Understanding Non-Earning Principal (TX Only)

When you have sales tax on a down payment or a deferred down, that amount is not collected up front. IDMS tracks that balance. Even though it is part of the principal, it is separate in that IDMS does not charge interest on it and separates it out.

When you do a calculation that is sales tax deferred, you do not charge interest. The state does not consider any tax being paid on down payments. All tax will be distributed equally across all the regular payments. The comptroller wants to be paid that tax, so you are advancing the sales tax that you spread out across the payments to collect from the buyer.

That money gets set aside into a non-earning principal area, and each time you take a regular payment, because you have allocated a certain amount to go to sales tax, it is proportionately paid towards non-earning principal and sales tax. This is over the length of the loan.

An accounting entry for the sales tax is created when the down payment is collected. It appears as non-earning principal and reduces over time as the loan is paid. This reduces liability and the receivable, and a proportional amount appears in the payable.

Example: A $1000 down payment collects 6.25%, which is $62.50. This is applied to tax liability, which is collected over time. The customer does not owe the $62.50.

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