Yes.
You can deduct the sales tax paid over to the State on line 23 of Schedule C - Taxes and Licenses.
from IRS schedule C instructions
include sales tax collected in gross income on line 1 and then take a deduction on the tax line for sales tax paid.
Line 23
You can deduct the following taxes and
licenses on this line.
• State and local sales taxes imposed
on you as the seller of goods or services.
If you collected this tax from the buyer,
you must also include the amount collected in gross receipts or sales on
line 1
@mikpenie part of the answer depends on the State the business is in. Assuming that this is a retail business :
(a) For federal purposes on Schedule-C, your gross income is ONLY the proceeds of the sales --- not including the state sales taxes you collected on behalf of the state.
(b) on the row where you report the taxes and fees you report ONLY taxes for operating the business . Most states ( I am familiar with MI ) has a mechanism for the retailer not having to pay sales taxes on inventory -- thus your "Cost Of Goods Sold" -- COGS-- does not include any sales taxes.
(c) For State taxes there is usually an area wherein you reconcile the sales taxes collected on behalf of the state and the Sales Proceeds.
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