A state collects sales taxes for a city. During calendar year 2019 the state remits $1,000,000 to the city for sales taxes collected for the city. On January 30, 2020, the state sends the city $300,000 for sales taxes collected in the fourth quarter of 2019. On March 1, 2020, the state sends the city $60,000 for sales taxes applicable to 2019 but sent in by late filers. The city has a stated policy of treating sales taxes as "available" if received by March 30 of the year after the applicable sales tax year. Based on the foregoing information only, how much should the city recognize as sales tax revenues in its financial statements for the year ended December 31, 2019?

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Quizplus · Accepted Answer

Sales tax is a form of derived tax revenue. According to GASB Statement No. 33, assets from derived tax revenues are recognized in the period the underlying exchange occurs, and revenues are recognized (net of refunds and estimated uncollectible amounts) in the period the underlying exchange occurs and the resources are available. Available means collected in the current period or soon enough thereafter to pay liabilities of the current period. In this case, the city should recognize $1,360,000 of sales tax revenue. This is comprised of the $1,000,000 collected in sales taxes during 2019 and the $300,000 and $60,000 of sales taxes collected prior to March 30 of the next year, which is the city's cutoff for determining whether sales taxes are available.

A State Collects Sales Taxes for a City