What is a sales tax return?


A sales tax return is a document that businesses or individuals file with the appropriate tax authority to report the sales tax collected from customers over a specific period. This return typically outlines the total sales made during that period and calculates the corresponding sales tax owed to the tax authority.

Businesses often have to file these returns regularly, whether monthly, quarterly, or annually, depending on the jurisdiction's tax laws and regulations. The return provides a detailed breakdown of sales, taxable items, exemptions, and any adjustments, enabling tax authorities to verify the accuracy of the tax collected and ensure compliance with tax laws.

For your US-based returns, Anrok assists with filing and reporting their taxable sales, calculating the amount of sales tax due based on the applicable tax rate, and remitting the collected tax to the government. Anrok filing your returns helps ensure your business complies with tax regulations in a particular jurisdiction.

Is sales tax reported through an accrual method or cash method of accounting?

Most states either default to or require that you report sales tax using the accrual method rather than a cash method of accounting. Employing an accrual method means you will report income when invoiced rather than when payment is received.

For example, New York and California require accrual reporting for sales tax even if the taxpayer uses cash-based accounting for income tax purposes. Washington only permits cash reporting for sales tax if a taxpayer uses cash accounting for federal income tax purposes. 

Practically, what this means is:

In January, you send out an invoice for $1,000 + 8% ($80) sales tax = $1080, with 90-day payment terms, in a state that requires a monthly sales tax return. Your customer does not pay the invoice until March. That invoice will be reported on your January sales tax return, which is filed and paid in February.

Because accrual is the industry standard and required in many states, Anrok follows an accrual approach to sales tax.

What if my customer never pays the tax amount reported on a return?

Using the accrual method for sales tax reporting means a taxpayer may remit the tax to a jurisdiction, and for whatever reason, their customer never pays their invoice, leaving the taxpayer out of pocket for the tax. A taxpayer is entitled to a credit or refund in these situations.

The best practice is to VOID invoices that are deemed uncollectable. Anrok will see that VOID and process a negating transaction to claim a credit for that tax on the next open return with the jurisdiction. In specifc integrations, customers can also use credits or mark invoices as uncollectible, and Anrok will likewise be able to take the credit on the next return; refer to your specific integration guide for more details.

For example:

If in January you send out an invoice for $1,000 + 8% ($80) sales tax = $1080, in a state that requires a monthly sales tax return. You pay that $80 over to the state in February with your filed return. If your customer does not pay the invoice, it is deemed uncollectible or written off as bad debt in April. If you void/mark that invoice in April uncollectable, Anrok will create a negating transaction and take an $80 credit on your April return.

How can I employ a cash method of accounting when filing returns?

While Anrok does default to the accrual method, you can edit transactions in and out of your returns, allowing you to pull out unpaid transactions if you want to employ some level of cash reporting on a return.

Although this approach may not be technically permissible depending on the specific jurisdiction, it is a calculated risk you may choose to take. With this Anrok feature, you can enjoy the flexibility to manage your cash flow accordingly, especially concerning large invoices.

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For international returns, Anrok has local partners that can file your returns worldwide. If you'd prefer to file international returns yourself, Anrok will provide you with a complete draft report optimized for filing. See How do I file VAT returns

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