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What Is an Accounts Receivable Tax?

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  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 05 September 2016
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    Conjecture Corporation
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Financial management and accounting are perhaps two of the biggest tasks a company must complete on a daily basis. Accounts receivable is one such area of financial management; it specifically deals with money owed from customers to a business. An accounts receivable tax represents payments made from a company to a government authority for uncollected accounts. This tax may not necessarily be from the federal level; states or local regions may have the authority to collect taxes based on these open balances. Therefore, the collection and reporting of an accounts receivable tax is very important for a business to manage correctly in order to avoid fines and penalties.

The traditional method for handling accounts receivable is to review a client’s credit and past history of paying bills. Those clients who qualify then have their own accounts set up in the company’s accounting books. Each month, an accountant posts purchases from the client into the account while waiting for payments. This process classifies accounts receivable as an intangible asset, which then qualifies the asset as subject to the federal, state, or local accounts receivable tax. In most cases, the tax goes by the moniker of an intangible assets tax, which covers a large variety of business activities.

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Taxing intangible assets is simply another way for a government agency to create tax revenue. Accounts receivable is not necessarily a revenue-generating process for a business. In some ways, it can actually be a losing proposition for a company to engage in. For example, if a company is unable to collect open accounts or a customer simply bails on the money owed, the account gets written off. Therefore, the accounts receivable tax paid does not actually tax anything as the subject of the tax goes away entirely.

Companies are not necessarily without a way to recoup accounts receivable tax paid on lost accounts. States and local taxing authorities may allow a company to file for refunds of any accounts receivable tax paid on lost receivables. This process places undue strain on a company, however, as it can be difficult to prove to state taxing authorities. Paying this tax typically requires a form and possibly some paperwork that backs up the figures. Filling out and filing a potential refund form can be an entirely different process.

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