Setup Sales Tax in QuickBooks

You can now collect, report, and pay sales tax more easily thanks to changes we’ve made to the way it’s handled.

You can manage all of your sales tax tasks at the Sales Tax Center, which is a one-stop shop.

• Including combined rates, add various sales tax rates.
• View sales tax liability reports that you can tailor by date, agency, and other factors.
• So that you can easily access a list of all your recent payments, keep track of sales tax payments in the Sales Tax Center.

Understanding the steps involved in Sales Process

Discover more about the status of sales orders and how to advance through stages in QuickBooks Commerce.

A sales order is created and goes through several steps that update the stock level accordingly. We’ll go over these states with you and what you can do to proceed and complete the sale order. The four phases of a sales order in QuickBooks Commerce are listed below.

Draft

You can choose to start your sales order with the optional Draft stage, or you can move on to the Active stage.

Since they have not yet been assigned, stock levels won’t change at this time. What you can do is:

• Send your customer a sales quote in order to get their approval for the order.
• If you’re prepared to start making sales, approve the draft so that the status of the sales order changes to Active.

Active

When you assign stock to the order but it has not yet been subtracted from your overall stock level, you are in the active stage.

• At this time, you can only edit your order.
• Select Finalize to move on to the following step once you’re finished making the changes.

Completed

Currently, you can begin completing your order. Although committed, the stock has not yet been subtracted from your total stock.

What you can do at this point is as follows:

• Now, you can make shipments, payments, and invoices.
• There is no set order in which to complete the billing and packing processes. However, you must first create an invoice before you can create a payment.
• This implies that you can make packing slips and packing labels for shipments.
• A return is produced by shipping your product. A partial return is produced when you create a partial shipment.
• Only a few changes can be made to your sales orders:
  •  You can only increase the quantity of stock that was ordered; you cannot decrease it.
  •  Items and landed costs can be added.
  •  Both the Issue Date and the Ship Date are modifiable.
  •  After creating a shipment, you can view the Pick List.

Note: If you’ve integrated your accounting software with QuickBooks Commerce, it will sync any payments you mark as paid with XERO or QuickBooks Online.

Complete

The order’s status will change to “Fulfilled” once it has been shipped. The stock level is reduced as a result of this change.

Introduction to Sales Tax

It’s challenging to manage taxes and remain compliant, especially as your business grows. You must comprehend where your company must pay taxes, how much tax to collect, and what to do with the money you bring in. Companies frequently spend months integrating with tax engines to off-load this labor-intensive process, which can be expensive and time-consuming.

Taxes become more challenging the more items you sell and the more markets you sell to. Online businesses that frequently serve customers who are based in numerous states and countries find taxes to be particularly challenging. This means that in order to ensure compliance and prevent paying additional fines and interest on top of unpaid taxes, you must be aware of the tax laws in every jurisdiction.

Only the final consumer of a good or service is subject to conventional or retail sales taxes. In order to establish who is ultimately responsible for paying sales tax, a significant amount of documentation is required because the majority of goods in contemporary economies go through several stages of manufacturing, which are frequently handled by different entities. Let’s use the example of a sheep farmer selling wool to a business that makes yarn. The yarn manufacturer needs a resale certificate from the government proving that it isn’t the end user to avoid paying sales tax.

Value-Added Tax

The U.S. is one of the few developed nations that still imposes traditional sales taxes. Value-added tax (VAT) schemes have been adopted in the majority of the developed world.

How to turn on the Sales Tax feature in QuickBooks

Setup sales tax in QuickBooks Desktop:

For some of the goods and services you provide, you might need to collect taxes. You can easily monitor and remit these taxes to the proper tax collecting agency by using QuickBooks to help you keep an accurate record of them.

Note: Verify the tax rates and requirements with your tax agency before setting up your sales tax items/groups.

You must enable this feature and set up sales tax items or tax groups before you can begin recording sales tax in QuickBooks Desktop.

