Need help with a work around

In the state I live in, if you purchase an item from out of state and have it shipped in, you do not pay sales tax on the item. But the state I live in says that I must pay “Use” tax on it. This can happen quite frequently with items being bought over the internet.

For example: I buy a case of shipping labels for $20.00 from a seller in the state of New Jersey. Since I am in Arizona, the seller doesn’t charge me sales tax. I have to pay a use tax on this to the state of Arizona. This is usually paid to the state of AZ 4 times a year. Tax rate is 6% for this example.

On paper this would be my transaction for recording this sale:
Debit - Shipping Supplies Expense: $21.20
Credit - Use Tax Payable: $1.20
Credit - Bank Account for $20.00

When it would be time to make my quarterly payments, the transaction would be:
Credit - Bank Account for $1.20
Debit - Use Tax Payable: $1.20

Does anyone have a suggestion on how to do this in Manager?
Thank you for any input.

To begin, you are thinking of the first transaction incorrectly. Your use tax is not offsettable like VAT. So the tax is part of the expense of buying the labels. If you were paying sales tax to an in-state supplier, you would simply include the tax in the price of the labels. The effective transaction would be:
Debit - Shipping Supplies - $21.20
Credit - Bank Account - $21.20

But use tax is separated, both in time and in payee. So you need a way to segregate the use tax in a liability account until you pay it to your state’s tax authority, because you are not paying it to the supplier like you do for sales tax. The solution is to create a custom tax code of the 100% type. See the section on custom tax codes here: Set up the custom tax code to be posted to your Use Tax Payable account.

On the purchase payment, enter the unit price of the purchased item with use tax included, but do not apply any tax code. The reason you do not apply a tax code is that, if you did, Manager would deduct the tax amount from Tax payable because the basic structure of the program is for offsetting VAT. Now, add a new line item for the use tax. Enter the full amount of the use tax as the unit price as a negative number and apply your custom 100% tax code. This will be the equivalent of:
Debit - Shipping Supplies - $21.20
Credit - Use Tax Payable - $1.20
Credit - Bank Account - $20.00

That is just what you wanted. (Note, I’m following your example of a cash purchase. I you entered a purchase invoice instead, you would do it the same way. But the final equivalent credit would be to the supplier’s Accounts payable balance. You would then clear that with a payment as usual).

The key is to reflect the full price (including use tax) as your expense, but reduce the total amount of the payment to match what you actually sent the New Jersey supplier.

That was exactly what I was looking for. Thank you so much for your help.