tax in the customer account maintained in your database.
  • If the customer you are dealing with is exempt of the sales tax then you must ask for a proper tax exemption certificate from the customer. Tag the customer record in database that no sales tax is charged from this customer
  • Create an invoice of the sale made by customer the system will automatically append the sales tax at the end of the sales invoice generated for the customer
  • If the customer purchases those items that are exempted from the sales tax flag those items in the database and make sure to mention on the invoice that sales tax of these products is not included
  • Record the sales tax as a liability in your financial records and statements as you have to pay the sales to the Government and it’s a liability on the business. If customer does not make cash payment then the amount is debited to the account receivables of the business. If the cash payment is done by the customer then debit the cash account and credit the liability account.

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