Sometimes a little confusion can arise around the various components of sales tax setup in QuickBooks. What are these different pieces?
First, sales tax items. A sales tax item is similar to other item types in QuickBooks. Service, inventory, etc.
The item does much of the work, telling QuickBooks how much sales tax to charge.
In the graphic, the item type field is grayed out. A sales tax item cannot be changed to some other type.
The item needs a name and a description. The rate must be specified. It is this percentage figure that QuickBooks will use to compute sales tax.
The agency to which sales tax payments are made also must be specified here.
The above graphic shows how the sales tax item computes the amount of sales tax on an invoice.
Sales Tax Groups
Sales tax is usually split between several local government entities. In some states, the entire amount is transmitted to the state by the business owner. From there, amounts are sent to local, city, and county governments.
In other states, the various amounts are sent directly to each governmental unit. Since only one sales tax item can be applied to an invoice, QuickBooks uses sales tax groups in place of a sales tax item.
In the sales tax group screen, you can see that the group is made up of several, in this case two, sales tax items.
This allows the individual sales tax items to collect the amount of tax specific to their tax agency.
Combining into a group allows one sales tax amount to be applied to the invoice.
Sales Tax Codes
Sales tax codes have one very simple function. Is an item taxable or not?
To make them do just a little more work, we can set them up to track why an item is not taxable.
The setting pointed out by the arrow specifies to QuickBooks whether this code is a taxable code or not.
In most states, when sales tax returns are done, reasons must be specified as to why a certain portion of sales were non-taxable. Perhaps the sales were to another reseller, or the sales were for non-taxable labor.
Setting up sales tax codes for the various reasons something might be non-taxable, helps in creating sales tax returns.
Once the items and codes are setup, you are able to specify which customers are taxable and which are not. A certain sales tax item can be setup for customers that will specify what sales tax district they fall into and what their rate should be.
Items will also need sales tax information. Is it a taxable or non-taxable item?
Sales tax has become more complicated as some states allow the setup of many local districts assessing different rates for special reasons. These can be tracked in QuickBooks with the creation of additional sales tax items.
Hector Garcia, CPA
Certified Advanced QuickBooks ProAdvisor
12401 Orange Drive #136
Davie, FL 33330