Is sales tax revenue?

No. Sales tax is collected on behalf of the state and owed to it; it never belongs to the company. Revenue is the price before tax.

Sales tax is charged by the seller and remitted by the seller. Use tax is owed by the buyer when the seller did not charge sales tax on a taxable purchase, and is booked as an expense or into the asset's cost with a use tax payable.

Journal entry for sales tax collected

When a taxable sale is made, debit Cash or Accounts receivable for the total charged, credit Revenue for the price and credit Sales tax payable for the tax. When the return is filed, debit Sales tax payable and credit Cash.

Price: $2,500
Sales tax at 8.875%: $221.88
Collected from customer: $2,721.88
Entity: Illustrative company
Basis: Accrual
Currency: USD
Period: April – May 2026

The worked example

A shop in New York City sells $2,500 of goods for cash at the combined 8.875% rate. The tax is $221.88, the customer pays $2,721.88, and the tax is remitted with the next return.

Transaction · April 14, 2026

JE-114 Apr 2026Manualposted

Sell the goods and collect the tax.

Journal entry JE-1, 3 lines
Account	Debit	Credit
1000 Cash	2,721 US Dollar and 88 cents
4000 Revenue		2,500 US Dollar
2200 Sales tax payable		221 US Dollar and 88 cents

Totals	2,721 US Dollar and 88 cents	2,721 US Dollar and 88 cents

Balanced.

Transaction · May 20, 2026

JE-220 May 2026Manualposted

Remit the tax with the return.

Journal entry JE-2, 2 lines
Account	Debit	Credit
2200 Sales tax payable	221 US Dollar and 88 cents
1000 Cash		221 US Dollar and 88 cents

Totals	221 US Dollar and 88 cents	221 US Dollar and 88 cents

Balanced.

What the entries do to the accounts

Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.

Net movement by account
Account	Debit	Credit
1000 Cash	2,500 US Dollar
4000 Revenue		2,500 US Dollar

Totals	2,500 US Dollar	2,500 US Dollar

One account nets to zero across the entries and is not shown.

Why it is booked this way

The tax on the receipt belongs to the state from the moment it is charged. Crediting a liability keeps it out of revenue and makes the balance owed visible until it is remitted.

The rate applies to the price, not to the total collected; the total is the price plus the tax. Getting the direction wrong over-remits on every sale.

Common mistakes

Crediting the whole receipt to revenue and paying the tax out of expenses.
Computing the tax from the gross receipt as if it were the price, which overstates the tax.
Collecting in a state where the company has nexus but has not registered.

Questions

Is sales tax revenue?: No. Sales tax is collected on behalf of the state and owed to it; it never belongs to the company. Revenue is the price before tax.
What about use tax?: Sales tax is charged by the seller and remitted by the seller. Use tax is owed by the buyer when the seller did not charge sales tax on a taxable purchase, and is booked as an expense or into the asset's cost with a use tax payable.

Terms on this page

Work with this entry

The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.

An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.