•  Preferences can be found by selecting Edit from the menu.
•  Select Sales Tax from the Preferences window, then click the Company Preferences tab.
•  To enable sales tax, choose Yes.
•  Each county, district, city, etc. where you collect sales tax needs to have its own set of sales tax items or sales tax groups. For this, simply click Add Sales Tax Item. 
• Give out sales tax codes. You can keep track of customers and/or sales that are taxed and those that are not. You can run a report that separates the total taxable and non-taxable sales by properly setting up and assigning the sales tax code. QuickBooks automatically creates the tax codes TAX (taxable) and NON when you enable sales tax (non-taxable). The term “TAX” refers to goods and clients for whom you must collect tax. NON is used for customers and items that are tax-exempt, such as those that are purchased by non-profit organizations, are sold outside of the country, or are intended for resale.
• Configure the Sales tax basis (Accrual or Cash). Consider your company’s accounting preferences.
• Determine how you would like to pay the sales tax (Monthly, Quarterly, Annually).
• Click OK.

Setup sales tax in QuickBooks Online:

Find out how to set your sales tax rate and settings, edit them, and deactivate them.

You can add and modify tax agencies, rates, and settings in the sales tax centre.

Add or modify sales agencies:

• Include an agency and a tax rate.
• Including a tax rate and an agency
• Select Sales tax after going to Taxes (Take me there).
• Select Add/edit tax rates and agencies from the Related Tasks list on the right.
• Choose New, then select the single or combined tax rate.
• Enter the tax’s name, the agency you pay, and the rate’s percentage. If you only pay one rate to one agency, use that rate.
• Choose Save.

Specify a combined rate.

•  Consider establishing a combined tax rate if you must keep track of sales tax for multiple taxing authorities. You might be required to report and pay sales tax to your state, county, and city, for instance.

Notes to remember

• A combined tax rate means that your customer only sees one tax rate on their sales form. The sales Tax centre, on the other hand, keeps track and divides the funds appropriately for each agency.
• In a combined tax rate, up to 5 components may be added.

When a combined tax rate is added:

• Select Sales tax under Taxes (Take me there).
• Choose Add/edit tax rates and agencies from the list of related tasks on the right.
• Pick New.
• Give the combined rate and the various sales tax requirements names.
• If more than two rates need to be added, choose Add Another Component.
• Choose Save.

Modify a tax rate:

Facts to consider:

• If you need to make changes to a sales tax rate, you can edit it.
• Only the component rates are editable.
• Change the component rates of a combined rate to edit it.

Modify a tax rate by:

• Select Sales tax after going to Taxes (Take me there).
• Select Add/edit tax rates and agencies from the Related Tasks list on the right.
• Pick the rate you want to modify, then click Edit.
• Type in the updated rate. The name of the agency is also changeable.
• Choose Save.

Several things will happen after you’re finished:

• Only brand-new transactions are eligible for the new rate.
• The new rate is applied to new transactions that are created with dates in the past.
• The earlier rate cannot be used after editing a rate.
• Existing transactions that made use of the earlier rate are still valid. Unless you specifically select a different sales tax rate when editing the transaction.
• New transactions generated by recurring templates that make use of the modified component apply the new rate. Existing transactions made using the template and the earlier rate remain unaffected.
• The data for both rates are displayed in reports.

You can track your sales tax returns more easily with QuickBooks. QuickBooks calculates sales tax for you automatically using the products you sell, the locations where you sell them, and the shipping locations. QuickBooks will update your tax rates for you automatically if your state makes changes, such as changing the sales tax rate. 

Following the switch, you can view your previous sales tax information by following the instructions for viewing the new sales tax system in QuickBooks Online. You will be prompted to match your current tax rates to the official tax agency listed in QuickBooks when you switch to automated sales tax. You must match all your tax rates if you have fewer than 20.

It is strongly advised, but not required, to match all your rates if you have more than 20. Future sales forms won’t be able to use any rates you don’t map. You won’t find any transactions using the mismatched rates in your Sales tax tab, but you can still access historical data for your rates in the Sales Tax Liability Report and Chart of Account Registers.

