Some areas offer deferred sales tax payment plans. These plans base tax payments upon the sales tax amounts a company has received payment for rather than the tax amount they have charged to their customers. Really, this only affects businesses who maintain their own receivables (charge accounts). Program participation is limited in some areas to specific types of businesses and there may be an application process for such programs before participation is allowed. Rules and laws vary from area to area, so please check with your area's local tax department(s) to find out more specific information regarding any requirements.

It is the responsibility of your business to make sure any tax reporting and payments are done properly and that sufficient information is retained in the event of an audit. Using a pay when paid program does make sales tax payment a more complicated process and requires more diligent record keeping by your business.

Typically, pay when paid plans have a time limit on how long tax may be deferred (usually one year from the transaction date). After this time period, any unpaid sales tax is due regardless of the payment status. Because all sales tax that has been charged is eventually due to be paid (even if your company never receives payment), there is some limit to the benefit provided by deferred tax plans. The main benefit is that tax payments can be more closely tied to your company's cash flow. When more payments are received toward receivables items, your company has more money to pay the sales tax, in other words.

How does the Software Handle Pay When Paid?

It's important to understand that in order to pay sales tax when your company receives payment, there has to be some way of knowing that this has happened and enough detail regarding each payment (tax amount, tax location, date of the transaction, etc.) to justify the taxes paid in the event of a sales tax audit. Effort and planning is required to do this properly and accurately. Balance-only accounts don't retain sufficient details for this kind of reporting.

The are limited functions built-in to the application and database to assist users with tracking sales tax payments for pay-when-paid tax reporting. Here is an important list of considerations and rules when choosing a pay-when-paid tax program:

1.All Receivables must be done as "Open Items" in order to retain the details required for accurate tax reporting. "Balance forward" charge invoices are never marked as paid!

2.The tax paid on non-charge sales is marked as paid immediately upon processing.

3.The Sales Tax by Invoice report may be used with selection criteria of "By Paid Date" to see the overall tax liability for a date range. To view a particular tax location, the selection "Tax Location" can be used in conjunction with the date selection. To view all tax locations for the period with sub-totals, choose "By Paid Date" selection along with the desired dates and also specify a "Sort By" choice of "Tax Location." Reporting can be done by branch if desired. If some locations are pay-when-paid eligible and some are not, any ineligible locations would have to be backed out of the totals manually.

4.For each tax period, businesses must also remember that they are required to pay sales tax on any transactions older than the pay-when-paid program's expiration period (usually 1 year). This means that if your program's expiration is one year, you'd be required to pay any sales tax that had not been paid on invoices older than a year. This can be tricky for the following reasons:

•Sales tax may still be paid on expired items in the future. If so, any expired invoice would still show up on the "Tax by Invoice" report at the time it's paid even if the tax had been previously paid (because it passed expiration). For this reason, once your company passes the expiration period, it's important to begin checking your "Tax by Invoice" report for any "old" invoices that may have been paid previously due to expiration. These amounts will have to be manually backed out of your payment calculation (keep a record of this).

•Once taxes have been paid on invoices older than the expiration, your company needs to keep track of this. There is no way to record which expired invoices have been paid previously and which one's have not. It's possible to use date ranges and reporting as long as someone at your company keeps manual and accurate records regarding which invoices and periods have been paid due to expiration.

5.For "open items" an invoice is only considered paid once that invoice (open item) is paid in full. Partial payments of sales tax are never considered or reported.

6.The standard Sales Tax report and Inquiry form don't reflect "paid" tax, only the tax charged. The "Tax by Invoice" report is the only built-in report provided relevant to pay-when-paid programs.

Keep paper copies of all Tax by Invoice reports (and electronic also if desired) and maintain records related to expired invoices which you have paid and the invoices for each period you pay taxes on. Reports are never saved as documents, so it's important to have paper records of tax payments in a secure location should there be a serious problem with your database, fire, etc.

In addition, it may be useful to create and use custom reports if the capability of the "Tax by Invoice" report is not sufficient to meet any requirements. Check our web site for available report templates, create your own report, or request a custom report written by support personnel (this is billable).