Can a business report sales tax on a modified accounting basis that lets it collect tax from customers but delay remitting that tax to the Comptroller past the statutory due date?

Plain-English summary

A company asked the Texas Comptroller's Tax Policy Division to approve a modified accounting basis for its sales tax returns. The company's computer reports were based on invoice dates, and it wanted to remit tax on a cash basis. Its proposal was a modified accrual method under which invoices for one month would be reported as the following month's return data — for example, August invoices would be reported as September data, with most clients expected to pay within 30 days of the invoice date.

The Comptroller explained that Texas Administrative Code Section 3.302 (the sales tax rule governing accounting methods) does allow permission for a modified accrual, cash, or other generally recognized accounting basis. However, it does not allow tax to be remitted later than the statutory due dates that apply to all taxes.

The problem with the company's plan: it was possible for the company to make a sale, collect the tax from the customer at that time, and then defer remittance of that tax for a full month under the reporting scheme. In the letter's example, a sale made and paid in full on August 15 would be reported as a September sale (since August invoices become September data), with the tax not paid to the state until October 20 — roughly two months after the tax was actually collected.

The Comptroller pointed to a 1992 administrative hearing holding that it is not reasonable to conclude the Tax Code allows a taxpayer to collect tax, keep it, and remit it later than the statutory due date purely for accounting convenience. Under the accrual basis, a taxpayer remits tax before collecting it from the customer; under the cash basis, tax is remitted when it is collected; no approved method lets a taxpayer hold collected tax past the statutory due date. Because the company's proposed method would do exactly that, the Comptroller denied it, finding it did not meet the statutory requirements. The letter notes this opinion is based on the facts presented and could change if the facts differ.

What this means for you

Business owners and retailers

You may ask the Comptroller to use a modified accrual, cash, or other generally recognized accounting basis for reporting and remitting sales tax under 34 Tex. Admin. Code § 3.302. But whatever method you use, it cannot result in tax being remitted later than the statutory due date. If your accounting method would let you collect tax from a customer now but hold onto it until a later filing period, that method will not be approved — no matter how it is framed for internal accounting or computer-reporting purposes.

Accountants and bookkeepers

When designing a company's sales tax reporting workflow, check whether invoice-date-based reporting could ever result in tax being collected in one period but remitted in a later period. Even a one-month lag built into a "modified accrual" report (invoices from one month treated as the next month's data) can run afoul of this rule if it delays remittance of tax already collected past the statutory due date.

Tax professionals advising clients on accounting method changes

This letter illustrates that the Comptroller will scrutinize a proposed accounting-method change component by component. A method can be permissible in most respects and still fail if even one component — here, the timing of remittance relative to actual collection — pushes remittance past the statutory due date.

Common questions

Q: Can a company get permission to report and remit Texas sales tax on a modified accrual or cash basis?
A: Yes, in general. 34 Tex. Admin. Code § 3.302 allows the Comptroller to grant permission for a modified accrual, cash, or other generally recognized accounting basis. But that permission does not extend to remitting tax later than the statutory due dates.

Q: Why was this particular company's proposed method rejected?
A: Because its plan would let the company collect tax from a customer at the time of sale but defer remittance of that tax for about a month longer than normal — for example, tax collected on an August 15 sale would not be remitted until October 20 under the proposed reporting scheme.

Q: What's the difference between the accrual and cash bases here?
A: Under accrual, a taxpayer remits tax before it is actually collected from the customer. Under cash basis, tax is remitted when it is collected. The Comptroller found no approved method allows a taxpayer to remit tax later than the statutory due date after already collecting it.

Q: Does this ruling apply to any accounting method a business might propose?
A: This letter addresses this specific company's facts as presented, and the Comptroller noted the opinion could change if the facts were different. It reflects a general principle — no delayed remittance of already-collected tax — that would likely apply broadly, but always confirm current policy for your own situation.

Citations and references

Regulations:

• 34 Tex. Admin. Code § 3.302 (sales tax rule for accounting methods)

Other authority referenced in the letter:

• A 1992 administrative hearing (docket number not specified in this letter) holding that the Tax Code does not allow a taxpayer to collect tax, keep it, and remit it later than the statutory due date for accounting purposes.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9508888L

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

August 15, 1995

Dear **** :

I am responding to your request to modify the accounting basis for your
company's sales tax returns. You proposed a plan that meets your computer
reports (based upon invoice dates) and allows you to remit tax on the cash
basis of accounting.

You proposed a modified accrual method (data based upon invoice date) that
would allow you to report the invoices for one month as the following month's
data. For example, the invoices for August will be used as data for the
September return. You stated that most clients pay invoices within 30 days from
invoice date.

Although Texas Administrative Code Section 3.302 (sales tax rule for accounting
methods, etc.) allows permission to be granted based upon a modification of
accrual and cash or other generally recognized accounting basis, it does not
allow tax to be remitted after the statutory due dates. The general provisions
governing all taxes require remittance by the statutory due dates.

In your modified accrual method, all the components are feasible except one. It
is possible for you to make a sale, collect the tax, and defer remittance for a
month. For example, a sale is made on August 15 and full payment is received.
Under your plan, this will be reported as a September sale (invoices dated in
August will be reported as September data), and tax paid on October 20.

A 1992 administrative hearing held it is not reasonable to conclude that the
Tax Code allows a taxpayer to collect tax, keep it, and remit it later than the
statutory due date for accounting purposes. Under the accrual basis a taxpayer
remits tax sooner than collected; under the cash basis tax is remitted when it
is collected; no method has been approved that allows tax to be held past the
statutory due date.

Therefore, your proposed method of accounting does not meet the statutory
requirements.

This opinion is based upon the facts presented. If there are additional or
different facts, this opinion may change.

You may also write to Tax Administration Division, Comptroller of Public
Accounts.

Sincerely,

Tax Policy Division
Tax Administration Division