Sales Tax In QuickBooks
Calculating and collecting sales tax is one of the most common problems that people seem to face in QuickBooks. Here is a quick tutorial on how to correctly set up sales tax in QuickBooks.
Enable Sales Tax
Before we start, you need to enable the sales tax preference. From the toolbar, select Edit, then Preferences and select Sales Tax from the Preferences window. Click on “Yes” for the question “Do you charge sales tax”.
In the lower half of this screen set how often you pay and collect sales tax (Monthly, Quarterly, etc).
Adding Sales Tax Items
QuickBooks handles most of its information in the form of items (clients, vendors, jobs, etc). Sales tax is the same. You will need to create one or more sales tax items in the item list before you can start collecting sales tax. You can do this by clicking on the add sales tax item button in the preferences screen, or by adding an item to the item list by going to the toolbar, selecting Lists, selecting Item List and then press Ctrl + N to create a new item.
When the New Item window pops up enter the percentage for the sales tax, and a vendor for who you pay that sales tax to such as, the Texas Comptroller of Public Accounts.
What if you have a situation where you have multiple jurisdiction such as a state, county, and city tax? When you file your reports to the state tax agency you need to split out the amounts by jurisdiction.
To track this, create a sales tax item for each jurisdiction. One for the state, one for each county, and one for each city. Then, create a Sales Tax Group item and add each of the jurisdiction taxes. To create a Sales Tax Group item, from the toolbar select Lists, select Item List and then press Ctrl + N to create a new item. When the New Item window pops up select Sales Tax Group from the Type window. Then add the previously created Sales Tax Items for the state, county, and city to the Tax Item box.
Please note that if you have a large number of taxable jurisdictions this can become very complex. You need to have a sales tax item for each jurisdiction, and a sales tax group for each “nexus” or location that has different combinations.
Customers and Items
Once the sales taxes have been set up we can take a look at your customers and items. Some customers are taxable while others are not. Some items and services are taxable and others are not. We will set up both to be subject to taxation, although you can always override this when needed.
Sales Tax on Customer
To enable sales tax on a specific customer go to the toolbar and click Customers, Customer Center and then, from the Customer Center window, double click the customer you wish to charge sales tax on or press Ctrl + N to create a new customer. On the Edit Customer screen be sure to change the tax code to Tax and the Tax Item to the appropriate taxing jurisdiction.
Sales Tax on Items
To enable sales tax on specific items (such as services, merchandise, inventory, etc.) go to the toolbar and click Lists, Item List and then, from the Item List window, double click the Item you wish to charge sales tax on or press Ctrl + N to create a new item. On the Edit Item screen be sure to change the tax code to Tax so that tax is charged by default.
Creating the Invoice
When creating an invoice for a customer the default values for the tax are taken from the customer and item lists we just edited. Three things must be set to have sales tax calculate: The customer tax code must be taxable, the tax item or group must be selected, and the tax setting on the item must be selected. If this all happens, sales tax is calculated properly.
Remember, you can override the default tax settings for each item and/or customer if you need to change something for a specific situation. If one line isn’t to be taxable for some reason, change the tax setting on that line to non taxable. If the customer is subject to a different tax rate then normal then you can change the tax item or group for the invoice. You can also change the customer tax code to nontaxable if no tax is to be charged for specific sales or jobs.