QBO Basic sales tax setup

Navigating the Sales Tax center

As clients collect sales tax from their customers, the Sales Tax center keeps track of how much sales tax they owe to each tax agency. The Sales Tax center is where your clients can manage all their sales tax tasks, including: ** Seeing when tax payments are coming up ** Viewing the previous sales tax activities and payments ** Viewing sales tax liability reports ** Updating their sales tax settings, including adding new tax agencies

Identifying the client's sales tax requirements

Before setting up a client's sales tax, you should find out what the sales tax requirements are for their business and location. You may have done this as part of your initial requirements gathering with the Client Needs Assessment tool. Some key questions to ask your client are: ** What is their company address? ** When did their last tax period start? ** Which agencies do they need to pay their sales tax to? ** When did they start collecting sales tax for each agency? ** What is their filing frequency? ** Do they do business in more than one state?

Information Tile

An information tile provides a snapshot of the sales tax currently due to each tax agency that the client has set up in their Sales Tax center. By default, the tile shows the sales tax amount your client owes the agency for the current month. Selecting More details reveals a breakdown of the total sales tax figure, as shown here. Clients can switch between agencies by selecting the different information tiles. QuickBooks Online displays the sales tax information for the selected agency in the main area below.

Telling QuickBooks Online that a customer is exempt from sales tax

Another task to carry out when setting up sales tax is to specify any customers who are exempt from sales tax. ** What type of customer could be tax-exempt? ** Certain organizations and businesses that meet specific criteria may be exempt from sales tax. These criteria are determined by each state, so you'll need to check the relevant rules. Some examples of tax-exempt customers are: ** State, local, and federal government ** Nonprofit organizations ** Resellers ** Providers of raw materials used to produce other goods (manufacturers) ** How do you set a customer as being tax-exempt? ** QuickBooks Online allows you to check the box This customer is tax exempt so that sales tax won't be calculated for the customer. You must give a reason for the exemption.

Sales Tax Settings

Allows you and your clients to view and edit any tax agencies they have set up in QuickBooks Online. From here, clients can add new tax agencies and make existing ones inactive.

How does QuickBooks Online use the location of sale to calculate sales tax?

By default, QuickBooks Online calculates the sales tax rate for a sale based on the seller's address (that is, the client's registered business address). When a client creates a sales form such as an invoice, QuickBooks Online displays this address in the Location of sale field. However, if there's an address in the Shipping to field (for instance, if a shipping address has been added to the customer's details), QuickBooks Online calculates sales tax based on this address instead of the seller's address. Note that, in this situation, the name of the Location of sale field changes from Location of sale to Shipping from. However, there may be times when the client ships an item from a location other than their registered business address (such as a warehouse). This location may have a different tax rate—or even be in a different state.

What if no sales tax agency is set up for the state that the clients shipping to?

If the client is shipping to an address in a state for which no sales tax agency's set up in QuickBooks Online, an alert appears at the top of the invoice. The alert states that the agency's not set up and suggests that you select the See the math link, where you can set up the new sales tax agency. ** If you select the See the math link and add another agency to the Sales Tax center, QuickBooks Online automatically calculates the required sales tax (Note: Only do this if your client has already established sales tax nexus in that state. For more information, read our article about sales tax nexus.) ** If you don't select the See the math link, no tax will be calculated and you can save the transaction

Setting up the Sales Tax center

Let's see how to set up sales tax. Note that the example here shows a QuickBooks Online company for a client who converted from QuickBooks Desktop. However, the process of setting up sales tax for the first time is identical. 1,) From the left-hand navigation, select Taxes 2.) Select the Get started button 3.) QuickBooks Online automatically populates the client's address, so select Next 4.) Select the relevant agency for any tax rates shown, then select Next 5.) Review the rates and change the agency if necessary. When done, select Save 6.) QuickBooks Online shows that the sales tax is set up. Select Continue to get an introductory tour 7.) Either select View sales tax center or close the window 8.) Select the reporting interval for each agencyNote that the reporting period adjusts. 9.) Select Save Great work! That's the first part completed. You can support your clients by adding or editing sales tax agencies as the company grows.

How do you assign a special tax rate to a product/service item?

