Sales taxes payable is a liability account in which is stored the aggregate amount of sales taxes that a business has collected from customers on behalf of a governing tax authority. The business is the custodian of these funds, and is liable for remitting them to the government on a timely basis. If the organization remits large amounts of sales taxes, the government probably requires sales taxes payable to be remitted once a month. If the amount paid is quite small, some governments allow the funds to be remitted at much longer intervals, such as once a quarter or once a year.
It is possible that the sales taxes payable account can be subdivided into a number of accounts, with each one containing the sales taxes applicable to only a particular government entity. For example, one account might be used to store sales taxes for a state government, while another account may be used for the county government, and yet another account for the local city government. If a company is required to collect sales taxes on behalf of many government jurisdictions, this can mean that a company could potentially store sales taxes payable information in a large number of accounts.
The sales taxes payable account is always considered to be a short-term liability, since (as just noted) the funds are always to be remitted within one year. Typically, the account is combined with the balance in the accounts payable account and presented in the balance sheet within the accounts payable line item.
A government entity may send its auditors to a business at intervals to examine the method of calculating sales taxes, and also to examine the contents of the sales taxes payable account. If the company has not been calculating or remitting sales taxes correctly, the auditors can charge the company a penalty and other fees.