Can I deduct the gross receipts tax I pay as a business expense?
There are two ways to answer this question. (And they are both somewhat
long-winded.) The first is based on state law that says the tax is the liability
of the seller (you). You do not act as a conduit that passes through
the tax from the buyer to the state. (That's different from most other
states' sales tax laws.) This requires that the sales amount on your
federal income tax return is the same as the total you receive from your
customers whether or not you added tax to the sale; and, you deduct the
tax at the time it is paid. (This follows cash basis accounting principles.)
The second way is that the sales you enter on your
federal return is the same amount you report on your gross receipts reports filed with the
state. It's the amount after the tax has been removed arithmetically. If you
do it that way, then the tax is not a deduction. The first approach is
technically
correct because it follows state law, while the second one is more
practical because the sales on on you federal return will match the
gross receipts reported to the state and thereby avoid a
discrepancy that would cause the state to want to audit. Either way you end up with the same
taxable income. |