No doubt administering sales tax correctly can be very challenging. If you only sell your product or service in one city, it would be easy to collect and pay sales tax. However, most businesses sell their products/services in multiple different states.
Using the tools available in QuickBooks, you can set up sales tax rates. You will also be able to include sales tax on sales forms. This tool will calculate the amount of state and local taxes you will pay to each tax agency.
Administering and calculating taxes is one of the most complicated sections in QuickBooks mainly because you have to deal with multiple taxing agencies. You will want to make sure your tax tools are set up correctly because tax agencies can audit your record-keeping. So, if you’re not sure how it works, we can help. There are 5 things you should know:
QuickBooks will calculate sales tax rates based on:
- What you are selling. (your product or service).
- The state you sell to. Each state is different. For example: If your business is located in Michigan and you sell to a customer that lives in Ohio, you will charge sales taxes levied by Ohio. There is also the possibility that you may have to include city, county, and other taxing authorities, if you have a physical location or active salesperson, in that state.
- Who you are selling to. Nonprofit organizations don’t have to pay sales tax. You will have to set up the customer records to reflect this in QuickBooks. To do this you will need to open the customer record and click on the Edit link in the upper right corner. Next, click on the Tax Info tab and remove the checkmark in the box that says, this customer is taxable. The Default tax code will then be grayed out. Next, you can enter Exemption details, in that field.
For customers that are exempt organizations, the records should show details for that exemption. You will need to see the customer’s exemption certificate or the official number on the certificate.
Intuit now offers an updated version of QuickBooks sales tax features.
You will be asked if you want to switch to the new automated system at some point. It is a simple process that will move your historical and in-process data to a new structure. You may need a little assistance with the transition if you a complicated tax set up now. FYI: This enhanced feature only supports accrual accounting.
You have the ability to combine individual tax rates.
When you’re required to pay city, county, and state, sales tax rates for a certain customer, you have the ability to create a Combined tax rate that includes all of the individual elements. QuickBooks will track each tax rate accordingly for payment and reporting purposes. However, the customer will only see the total tax on an invoice or sales receipt.
You have the ability to combine sales tax rates in QuickBooks (see image above from current Sales Tax Center in QuickBooks, not the enhanced one).
Sales tax information should be in the product and service records.
Some research will be required in this area. Some services will be subject to tax just as some products, such as groceries, are not taxed. Therefore, you will need to research the rules for the items you sell. This information can be found on the State’s Department of Revenue (or Department of Taxation)
After you find the necessary information, you may record that status in QuickBooks. You will need to open product records by going to Sales | Products and Services. Next, click on Edit in the Action column or you can create a new one by clicking on New in the upper right.
Then, scroll down to the Sales tax category in the record. You will be able to choose between Taxable – standard rate and Nontaxable.
A third option here is special category. This may get complicated and you may need assistance to determine if this category applies to you.
Tack the sales tax you owe in QuickBooks.
By running the Sales Tax Liability Report, and record payments, you can see what you owe each tax agency. The summary and detail versions of your Taxable Sales report will also be available.
After you have the sales taxes setup in QuickBooks, you will find it easy to add them to the relevant sales forms. At Summit CPA we offer QuickBooks consultations. If you need assistance contact our office at (866) 497-9761.