Special Tax Assessment as Liability?

Fund Accounting, Accounts Payable, Accounts Receivable, Payroll

Moderators: Moderators, Tech Support

Post Reply
sgbani
Posts: 14
Joined: Thu May 25, 2017 12:07 am

Special Tax Assessment as Liability?

Post by sgbani »

Our church has, unfortunately, been assessed a special tax levy due to road construction, to be paid in equal amount of installments over 10 years.
We would be invoiced by our municipality each year.

I want to track the outstanding liability correctly as it is effectively a zero-interest loan, but also ensure that when we get the annual invoice, the entries are handled correctly in AP and Fund Accounting, especially since we have to budget for this annual cost as an expense item.

I looked at previous posts regarding loans and liabilities (such as credit cards / payroll / mortgages), and I am not confident I have the process of transaction order down.

For this example, let us assume the tax assessment is $10,000 to be paid over 10 years (so $1,000 per year).

Since there is no proceeds from this loan attributed to this tax levy, I am not sure how the initial balance could be entered. Or, should I still create a 'tax levy' asset with regards to the church building? Basically, thinking of it as a mortgage?
Currently, we have no other debts (other than credit card / payroll).

Any guidance would be appreciated.

Thanks,

sgbani

NeilZ
Posts: 9836
Joined: Wed Oct 08, 2003 1:20 am
Location: Monett MO
Contact:

Re: Special Tax Assessment as Liability?

Post by NeilZ »

sgbani wrote:
Mon Sep 19, 2022 3:15 pm
Our church has, unfortunately, been assessed a special tax levy due to road construction, to be paid in equal amount of installments over 10 years.
We would be invoiced by our municipality each year.

I want to track the outstanding liability correctly as it is effectively a zero-interest loan, but also ensure that when we get the annual invoice, the entries are handled correctly in AP and Fund Accounting, especially since we have to budget for this annual cost as an expense item.

I looked at previous posts regarding loans and liabilities (such as credit cards / payroll / mortgages), and I am not confident I have the process of transaction order down.

For this example, let us assume the tax assessment is $10,000 to be paid over 10 years (so $1,000 per year).

Since there is no proceeds from this loan attributed to this tax levy, I am not sure how the initial balance could be entered. Or, should I still create a 'tax levy' asset with regards to the church building? Basically, thinking of it as a mortgage?
Currently, we have no other debts (other than credit card / payroll).

Any guidance would be appreciated.

Thanks,

sgbani
Have you talked to an accountant about this? Its a liability yes, but its no different than any other expense such as utilities. You're going to get a bill, which you then pay from a budgeted expense account. As you mentioned, you don't have any 'starting balance', so creating a liability account is kinda going overboard.

I think you're overthinking this, but I would talk to an accountant or bookkeeper before you do anything.
Neil Zampella

Using PC+ since 1999.

sgbani
Posts: 14
Joined: Thu May 25, 2017 12:07 am

Re: Special Tax Assessment as Liability?

Post by sgbani »

Hi Neil,

Thanks. I have not spoken to an accountant about this yet, no.
We will be given annual invoice, yes, and that is what we can use to pay, but there still would exist a known, overall amount remaining.

Simply put, I have been asked if it is possible to reflect the entire tax levy amount (or remaining amount as it decreases) on our financial statements in some way, so I initially thought of listing it as a liability because I perceive it as a zero interest loan in terms of repayment.

We could simply have it as $1,000 invoices every year that gets paid, so while that properly tracks expenses and outflows, it hides the true outstanding liability amount that exists.

I guess even if I somehow have it listed as a liability, the mechanics in terms of what to credit / debit so everything decreases / increases accordingly is also not obvious to me.

Thanks,

sgbani

NeilZ
Posts: 9836
Joined: Wed Oct 08, 2003 1:20 am
Location: Monett MO
Contact:

Re: Special Tax Assessment as Liability?

Post by NeilZ »

sgbani wrote:
Sun Sep 25, 2022 4:04 pm
Hi Neil,

Thanks. I have not spoken to an accountant about this yet, no.
We will be given annual invoice, yes, and that is what we can use to pay, but there still would exist a known, overall amount remaining.

Simply put, I have been asked if it is possible to reflect the entire tax levy amount (or remaining amount as it decreases) on our financial statements in some way, so I initially thought of listing it as a liability because I perceive it as a zero interest loan in terms of repayment.

We could simply have it as $1,000 invoices every year that gets paid, so while that properly tracks expenses and outflows, it hides the true outstanding liability amount that exists.

I guess even if I somehow have it listed as a liability, the mechanics in terms of what to credit / debit so everything decreases / increases accordingly is also not obvious to me.

Thanks,

sgbani
OK ... the issue is that as a liability you'll have to have some expense to debit it to. Its not going to be an owned asset which is what you would normally use as the DEBIT account. That said, you can track it yearly by adding a statement outside of Powerchurch to your annual report referring to the amount of the bill paid in that year, and showing the remainder of the assessment.

The issue is that Powerchurch is setup as a church fund accounting system which does not show 'accruals' and can only reflect cash on hand, or assets on hand.

If this was a mortgage or other such loan against property, there'd be no problem. Again, I would talk to an accountant who has knowledge of fund accounting to get a fully informed idea of what to do.
Neil Zampella

Using PC+ since 1999.

Post Reply