QuickBooks Guide: Getting Started with Sales Tax (Part 1)

Quickbooks Sales Tax Preferences

Depending on a number of factors, you might be required to collect sales tax for the products or services you sell. If you collect sales tax, you must pay it to a tax agency on a regular schedule. Quickbooks helps automate your sales tax tracking so you can keep accurate records about the sales tax you collect and pay.

Important: You must follow the rules and regulations for collecting and paying sales tax in your tax district (i.e., city, county, parish, state).

 

Understanding how sales tax works

Quickbooks uses sales tax codes to track the taxable or non-taxable status of both the items you sell (products and services) and your customers. If your tax agency requires you to report the reasons why particular sales are taxable or non-taxable, the sales tax codes that you assign to your items and customers enable you to run reports that provide this information for your sales tax return.

Quickbooks uses sales tax items to calculate and add sales tax charges when you make a taxable sale. When you set up a sales tax item, you assign a sales tax rate to it and associate it with the tax agency to which you pay the sales tax. All of the sales tax items you set up are in your Item list. Once you’ve set up sales tax, Quickbooks automatically applies the appropriate sales tax rate to the sale of your taxable items.

 

Before you start setting up sales tax 

To set up sales tax in Quickbooks, you need to know the following sales tax requirements for the locations where you sell your products and services:

  • Sales Tax Rates – for each tax district (city, county, parish, state that charges sales tax) in which you sell. You may have multiple sales tax rates that you need to charge, for example, sales tax for both a county/parish and a state.
  • Tax Agencies – to which you pay the collected sales tax for each of those district taxes.

 

Quick Tip:  You can fiind your sales tax requirements (rates, payment schedules, etc.) online at your state sales tax website. Quickbooks has provided access to these resources from the in-product Help. Go to the Help menu and click Quickbooks Help. In the Search field, enter Finding the sales tax rates and requirements for you business. Select that topic, and then click the link for your state.

 

Term How it relates to sales tax setup
SALES TAX RATE The percentage charged for sales tax by the tax district.   For each different district/rate combination, you need to set up a new sales tax item. For example, you might sell in three (3) counties/parishes that all charge the same sales tax rate, but you need a separate sales tax item for each county/parish, even though the sales tax rate is the same. This enables you to track the amounts of sales tax you collect for each tax district
SALES TAX ITEM A Quickbooks item that is used to calculate the appropriate sales tax for a sale. A sales tax item includes rate and a tax agency. When you sell taxable items, you charge the appropriate sales tax rate by assigning a sales tax item to each sale.
SALES TAX GROUP ITEM A Quickbooks item that groups multiple sales tax items so you an charge only oe rate on your sales. For example, the location where you sell might require you to charge both a county/parish and a state sales tax. However, customers are used to seeing one sales tax rate on sales.   You would set up a sales tax group item that combines those two sales tax rates to create a single, sales tax group item that reflects the combined rate. This group item would be applied to your taxable sales for that county.
SALES TAX CODE The identifier that Quickbooks uses to track the taxable and non-taxable status of both the products and services you sell, and the customers to whom you sell these items. For example, a customer that is a non-profit organization might have a non-taxable status. You would not charge sales tax for anything you sell to this particular customer.
TAX DISTRICT A town, city, county/parish, or state that charges sales tax. A tax district might also include a municipal or special jurisdiction, such as a Mass Transit tax or a parish in Louisiana.
TAX AGENCY The government office that determines the requirements for sales tax collection or payment. You might need to pay your collected sales tax to one or more tax agencies, depending on the requirements for the locations (tax districts) where you do business. Tax agencies are set up as vendors, because you make payments to them. A tax agency is sometimes called a tax authority.

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