If you are looking for Part I of the QuickBooks Guide to sales tax, here is a link to that post.
Setting Up Sales Tax
Setting up sales tax is a multi-step process, divided into three main parts:
- Part 1: Sales tax payment schedule
- Part 2: Sales tax codes to track taxable status of items and customers
- Part 3: Sales tax items, rates, and tax agencies
Part 1: Sales tax payment schedule
In this procedure, you’ll turn on sales tax and then set up information about when you need to pay your tax agency.
To set up your sales tax payment schedule:
- Choose the Edit menu and choose Preferences.
- Click Sales Tax in the list on the left.
- Click the Company Preferences tab.
- For the question Do You Charge Sales Tax, click Yes.
- Select when you owe sales tax to the tax agency, as specified by your tax agency.
- Select As of Invoice Date or Upon Receipt of Payment based on your tax agency’s requirements.
Important Note: This preference overrides the accounting basis you’ve set for your company and for your report preferences (if your report preference is set to “cash” but you select “accrual” here, your sales tax reports will be accrual-based).
- Select how often you pay sales tax, as specified by your tax agency. If you don’t know which time period to choose, check your sales tax license.
Quick Tip: If you collect sales tax for multiple tax agencies that require payment at different intervals, use the payment interval you use most frequently. When you run your sales tax reports and make your payments, you’ll be able to see which amounts are due on which dates.
Part 2: Sales tax codes to track taxable status of items and customers
Now you’ll set up the sales tax codes that you’ll use to track the taxable and non-taxable sales status of your items and customers. Later, you’ll assign these sales tax codes to your customers and the items you sell.
Quickbooks creates two sales tax codes for you:
- The taxable code (TAX) is assigned to items and customers that taxes.
- The non-taxable code (NON) is assigned to items and customers that are not taxed, suchs as non-profit organizations or items that the customer plans to resell.
Depending on your tax agency requirements, these two preset sales tax codes might be all you’ll need. You won’t need to set up any additional codes or change this preference.
If your tax agency requires you to specify additional sales tax codes to track taxable and non-taxable sales, such as specific tracking for out-of-state sales, you can set them up now. (You can also set them up later when you need to use them.)
To set up additional sales tax codes:
- Click the drop-down list for the type of sales tax code you want to set up (Taxable or Non-taxable) and select <Add New>.
- In the New Sales Tax Code window, enter a sales tax code you want to use and a description for it.
- Each sales tax code you add must be unique. For example, you might want to set up a non-taxable sales code for labor costs. You might enter LBR as the sales tax code and “Labor, non-taxable” as the description. Many businesses also use a non-taxable out-of-state sales tax code (OOS).
- Click OK.
- Repeat steps 1 through 3 for each sales tax code you want to add.
Part 3: Sales tax items, rates, and tax agencies
You need to set up a sleas tax item for each tax district (city, county, parish, state) in which you sell. A sales tax item includes the sales tax rate you need to charge for that tax district and the tax agency to which you remit the sales tax collected. Even if you sell in three different counties/parishes that all have the same sales tax rate, you need to set up a separate sales tax item for each rate combination so that you can properly track your sales tax collection and payment liabilities.
To set up your sales tax items, rates, and tax agencies:
- Click Add Sales Tax Item.
- Click the Type drop-down arrow and select Sales Tax Item.
- Enter the sales tax name. (Use a name that describes the location for the Tax, such as Caddo Parish. This name will appear as one of the choices in the Tax field on your sales forms.)
- Enter a description for the way this sales tax item will appear as a line item on your sales forms (for example, Caddo Parish sales tax). You can’t edit it on the forms themselves. Users frequently use the name of the sales tax item as the description.
- Enter the sales tax rate (as a percentage) you charge on taxable sales. For example, your sales tax rate for Caddo Parish might be 4.00% (or 4 cents per dollar purchased).
- In the Tax Agency drop-down list, click <Add New> to open the New Vendor window, where you’ll set up the tax agency (a vendor) to which you pay this sales tax.
- Enter a vendor name and contact information for the tax agency paid.
- Click OK to close the New Vendor window.
- Click OK to close the New Item window.
- Repeat steps 1 through 9 for each local, county/parish, or state sales tax item and rate you need to set up.
Important Note: Depending on your sales tax requirements, you might need to combine multiple sales tax items to create a sales tax group item. For example, a county/parish sales tax rate of 4.00% and a state sales tax rate of 4.6% would combine for a sales tax group item with a sales tax rate of 8.60%. Then, you can use this single sales tax item/rate on your sales forms and invoices.
- When you’re finished setting up all your sales tax items, choose your Most common sales tax, which is the one you charge most often. Remember, the most common sales tax that you charge your customers might be a sales tax group item.
- In the Sales Tax preferences window, decide whether or not you want to mark your taxable items when your sales forms are printed. If not, remove the check mark from this checkbox.
- Click OK to apply your sales tax preferences.
- If you’ve already set up your items and customers, you’ll be prompted to assign a taxable sales tax code to all of them. Click OK if most of your items and customers are taxable. If not, remove the check mark from this checkbox and click OK.