Not Another Tax!

Use tax is the counterpart of sales tax. Merchandise that is normally taxable for sales tax purposes, but is purchased outside the state where your business is located, is subject to a usage tax. The use tax rate is typically the same as your state sales tax rate.

If your vendor does not collect the use tax, it is the responsibility of the purchaser to self-assess, report and remit this tax to the state. The purpose of this tax is to prevent vendors located outside of a state from having an unfair competitive advantage over instate vendors who must charge a sales tax.

The liability for paying use tax falls on your company. QuickBooks® does not specifically provide a mechanism to track the details for calculating and paying use tax as it does for sales tax. However, consider the following strategy:

If purchases from an out-of-state vendor are subject to use tax, utilize the Vendor Type field to isolate these transactions. Set up a new Use Tax vendor type in the Additional Info screen and edit each appropriate vendor to include this information.

QuickBooks - Edit Vendor

Then create a memorized report as follows:

  1. Choose Transaction Detail report from the Custom Reports menu.
  2. Click the Customize Report tab.
  3. Click the Filters tab.
  4. Select Account from the Choose Filter box, then choose Multiple accounts. Select any checking or credit card accounts you may have used to pay for purchases.
  5. Select Vendor Type from the Filter drop-down list, and select Use Tax (or whatever you titled the vendor type).
  6. Click the Header/Footer tab and enter Use Tax Purchases as the Report Title. Click OK to save the report settings.
  7. Click Memorize on the report buttonbar to save this report for future use. Hint: Memorize the report with the desired date range already preset (i.e. Last Fiscal Quarter, Last Month).
QuickBooks - Use Tax Purchases

When it's time to pay the use tax, simply run the memorized report for the desired date range, multiply the total applicable purchases by your tax rate and write the check. Save a copy of this report for your records.

If you also pay sales tax, you can add the use tax liability to the sales tax payable register in the Increase column using the appropriate tax vendor and expense account. When it is time to create the check, choose Sales Tax from the Vendors menu and then click Pay Sales Tax. Create a payment for both taxes on the same check.

Be prepared in the case of an audit. We can review the accuracy of your sales and use tax reporting. Contact us if you have any questions about Use Tax in QuickBooks.

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