6. Sales Tax

Sales tax varies from country to country and normally the bookkeeper would seek professional help regarding the implementation of sales tax in the local region. Three critical steps are involved in the management of Sales Tax :
1) Set the parameters for Sales Tax in your accounting software.

2)    Know which items include tax and ensure that tax is correctly included when the transactions are entered. This refers to both purchases and sales.
3)    Prepare the Tax statements for submitting the tax to the relevant authority.

Tax by Country
USA: Sales Tax

Merchants collect sales tax on behalf of the state and local administrations. The taxes are paid to the state who then distribute the taxes appropriately.

The tax rates and items taxed vary from state to state and from city to city.

Australia: GST

Australians pay a 10% GST ( Goods and Services) tax on a wide range of purchases. The GST is in effect a “Value Added Tax” because the merchant can claim an input credit for GST paid. Thus if a merchant purchases a hammer for $10 and sells it for $15, then $1 will be paid on the purchase and $1.50 will be collected on the sale. The net amount remitted to the Tax Office is the difference ($0.50). Thus the effective benefit to the Government is the 10% tax on the value added ( the difference between purchase price and sales price). There are a wide range of items that are excluded from GST – e.g. many food items, medical, etc. Advertised prices include GST. Small companies who are not registered for GST cannot collect GST from their customers and cannot reclaim the GST they pay to their suppliers.


VAT in the UK is similar to GST in Australia. Businesses register for VAT when they exceed a certain size. They then charge customers the appropriate tax (20%) on sales and pay a similar tax on their purchases. The difference is remitted to the Tax Collector. The rate charged can vary according to the item. Advertised prices include VAT. Small companies who are not registered for VAT cannot collect VAT from their customers and cannot reclaim VAT they pay to their suppliers.