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Why is sales tax considered pass through for a company?

Sales tax is considered a pass through expense because the company simply collects it from the customer and then remits 100% of the sales tax to the government. For the company, sales tax is not an expense and only impacts the balance sheet.

When the company sells and item and collects sales tax, the debit would be to cash, and the credits would be to sales revenue and sales tax payable (liability). The sales tax is recorded as a liability because the company has to remit the cash to the government. When sales tax is remitted to the government, the debit would be to sales tax payable and a credit to cash (cash outflow to pay sales tax).


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