Could a retailer use cash-basis accounting for Texas sales-tax reporting while keeping its general books on the accrual basis?

Plain-English summary

The Comptroller allowed a retailer to keep its general books on the accrual basis while using the cash basis to report Texas gross sales and taxable sales. Retailers could use cash, accrual, or another generally recognized accounting basis that correctly reflected their operations.

The retailer had to report consistently and maintain separate cash-basis sales records detailed enough for an auditor to trace gross sales and deductions back to original sales documents, exemption certificates, shipping documents, and similar support.

The letter expressly said this procedure could not be used to remit tax on taxable purchases.

Common questions

Could the general ledger stay on accrual accounting? Yes.

What records were required for cash-basis sales-tax reporting? Separate, detailed records that allowed reported amounts to be traced to original documents.

Did the method apply to taxable purchases? No.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/8901L0937E11

Original ruling text

January 26, 1989

Dear ***:

Your letter to *** in our Houston office has been for-
warded to me for response. You are writing to confirm acceptable
accounting or bookkeeping procedures.

As I understand your current question, you specifically wish to
confirm that it is acceptable for your company to transact
business utilizing the cash basis of accounting for remitting
sales or use taxes to Texas and the accrual basis of accounting
for all other business activities.

Retailers may use a cash basis, an accrual basis, or any generally
recognized accounting basis which correctly reflects the operation
of their business for reporting gross sales and taxable sales.
General books and records may be set upon the accrual basis of
accounting, but for sales tax reporting the cash basis of accounting
may be used. This is allowed as long as tax is reported in a
consistent manner which accurately reflects the realization
of consideration from the cash and credit sales on your books and
records. For this you must maintain, on a cash basis, separate
sales records that account for gross sales and deductions in
enough detail that audit verification can be made by tracing your
reported data to original sales documents, certificates, shipping
documents, etc. in order to verify the accuracy of your reporting
procedures.

This procedure cannot apply to remitting tax on taxable purchases.

This opinion is based on the facts presented. If there are addi-
tional or different facts, the opinion may change.

You may write Tax Correspondence, Comptroller of Public Accounts.

Sincerely,

Tax Policy Division
Tax Correspondence