Managing Sales Tax

In this chapter, we will cover how to manage sales tax in QuickBooks Online (QBO). In the United States, sales tax is typically applied to the sale of products. However, some states and local tax jurisdictions also apply sales tax to certain types of services. You need to consult with your CPA or tax professional to determine which laws apply in your geographical location. While you cannot pay sales tax directly from QBO, we will cover how to record the payment in QBO after you have paid your tax authority.

We will cover the following topics in this chapter:

• Setting up sales tax in QuickBooks Online
• Creating an invoice that includes sales tax
• Sales tax reports
• Paying sales tax when it comes due

The US edition of QuickBooks Online was used to create this book. If you are using a version that is outside of the United States, results may differ.

Do you need to charge sales tax?

Before we dive into the mechanics of setting up sales tax, you may be wondering whether you need to charge sales tax or not. The short answer is yes if you sell any type of product, such as T-shirts, books, a cup of coffee, and so on. If you don’t sell a product but you do sell services, such as bookkeeping, legal, or consulting, then the answer is maybe. Because the answer is dependent on the rules and regulations of your state/local jurisdiction, it’s important that you seek the advice of a CPA or tax preparer.

However, there are a couple of resources that we recommend you check out. First, this article from the QuickBooks blog Do I need to charge sales tax?: https://quickbooks.intuit.com/r/taxes/need-collect-sales-tax-much/. Another great resource is Avalara. Avalara is a company that specializes in sales tax compliance. Not only do they offer sales tax compliance services but they are also a great resource for any questions you...

Setting up sales tax in QuickBooks Online

If you are required to collect sales tax from customers, it is important to complete the sales tax setup in QuickBooks prior to invoicing customers. If you create an invoice without sales tax, you will ultimately underpay the sales tax you are required to submit to your local tax authority. This could lead to additional taxes and penalties, which can add up quickly. Setting up sales tax in QuickBooks from the start allows QuickBooks to automatically calculate and keep track of the amount of sales tax that you owe.

Perform the following steps to set up sales tax:

1. Click Taxes and select Sales Tax on the left menu bar, as indicated in Figure 6.1, to navigate to the Sales Tax Center:

Figure 6.1: Navigating to the Sales Tax Center

2. The following message will appear. Click the Use Automatic Sales Tax button, as indicated in Figure 6.2:

   

   Figure 6.2: Sales Tax Center welcome page

   The following window...

Creating an invoice that includes sales tax

After completing the setup for sales tax, you are ready to create invoices and sales receipts with sales tax. In this section, we will create an invoice and show you how to include sales tax.

Perform the following steps to create an invoice with sales tax:

1. From the left menu bar, click on Sales and then select Invoices, as indicated in Figure 6.10:

Figure 6.10: Navigating to Invoices

2. Click the Create invoice button, as indicated in Figure 6.11:

Figure 6.11: Creating an invoice

3. A blank invoice template will appear. Complete the fields as follows:

Figure 6.12: Invoice template

4. There are six key areas within the invoice template:
   • Invoice view (1): There are four different views for the invoice template. The default mode is Edit, which is the mode you want to be in when making changes to the invoice; Email view is the view that your customers...

Sales tax reports

QuickBooks makes it easy to stay on top of the sales tax collected, which will ensure that you pay the correct amount when it comes due. There are three reports available to help you stay on top of the sales tax you owe: a tax liability report, a taxable customer report, and a non-taxable transaction review report.

Within the Sales Tax Center, click on the Reports link to access the sales tax reports, as indicated in Figure 6.15:

Figure 6.15: Sales tax reports

The first report is the Tax liability report. This report will show you the sales tax collected for a specific period of time. The report will show gross sales, taxable sales, non-taxable sales, and the tax amount.

In the report shown below, there are four columns: GROSS TOTAL, NON-TAXABLE, TAXABLE AMOUNT, and TAX AMOUNT. The gross total amount is $225.00, the non-taxable amount is $0, the taxable amount is $225.00, and the total tax amount is $18.56:

Figure 6.16: Sales tax liability...

Paying sales tax when it comes due

Unfortunately, you cannot pay sales tax within QuickBooks Online. You must visit the website of your state tax authority and submit payment online or mail a check before the due date. The following Intuit video tutorial provides a recap of what we have covered in this chapter, plus the steps you need to take to make a payment and record it in QuickBooks Online: https://youtu.be/Rns_R4fRros.

Summary

In this chapter, we have discussed the importance of setting up sales tax in QuickBooks so it can automatically calculate sales tax for you. We have shown you how to create an invoice and include sales tax, and we have covered the key reports available to help you stay on top of your sales tax liability.

Since you cannot make sales tax payments in QuickBooks, we have also included a video that explains how to make your sales tax payments outside of QuickBooks. It’s important to make sure you set up sales tax and use the correct sales tax rate. This will help you to avoid penalties or fees for under-reporting and underpaying sales tax to your state tax office. In the next chapter, we will cover how to record invoices and sales receipts in QuickBooks Online.

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