Cash Method, but sales tax not due until next year?

[pidgeotto101]

Hi friendly tax experts. I have a new farm small business - I just completed my first sale recently and will owe ~$6000 in sales tax to my county. I called the cdtfa, expecting that I'd make the sales tax payment immediately, but they informed me that I should file and pay my sales taxes in July 2023 (my fiscal year for sales tax runs from 1-Jul-2022 to 30-Jun-2023).

I am filing Schedule F using the cash method. In this case, since I was told to pay sales tax in 2023, would I report my $6000 expense as 1b "Cost or other basis of purchased livestock" in 2023, not 2022? The part that's weird to me is that if I have a year with no sales income (very possible with my business), I might still report cost basis from paying the sales tax for sales in the prior year. Would that cause any eyebrow raises from the IRS?

Also, just to throw another variable in the mix, I believe I can make sales tax prepayments this year instead of waiting until Jul 2023. Would this option be recommended to avoid having no sales but still cost basis next year?

[Anonymous_ · Accepted solution]

If you do not include sales tax in your income, this will not be an issue.

[pidgeotto101]

Interesting, so I just report income minus sales tax amount from line 1a "Sales of purchased livestock" even though I don't pay sales tax until 2023? Is this legal / common?

[Carl]

I called the cdtfa, expecting that I'd make the sales tax payment immediately, but they informed me that I should file and pay my sales taxes in July 2023 (my fiscal year for sales tax runs from 1-Jul-2022 to 30-Jun-2023).

Don't know what state/city/county you're in, but something sounds a bit "off" here.

For starters, sales tax is usually paid to the state - not the county. Though the county or city can impose an additional county or city sales tax.

In my experience (also self-employed) sales taxes are paid to the state (and county/city if applicable as they are in my case) on at least a quarterly basis. Depending on the amount of income, it could be due monthly. I would highly suggest and recommend you research this further and check the tax laws yourself so that you can read them yourself "in writing".  I know that for my city taxes, one late payment results it quite a hefty fine. So do your homework and dig a bit deeper into this. Something just doesn't "sound right" here. I suspect that whomever you talked with, was thinking along the lines of property taxes, or business asset taxes which are commonly paid once yearly. Whereas sales tax (which is what you appear to be referring to) are paid at least quarterly, if not monthly depending on the income.

[Mike9241]

@pidgeotto101 

this is from IRS pub 334 page 25

Sales tax. State and local sales taxes imposed on the
buyer, which you were required to collect and pay over to
state or local governments, are not income.

[Anonymous_]

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@Carl wrote:

I called the cdtfa, expecting that I'd make the sales tax payment immediately, but they informed me that I should file and pay my sales taxes in July 2023 (my fiscal year for sales tax runs from 1-Jul-2022 to 30-Jun-2023).

Don't know what state/city/county you're in, but something sounds a bit "off" here.

For starters, sales tax is usually paid to the state - not the county.

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The CDTFA is the California Department of Tax and Fee Administration, @Carl 

[Carl]

Oh, California. That explains a lot. From my perspective as a lifetime FL resident, CA seems to have laws that appear convoluted to me. But that's just my perspective which doesn't really mean much.

In FL, the state sales tax is payable quarterly if the gross business income is below some certain threshold, and monthly if above that threshold. I don't know what the threshold is, because I'm so far below it that it's of no concern to me. The city sales tax is only due for products I provide to a city client within the city limits. That doesn't happen very often. There is a tangible property tax that's paid yearly on business assets figured on their depreciated value. But I don't pay it since my business assets do not exceed the $25K exemption threshold. (For my SCH C business - not the SCH E rentals)

[pidgeotto101]

That's correct. I'm in CA paying sales tax to the state & county. CDTFA automatically set me up for sales tax payments over 1 year (Jul 1-Jun 30) rather than quarterly payments. Apparently they would convert me to quarterly payments only if they see my sales tax amounts exceed some threshold.

Thanks for the advice! In this case, then I will just not include sales tax as income on my Schedule F. Feels weird to hold onto money and not report it, but if it's the right way to do it, it's the right way to do it.

[Anonymous_]

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@Carl wrote:

In FL, the state sales tax is payable quarterly if the gross business income is below some certain threshold, and monthly if above that threshold. I don't know what the threshold is....

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Just an FYI: the frequency is based upon the tax you collect annually.

More than $1,000	Monthly
$501 - $1,000	Quarterly
$101 - $500	Semiannual
$100 or less	Annual