Is sales tax I collect from customers income?
Asked by Ryland B.
Answer
By Ryland Beard, founder of Switchbooks · October 27, 2026
No. Sales tax you collect is money you hold for the state until you pay it over, so it goes to a liability account such as Sales Tax Payable, not to revenue. If a customer pays $108 for a $100 sale with 8% tax, $100 is revenue and $8 is Sales Tax Payable. When you pay the state, that payment clears the liability. It is not an expense.
Booked as revenue, the tax makes your sales and profit look bigger than they are.
If your point of sale or payment processor pays out sales and tax together, the tax still gets split out, usually with one entry a month from the processor's sales report.
Switchbooks does not file sales tax. Which sales are taxable, the rate and when to file are questions for your CPA or your state. Switch books the tax you collected to Sales Tax Payable, books the monthly entry from your processor's report, and posts each payment to the state against the liability.