The Application of Sales Tax in the U.S. and How It Differs From Value Added Tax

My colleague Dr. Cenap Ilter and I have been researching accounting for taxes other than income tax and the implication on financial statement presentation. The Financial Accounting Standards Board (FASB) and accounting practitioners have developed very complex accounting and disclosure rules for corporate income tax, yet there seems to have been very little attention paid to the myriad of other taxes paid by corporations, including sales and use tax and value added tax. We explain in our article “The Application of Sales Tax in the U.S. and How It Differs From Value Added Tax” the difference between the two taxes, and how the current accounting treatment of sales tax overstates the value of assets and can in some cases present misleading information to the readers of financial statements. We believe this research is important because today, in many businesses, the amount paid in taxes other than income tax exceeds the amount paid by the business in income tax, and we further believe that current accounting treatment for these other taxes in inadequate.

Abstract of the Publication: Sales and use tax (SAUT) is assessed in the United States by 45 states. Many other countries including the countries of the European Union assess a value added tax (VAT) instead. In the U.S., the method of treating SAUT when goods are purchased for resale differs from that of a VAT in a way that makes compliance more difficult. SAUT rates differ from state to state, giving rise to a lack of comparability of financial statements for similar businesses operating in different states. In the application of generally accepted accounting principles (GAAP) the amount of SAUT paid is added to the cost of an asset or expense. Doing so misstates the asset or expense value, as the SAUT is not a value-added cost, and hides from users of the financial statements the true cost of taxation to the organization.

Currently the article in electronic format is only available for purchase from the Civic Research Institute. However, if you are interested in a printed copy of the article, please email me your name and mailing address.

Also, if you have any interest in this field of research, or you are currently doing research in this field, please contact me. Dr. Ilter and I are interested in collaborating with other researchers who also have an interest in this field of study.

Link to the article: