What does it mean to remit sales tax to the government? - Universal CPA Review (2024)

FAQs

What does it mean to remit sales tax to the government? - Universal CPA Review? ›

When a company remits sales tax to the government, it simply means they are sending the cash to the government. As you can see in the visual below, the money is collected by the company and then “remitted” or sent to the government (tax authority). The company sends 100% of the sales tax collected to the government.

Sales tax remittance is the process of submitting the sales tax collected from business sales to the appropriate tax authority. As a business owner with a physical or economic presence in a jurisdiction, you may have to collect and remit sales tax.

What does Remittance mean? Remittance is the sending of money from one person (or entity) to another, or from one place to another place. Remittances can have tax implications. For example, the payment of a business bill will usually attract some tax relief for the business.

Some countries require Etsy to withhold/collect amounts from sellers and remit it to tax authorities. This money is withheld from the shops' sales and goes toward tax that the seller will owe to their government.

To record received sales tax from customers, debit your Cash account, and credit your Sales Revenue and Sales Tax Payable accounts. When you remit the sales tax to the government, you can reverse your initial journal entry. To do this, debit your Sales Tax Payable account and credit your Cash account.

While filing is reporting the tax that was collected, remittance is taking the tax collected and transferring it to the state or other local tax authority.

Remit means send back, and it has many uses. If you remit payment, you send it back to the person you owe it to. If you've been in prison for five years of a seven-year sentence but you've been on good behavior, a judge might remit the remainder of your sentence and let you go free.

As an Etsy seller, you must collect sales tax on items you sell, and it's your responsibility to charge buyers the correct amount of sales tax in each state and remit the collected taxes back to each state.

It means Etsy is large enough that it has to automatically collect and remit sales tax in states that have marketplace facilitator laws — just like Amazon and eBay. But that doesn't mean sellers are off the hook for all things sales tax.

As of October 1, 2019, Etsy is collecting and remitting Sales Tax in many states, including California and Colorado on behalf of sellers.

Is sales tax remitted an expense? ›

It will need to remit the government shortly after collecting the tax. When this is done, the business will reduce its cash and its sales tax liability. In this situation, the sales tax is not an expense and it's not part of the business income.

For the most part, sales taxes must be paid or collected by the seller. In contrast, the responsibility for reporting and paying use taxes generally falls on the purchaser.

Sales Tax Is a Significant Source of Revenue for the State.

As shown in Figure 3, the sales tax is the second–largest revenue source for the state's General Fund, accounting for one–fifth of its revenue.

Remittance advice adds an extra layer of clarity and security to the invoicing process for both customers and suppliers. To “remit” a payment is to simply send it back. Think of any type of payment or funds transfer between friends and family, for businesses, or even overseas.

As an online retailer, you may be wondering if Amazon is responsible to collect sales tax for you, the seller. Amazon is a marketplace facilitator, so, yes. By law, it is required to calculate, collect, and remit sales tax on behalf of sellers like yourself.

Key Takeaways

Withholding tax is a set amount of income tax that an employer withholds from an employee's paycheck. Employers remit withholding taxes directly to the IRS in the employee's name. The tax withholding is a credit against the employee's annual income tax bill.

Shopify helps to automate charging sales taxes, but Shopify doesn't remit or file your taxes for you.