Sales tax on business purchases, explained
"Sales tax" shows up twice in a small business's life, and they're not the same thing. One is the tax you pay when you buy supplies, equipment or a lunch. The other is the tax you collect from your customers when you sell something taxable. Mixing them up is one of the most common bookkeeping mistakes.
This is general information, not tax advice. Sales-tax rules vary by state, county and city, and by what you sell. Check with a CPA or your state's department of revenue for your situation.
Tax you pay (on expenses)
When you buy printer paper and the receipt says $27.00 + $2.30 tax = $29.30, that $2.30 is sales tax you paid. For most businesses, you can't reclaim it — it's simply part of the cost of the item, and the whole $29.30 is your deductible expense. (Resellers who buy inventory to resell are the main exception: they often use a resale certificate and don't pay tax on those purchases.)
So why record the tax separately at all? Because your books should reconcile to the penny against your card and bank statements, and because your accountant may want the split for certain filings or for use-tax purposes.
Tax you collect (on sales)
If you sell taxable goods or services and have nexus in a state (a physical presence, or enough sales to cross that state's economic-nexus threshold), you're generally required to register, collect sales tax from customers, and remit it to the state on a schedule — monthly, quarterly or annually depending on volume.
That collected tax is not your money. You're holding it for the state. Tracking it accurately — by jurisdiction where required — is what keeps your filings correct and avoids penalties.
What to track for each
| Tax paid (expenses) | Tax collected (sales) | |
|---|---|---|
| On documents | Vendor receipts & invoices | Invoices you issue; POS reports |
| Record | Subtotal, tax amount, total, category | Subtotal, tax amount, rate, jurisdiction |
| Why | Deductible cost; reconcile books | Remit to the state; file returns |
Rates change constantly
There are thousands of sales-tax jurisdictions in the US, and combined rates commonly land anywhere from about 4% to over 10% depending on the address. That's exactly why a tool that reads the actual rate off each document beats assuming a single rate for everything.
How ReceiptSpark helps
Each row in ReceiptSpark has a Type: expense or sale. The summary then splits the numbers into sales tax paid (on your expenses) and sales tax collected (on your sales), so you can see both at a glance and hand your accountant a spreadsheet that already separates them.
Track sales tax paid and collected
Upload your receipts and invoices and see the split. 10 documents free every month.
Try it free