Sales Tax Payable
Definition
Sales Tax Payable is a liability account for sales tax collected from customers that has not yet been remitted to the tax agency. It is not revenue.
Example
A customer buys $1,000 of taxable goods at an 8% tax rate. The customer pays $1,080. Revenue is $1,000 and Sales Tax Payable is $80. When the $80 is sent to the tax agency, the liability is cleared.
Why It Matters
Sales tax collected belongs to the government, not the business. Recording it as revenue overstates income and creates a liability problem.