CAN A RETAILER REPORT THEIR SALES TAX LIABILITY ON A CASH BASIS?
The simple answer is, No. Although a retailer may be entitled to report on a cash basis for other purposes, California Sales and Use Tax Regulation 1642(c) states in part “All retailers must report sales tax liability on an accrual basis.” This requirement would hold true even when the retailer’s records are compiled on a cash basis. As a practical matter, if a retailer is found to be reporting on a cash basis during an audit, the audit will generally include an assessment of sales tax on those taxable sales that have been completed and included in the retailer’s accounts receivable but which were not included on the retailer’s sales and use tax returns for the period in which the sale was completed. For more information on this matter and the associated allowable bad debts refer to Sales and Use Tax Regulation 1642 and the related law sections.
