Updated: Sep 6
Administering sales tax correctly can be challenging. If you sold only one type of product to customers in one city, collecting and paying sales tax would be easy. But most businesses have a wider reach than that.
QuickBooks Online offers tools that allow you to set up sales tax rates and include sales tax on sales forms. It also calculates how much you must pay to state and local taxing agencies.
This is one of the most complicated areas in QuickBooks Online because you may have to deal with numerous taxing agencies. If you're not already working with sales taxes, we highly recommend you let us help you get everything set up correctly from the start. Taxing agencies can audit your bookkeeping and you want to make sure it is set up correctly.
That said, here are five things we think you should know.
QuickBooks Online calculates sales tax rates based on:
• Where you sell. Every state is different. If your business is located in Florida and you sell to a customer in Minnesota, you'll be charging any sales tax levied by the state of Minnesota and possibly the city and county and other taxing authorities - if you have a connection, a "nexus" in that state (a physical location, active salesperson, etc.).
• What you sell.
• To whom you sell. Some customers (like nonprofit organizations) do not have to pay sales tax. You'll need to edit their customer records to reflect this in QBO. Open a customer record and click the Edit link in the upper right. Click the Tax info tab and make sure there's no checkmark in the box that says This customer is taxable. The Default tax code will be grayed out, and you can enter Exemption details in that field.
Customer records for exempt organizations should contain details for that exemption. You'll need to see their exemption certificate or at least know its official number.
Intuit now offers a revamped version of QBO’s sales tax features.
At some point, you'll be asked if you want to switch to the new, more automated system. The actual mechanics of the process are simple, but you'll be moving historical and in-process data to a new structure. If you have sales tax set up right now and your situation is at all complicated, you're going to want our help with the transition.
This enhanced feature only supports accrual accounting.
You can combine individual tax rates.
If you are required to pay city, county, and state sales tax rates for a particular customer, for example, you can create a Combined tax rate that contains all of the individual components. The customer will only see the total on an invoice or sales receipt, but QBO will track each one accordingly for payment and reporting purposes
You can combine sales tax rates in QuickBooks Online (image above from current Sales Tax Center in QuickBooks Online, not the enhanced one).
Product and service records should contain sales tax information.
This is another area that will require some research. Just as some services are subject to tax, some products are not (like groceries in Arizona). So, you'll need to find out what the rules are for what you sell. You can find this information on the website of the state's Department of Revenue (sometimes called the Department of Taxation).
Once you know, you can record that status in QuickBooks Online. Open a product record by going to Sales | Products and Services and clicking Edit in the Action column or create a new one by clicking New in the upper right. Scroll down to Sales tax category in the record. You can choose between Taxable - standard rate and Nontaxable.
There's a third option here: special category. This gets complicated. We can help you determine whether it applies to you.
QuickBooks Online tracks the sales tax you owe.
You can see what you owe to each agency by running the Sales Tax Liability Report, and record payments when you've made them. Summary and detail versions of the Taxable Sales report are also available.
Once you get sales taxes set up in QuickBooks Online, it's easy to add them to the relevant sales forms. Getting to that point, however, takes time and careful attention to detail. If you're getting ready to sell, or you're already selling and struggling with sales taxes, let us know. We can schedule an initial consultation to see how we can be of assistance.