Is the Sales Tax Bandit Winning?

Using the QuickBooks® sales tax feature will help automate the calculation, collection and payment of sales tax. To set up QuickBooks to calculate and pay sales tax correctly, make the appropriate selections under the Sales Tax Preferences menu. Based on the rules in your state, be sure to make the appropriate selections for Cash versus Accrual basis for your tax obligations and select the frequency of your filing and payment. This will automate the settings on the sales tax reports and the Pay Sales Tax window.

QuickBooks - Preferences

In your item list, a Sales Tax item is used on sales forms to calculate the sales tax due on items that are marked as taxable. This item represents a single tax that is collected at a specified rate and paid to a single agency.

QuickBooks - Sales Tax

If collecting sales tax at more than one rate, or if paying to more than one agency, a separate sales tax item must be created for each. Sales tax may be applied individually or as a group (for example, combining city, county and state taxes).

QuickBooks - Sales tax rates

In QuickBooks, sales tax codes allow you to track whether items are either taxable or non-taxable. When the item is used on a sales form, the tax code will appear in the tax column. Selecting the appropriate tax code when setting up customers also gives them the designation of being taxable or non-taxable. In determining whether the sale is a taxable event, a customer may be non-taxable because they are located out of state or are an exempt organization even if the item has a taxable status. The taxable status of a customer ALWAYS overrides that taxable status of an item. To access your sales tax code list, choose Sales Tax Code List from the Lists menu.

To calculate and record the sales tax when creating a customer sale, simply enter the items on a sales form.

QuickBooks - Invoice sales form

If required, you can change the Customer Tax Code or the taxability of an item right on an individual sale.

The Sales Tax Liability report (found in the Vendors & Payables reports list) shows your total taxable sales, total non-taxable sales and the amount of sales tax you owe each tax agency.

QuickBooks - Sales Tax Liability report

To view the details of your taxable and non-taxable sales according to your sales tax codes, run the Sales Tax Revenue Summary report.

When it's time to pay the sales tax, simply choose Sales Tax from the Vendors menu. Then, choose Pay Sales Tax. To adjust the amount due, click on the Adjust button. Adjustments and discounts to the sales tax liability can be made using a journal entry or from the Sales Tax Adjustment window. In either case, the agency to which a discount applies must be included in the name or vendor field respectively.

QuickBooks - Pay Sales Tax

Laws relating to sales taxes are complicated and vary depending on the state, county and local municipality of your customer. Be sure to consult with your accountant and/or check local tax codes pertaining to the calculation and payment of sales tax.

Contact Porte Brown if you have any questions about tracking sales tax in QuickBooks.

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