Setting up sales tax in QuickBooks Online (QBO) could not be easier.  The most recent update to the program makes the work simple.  QBO finds your state’s rate and even connects you to the corresponding Department of Revenue’s website right from within the program.  Much of this set-up is automatic.  Of course, in some states, sales tax is far from simple.  This post addresses the most simplest of sales tax setup.  One state, one rate.   If you live in a state like New York, with complex state, city, local tax, I highly recommend using the app, Alavara.  Alavara also is a great resource (see their blog) to learn about sales tax and the varying laws throughout the country.

Start with clicking tax in the left toolbar….

Sales Tax Center:    This is where you manage all your sales tax tasksAdd multiple sales tax rates, including combined rates (details on this to come in a future tutorial)View sales tax liability reports that you can customize by date, agency and moreRecord sales tax return and payments in the Sales Tax Center so you can see all your recent payments in one place

Questions to ask yourself when you get started…

• Do your products or services require sales tax in your state?
• What’s your sales tax rate(s)?
• What agencies do you need to pay your sales tax to?
• How often do you have to make sales tax payments?

Where to find these answers….

The government website for your state. Often you’ll find a section that contains detailed information about taxes in the state.  For Florida, click here or for a list of everywhere else, click here.

If you are completely lost after all of the above, contact a professional.  When you collect sales tax, you are their agent.  Sales tax can be complex, confusing and you can be audited.

How sales tax works in QuickBooks…..

QBO calculates sales tax from the settings you enter in Sales Tax Center. After creating your items that you sell, your first step is to indicate whether all new products and services are taxable. Then, you add your sales tax rates and agencies.QBO adds a sales tax field to your sales forms, like invoices and sales receipts as well as customer credit memos in the event of a return of purchase from your customer. You can select to have a default sales tax rate item for your customer.  Each time you create a new sales form, it will default to last used or you choose the sales tax rate to use for the customer. You can select another rate, if applicable, for your customer if situations have changed (customer moved to a new state).  QBO calculates the Taxable Subtotal by totaling every charge on the form that has its Tax column selected. Then, the Taxable Subtotal is multipled by the Tax % to arrive at the figure in the tax amount field to its right. If you’ve added more than one tax rate in Sales Tax Center, you can select a different tax rate from the Tax drop-down list.Taxes on discounts can also affect sales tax.

If you have to prepare a customer return, make sure you are careful to do it in the current tax period.  Do not void or modify a customer form once sales tax has been paid.  Always be diligent to do any modifications in the current period.  If you do void, do so with a credit memo reversing the original entry (if the void happens out of the current month).

If you converted your desktop to online….

After the conversion

There will be at least two sales tax payable accounts on the Chart of Accounts: One for each old Sales Tax Payable account from QuickBooks Desktop.   One for each Sales Tax Agency Payable account in the new QuickBooks Online (set up automatically for each jurisdiction during the conversion).

You will only use the new Sales Tax Agency Payable account in QBO, and all sales tax will be managed from the Taxes in the left hand navigation tab.Past Sales tax payments will convert as regular checks/cheques.Past Sales tax adjustments will convert as journal entries.

If you have any questions or would like to see a future video on another topic, please reach out to me on Facebook.