Many states have special tax rules for: ** Services ** Software, digital goods, and telecommunications (delivery method matters) ** Medical devices and drugs ** Food and beverages ** Clothing States may also have special tax rules or rates that depend on how the product or service is used. For instance, there are specific rates and exemptions for manufacturing, contracting, construction, property, and even wholesale. To change the sales tax category for a product/service item: 1.) On the Products and services screen, select Edit next to the item to open the pop-up window 2.) Scroll down to the Sales tax section and select Edit sales tax 3.) Here, you can see a list of special categories set up in QuickBooks Online. Selecting a category name expands it to display a list of options for that category. You can choose an option that most closely describes the product/service item in question 4.) When you're ready, select Done The product/service item information panel updates to show that the item is now being taxed at the special sales tax rate. 5.) Finally, select Save and close

What if the item isn't subject to sales tax?

Some product/service items don't qualify for sales tax. This can vary from state to state and depends on the product/service being sold. For example, in some states, essential food items (not things like candy), clothing under a certain dollar amount, and residential (as opposed to commercial) services carried out by a contractor may not be subject to sales tax. You'll need to check the individual state tax rules to find out which of the client's items—if any—are nontaxable. To set up an item as nontaxable in QuickBooks Online, edit the item and select Edit sales tax as before. Then scroll down and select Nontaxable.

Reports Tool

The Reports tool allows clients to run the following QuickReports: ** Tax Liability report ** Taxable Customer report ** Nontaxable Transaction review

Status Dropdown

The filters here allow clients to narrow down the sales tax information listed below so it only shows amounts that match the specified criteria. The Status filter has the following options: ** Paid: Sales tax amounts the client already paid to the agency. This is a useful reference for reporting and at year end ** Due: Sales tax that's currently due (that is, for the current month) ** Overdue: Sales tax for which the due date has passed and no tax payment has been recorded within QuickBooks Online ** Open: Sales tax amounts accruing for the following period The Tax Period Date filter allows clients to filter by a specified period.

What if the client wants the item to be taxed at the regular sales tax rate again?

To change the method back to the default setting (that is, the regular state tax rate): ** Select Edit sales tax in the product/service information panel ** Scroll down and select Taxable—based on location only ** Then select Done, followed by Save and close

How do you update the address for the location of sale?

To update the address that QuickBooks Online uses as the location of sale, select the Location of sale field and enter the address there. Unless there is an address in the Shipping to field, sales tax will be calculated according to the applicable rate(s) for the updated location of sale. However, if there is a shipping address, the sales tax will be calculated based on this address instead.

Selecting the right sales tax category for a product/service item

When setting up sales tax for your client, one of your tasks is to review their product and service items and select the appropriate sales tax category for each. By default, QuickBooks Online applies the regular state tax rate to a product/service item. This appears as Taxable - standard rate in the product/service information panel, as you'll see below. However, many states have special tax rates for certain products and services—and other items might not be taxable at all. Therefore, the client may want to either assign a special sales tax rate to an item or mark it as nontaxable.

How sales tax is calculated in QuickBooks Online

When the client creates a sales form such as an invoice, QuickBooks Online automatically calculates sales tax based on several factors: ** The sales tax category for the product or service being sold ** Whether the customer is subject to—or exempt from—sales tax ** The state where the client is registered to collect sales tax. This is usually the state for the client's registered business address ** The location of the sale. This is usually the client's registered business address, but the client could be providing the product/service from a different location, as you'll see later You can see how QuickBooks Online uses these factors in its sales tax calculations by selecting the See the math link at the bottom of the sales form. This opens a panel showing a detailed breakdown of the sales tax settings for the sale. You've already seen how to update the sales tax settings for product and service items and customers so QuickBooks Online can apply the correct rate here. But what about the location of sale? This is a key factor in determining the sales tax rate.

What if you're shipping within a state that has local taxes?

When you're located in a state that has local taxes and you're shipping within that state, QuickBooks Online calculates the correct sales tax rate depending on whether the state is an origin or destination state. *** States with origin-based rules: For these states, the origin of the transaction takes precedence in sales tax calculations. Sales tax is calculated and collected based on the locale, district, and county of the ship-from address. *** States with destination-based rules: For these states, the destination of the transaction (or the customer address) takes precedence. Sales tax is calculated and collected based on the locale, district, and county of the ship-to address. The exception is California, which employs this hybrid approach: - District and local taxes are calculated and collected based on the ship-to location - County taxes are calculated and collected based on the ship-from location