The items subject to sales tax will vary from state to state. In some states basic food items might not be taxed, but meals at restaurants will be subject to sales tax. Some services might be subject to a sales tax. Sales of raw materials to a manufacturer will be exempt if the materials will be used in products that will be manufactured and sold. When the products are sold by the manufacturer to a retailer for resale, the manufacturer will be also be exempt from collecting a sales tax. Sales by retailer to an end consumer will require the collection of sales taxes. Sales tax can be viewed as a tax on consumption.
In accounting, the sales taxes collected by the seller of the goods or services are not revenues for the seller. For example, if a merchant sells an item for $100 and the item is subject to a 5% sales tax, the merchant will debit Cash for $105 and will credit Sales for $100 and will credit Sales Tax Payable for $5. Sales Tax Payable is a liability account. When the sales taxes are remitted to the state, the merchant will debit Sales Tax Payable.
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