It is fine to report the income as you mention.
You should report the income net of the sales tax, as you are just collecting that and turning it over to the government.
You should include the sales tax in the cost of goods purchased for sale. You are correct to indicate that you have inventory, even though you have no value for it at the end of the year.
If you itemize your deductions, you can deduct your state sales tax in lieu of state income tax, but this only applies to your personal income and expenses, the sales tax paid on purchases for the business is included in your cost of goods sold.
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