Change to an automated sales tax system:

Here’s how to switch to automated sales tax when you’re ready and match your tax rates.

• Select Sales tax after going to Taxes.
• Choose either use automatic sales tax or Get Started if your QuickBooks is prepared to make the switch to automated sales tax.
• A switch should be available to you soon if you don’t have it already.
• Verify the accuracy of your business address. If so, choose Next. If it isn’t, choose the Next button after clicking the pencil icon to update the address.
• Compare the official state agency’s tax rates with your current rates.
• Choose Next.
• After carefully examining the rates, choose Save.
• To close the window, click the X. To see a demo of automated sales tax, click Continue.

How to create new Sales Tax Item in QuickBooks

Find out how to use QuickBooks Online to add a sales tax category to your goods and services.

Allow QuickBooks to calculate the sales tax for you rather than doing it manually. To accurately calculate how much to tax your customers, add a sales tax category to your goods and services. How? Read on. 

Step 1: Configure your sales tax

Depending on what you sell and where you sell it, there may be different tax laws for different goods and services. You don’t have to keep track of those tax regulations because QuickBooks does. 

Step 2: Determine which goods or services require a sales tax category

• A good or service may be taxable in one state but not another, or even in the same city in some cases.
• There are discounted or special rates and fees for some particular goods and services.

Step 3: Assign a product or service to a sales tax category.

Here’s how to assign your items to various sales tax categories when you’re ready.

• Go to Sales or Get paid & pay, then choose Goods and services (Take me there).
• Select Edit after finding the item you want to apply a tax category.
• Here’s how to add a new inventory item if you want to give a new good or service a tax category.
• Choose Edit sales tax.
• the section titled “Other options.”
• Choose either Non-taxable or Taxable based only on location.
• Choose Done, then click Save and Exit.

Give a good or service a particular sales tax category.

• Go to Sales or Get paid & pay, then choose Goods and services (Take me there).
• Select Edit after finding the item you want to apply a tax category.
• Here’s how to add a new inventory item if you want to give a new good or service a tax category.
• Choose Edit sales tax.
• Search for the desired sales tax category. You can browse the list of categories or use the search bar.
• Choose the item’s closest category.
• Choose Done, then click Save and Exit.

How to access Sales Tax Setup Window from multiple access options in QuickBooks

For some businesses, printed sales forms must show each individual sales tax rate.

In other cases, you might be required to apply one tax rate to the entire sale and a different tax rate to the portion of the sale that is less than a specific dollar amount. You should use a subtotal item and multiple tax items in your sales forms in these situations.

Show several tax rates:

• Create the sales tax items: Choose Item List from the Lists menu.
  • Right-click anywhere in the Item List window and choose New.
  • Choose Sales Tax as the item type.
  • Fill out the fields for the Sales Tax Name, Description, Tax Rate (%), and Tax Agency.
  • Choose OK.
  • To enter as many sales tax items as necessary, repeat steps a through e. 
• Add a subtotal line item:
  • Choose Item List from the Lists menu.
  • Right-click anywhere in the Item List window and choose New.
  • Choose Subtotal as the item type.
  • Enter the Item Name/Number and Description information.
  • Choose OK. 
• Several sales tax items should be used to create the invoice. Important: For the body of the invoice to accurately calculate the sales tax rates by item, you must ensure that the default tax in the box below the body of the invoice is a 0.0% sales tax item before moving on to the next step.
  • Choose Create Invoices from the Customers menu.
  • Add up every taxable item. NONE of the non-taxable items should be added. Later, they will be included.
  • Each related item should have the taxable code added to the right.
  • After entering all taxable items, enter the subtotal item to produce a subtotal. Add the subtotal item below all the taxable items up to the tax amount if your tax calculation is based on a threshold sales amount.
  • Enter any non-taxable goods that are exempt from sales tax. If necessary, add a non-taxable code to the right of each item.
  • Choose Save & Close.

General FAQs: