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How to Track Sales Tax
Filed under General TipsOct 23If you have to collect sales tax, then QuickBooks can help make the task and easy one….if you know the right steps to follow.
In today’s lesson, we’ll save you the unnecessary frustration I see so many QuickBooks users face when trying to collect and pay sales tax. But you’ll learn how to make tracking your sales tax an absolute cinch.
In just 12 minutes (yes, I went a little overtime this week), you’ll get a great start in doing sales tax right!
But if you have specific questions about handling sales tax in your situation, be sure to post them below.
Here’s to your success with sales tax!
~Gabrielle
27 Responses to “How to Track Sales Tax”
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Janie said on October 23rd, 2008 at 12:33 pm
Hi, Gabrielle!
Do you have any ideas/solutions for tracking Use Tax in QuickBooks? -
Mary said on October 23rd, 2008 at 12:51 pm
Thanks for the great blog, Gabrielle – always 10 minutes well spent!
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Janie, what an excellent question! In fact, it’s such a great question that I’ll create a QuickTip to answer show you an easy way to keep track of purchases that are subject to Use Tax! So watch for it in the coming weeks.
Hi Mary, I appreciate your kind words. That’s the aim of this blog – to make your learning time count!
~Gabrielle
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Dear Gabrielle
I / We are a newly expanded business in the graphic design field. we’ve gone from selling services (graphic design for promotional printed material 6yrs) to actually now having our own machines to being able to print ourselves (3months)…. right now its just the two of us. The dynamic of business is SO VAstly different in many ways, its like we are a startup, though we have been in this field for years. I’ve just purchased Q.B. simple start plus pack, and your tutorial class. The purpose of this question/comment i wanted to know is there a way to log in past tranactions and invoices into quick book, because i have kept paper copies of everything, but now need to complie it for tax time, and i don’t know where to start, or how to determine our profit/loss… and is there a way to track internet sales and POS with quickbooks, if i decide to use a different web store service provider, like paypal or network solutions, or a POS terminal not directly connect to Q.B.?……. if you could answer these question i would appreciate it, or develop a quick tip because i’m sure some other new user may have the same questions.
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Leigha,
Yes, you can enter all your past transactions into QB without a problem, it will just take some time. My concern is that you are attempting to use Simple Start for a much more sophisticated situation than it was intended for. You likely need to at least be using the Pro level. But for the time being, you could at least enter your past info using Simple Start – but know that the interface is different than the other versions of QB and you sound as though you have already outgrown Simple Start capabilities.
As far as capturing online transactions, yes, there are several applications that work, at least somewhat, with QB. If you are dealing at all with true retail type POS, there is QB POS software, but that again is a much higher level program and does not work with Simple Start. PayPal also has a QB plug-in that you can use for online sales. Other online shopping cart applications are able to export info into QB as well.
This topic is very specific for each business, so regrettably, it is far too in-depth and advanced for a QB QuickTip. If you need more information, please contact me through my website directly, and I’ll point you in the right direction.
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Kathy said on March 10th, 2009 at 9:52 pm
Hi Gabrielle,
Thank you so much for walking me through this training, I have always wondered if I am doing it the best way. My question is, one of my clients is a construction company and we purchase materials (pay the sales tax) and then re-sell this material to the customer when we perform the job. Do we print a report to show how much “sales tax paid” we have and then subtract it from the sales tax payable? I am unsure if I am properly linking the two together, and I certainly don’t want to over pay! Thank you!! Kathy
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Hi Kathy,
If your company is purchasing materials for resale, you should not be paying sales tax. The way you are able to do that when buying the materials, is you need a resale certificate from your state so that the seller can have it on record and not charge you sales tax. Every state’s procedures for getting a resale certificate are different, but you’ll want to start by researching your state government’s website and look for business information.
In the meantime, what you can do in the bookkeeping records is separate out the sales tax on each purchase and code it to a Sales Tax expense account. You will NOT track the sales tax you pay on purchases using the sales tax system in QB. When paying sales tax to the state, you will need to pay in for all your company’s taxable sales. You cannot give yourself the discount / credit for already paying sales tax at the time the materials were purchased for resale.
I am not sure, but you may be able to get a rebate from the state when you get the resale certificate. Look for that as well when researching the procedures for getting the certificate.
Hope that helps,
Gabrielle
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Ms. Gabrielle,
Thank you for this tutorial – it was very helpful! My question is: we sell printed photographs that we have take and had an outside company develop. I’ve checked with our state and local taxing authorities and they confirm that we do need to collect sales tax. In our jurisdiction, we have to collect sales tax totaling 9%, but it goes to three different places: 4% to the state, 4% to the city, and 1% to the county. I have set each of these agencies up as vendors in QB, I have entered the tax rates in the company preferences like you showed us, but I’m stumped when it comes to the invoice. How do I get the total 9% tax onto the invoice and get it so that it’s correctly tracked in QD as 4% to state, 4% to city and 1% to county?
Thank you!
Katie -
Hi Katie,
Your situation is not all that uncommon, and if it would be helpful, I can do a future QuickTip to show you exactly how to do this. Let me know (or anyone else who wants to see this) and I’ll add it to the list of upcoming mini-lessons.
In the meantime, the quick answer to your question is you need to set up and use Sales Tax Group Items so you can “bundle” the different sales tax items that you’ve already set up to apply the right combination of them to each customer’s situation.
A sales tax group item is two or more sales tax items that you apply to a sale at the same time, using one combined sales tax rate. This allows you to track and report sales taxes separately for your tax returns, but show them as a single line item for your customers. If you use several sales tax group items, such as combining the same state tax with several different local or county taxes, you can set up as many sales tax group items as you need. Then you just use the appropriate group item on the customer’s invoice.
Hope that helps! Let me know if you want a mini-lesson on this subject.
Gabrielle
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Amy said on October 16th, 2009 at 2:28 pm
Gabrielle,
My company is in internet marketing and collects income from multiple websites/products. The income from the sites in which we sell physical products contains customers from both in our state, which we must collect sales tax from, and out of state. Because our business is internet based, simply receiving orders, creating sales receipts, and invoicing customers in Quickbooks is not possible. All of our orders are processed through the sites and payments are processed through our merchant processors. Our reporting systems are able to differentiate how much of our sales were to in state customers and how much sales tax we’ve collected, but because in Quickbooks you can’t simply just write a check to pay for sales tax I’m unsure of the correct way to handle these payments. I just recently set up payments for use tax in our system by creating individual sales receipts with other item, reverse sale, and use tax item lines for the purchases we made that require us to pay use tax, but that was only possible because there were only about 10 purchases that qualified. Individual sales receipts would be impossible when dealing with thousands of charges. If you could please explain the correct way to do this I would greatly appreciate it, as I’m sure this is a common situation in Quickbook users whose business is based on the Internet.
Thank you!
Amy
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Hi Amy,
You are faced with a common problem that is found in many high-volume point-of-sale retail businesses both online and offline, where it is impractical to record each individual sale with a sales receipt. (That’s why in an offline situation there is QuickBooks Point of Sale softawre) For your online business, how you deal with the sales tax should be coordinated with how you are currently capturing and recording your sales in general in QuickBooks.
Since you already have a system within your shopping cart process that is capturing your in-state and out-of-state sales for physical products, including how much has been collected in sales tax, you may have adequate reporting with that system so that you do not need to duplicate the process in QuickBooks. If that is the case, it may make sense to turn off the sales tax feature in QuickBooks altogether.
If so, you could simply track your bottom line sales tax numbers taken from your online reporting system using summarized journal entries to record the liability, and regular checks to pay sales tax when due.
The key to focus on is how your sales are now being captured in QuickBooks, and then being sure that you are also breaking out the sales tax properly so that it is reported accurately on your financial statements.
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Lilia said on October 16th, 2009 at 6:20 pm
Hi Gabrielle,
Thank you for sharing all your insight with us. I had a question about sales tax paid. I know tha that when dealing with vendors you can supply them with a tax exempt certificate so as to not be charged sales tax. However, my questions deals with purchases made at local stores such as Office Depot, The Home Depot, etc. where sales tax is charged. Thank you.
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Hi Lilia,
A business that buys products or supplies that are going to be sold to their customers has a tax exempt certificate so that sales tax is not collected twice on the same product. Only the end user should be charged sales tax. That’s why the business would be exempt from sales tax when buying from suppliers (for re-sale).
However, when buying supplies that will be consumed by the business, which would be considered part of overhead and means that the business is the end user, the business is not exempt from sales tax.
For bookkeeping purposes, the sales tax paid in this latter scenario is considered part of the expense for what is purchased. For example, if you bought office supplies at Office Depot for use in the business, the entire purchase would be coded to your office expense account without breaking out the sales tax paid.
Hope that helps clarify how this works!
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Elisa Kunecke said on May 2nd, 2010 at 1:09 pm
I have a dilemma. We are a restaurant and bar. We serve food and alcohol. The food is taxed and we get a total of Sales Tax Collected. BUT, the Liquor is not taxed by the cash register, but a 10% tax is added to the sale upfront. When we do B & O Taxes, I have to use the Tax in Gross deduction to back out the 10% of the Liquor Sales. So,
my question. Since my boss doesn’t not want to do a daily entering of sales, sales tax and cash deposit, I get a whole month of “Z-reports” (1 per shift), that I get to add the Cash Collected, Tips, Sales Tax, for each day, then total the month. Of course this figure doesn’t come out to be the total of the Z’report amounts! But, I have to deal with a boss that wants a HUGE (I call it Register Cash) Petty Cash that she deals out the tills to the wait persons. At the moment the Register Cash is sitting at a credit balance of 20K. I have had to go through her deposit slips to make sure the money she is depositing is actually sales. Mostly from the bar its not. She cashes checks for the local businesses. I have been making those deposits to Petty Cash, and only the deposits that have currency, do I post to Sales. So, here we go. If at the end of the month, after taking out the amounts that have been deposited, I make a credit to Sales, I have been making the Debit to Register Cash. Also, I have been posting the Z-reports Sales Tax Collected as a credit to Sales Tax Payable, and a debit to B & O Tax Expense. Here is where I loose it. If I debit register cash for the total sales & tax amount, and post the credit to sales for just the sales, and post a credit for sales tax payable to add up to the register cash debit, how do I offset the Sales Tax Payable w/the B & O Tax Expense if I include it with the Register Cash debit? Also, should I back out the 10% of the Liquor total sales from sales and post that to Sales Tax Payable? I had read that I should post the credit to sales tax payable and the debit to B & O Tax Expense. If I do that, then the sales tax amount won’t be removed from the register cash account, and I don’t think I’ll ever get it to balance. When I actually pay the B & O Taxes, should I pay out of the Sales tax liability account? Or, should I only pay the liability down, and the remainder post to B & O Tax Expense.??? I would really like to be able to use Quickbooks to get these figures, instead of the 2 or more hours it takes to go through the bank account deposits, not to mention how long it takes to add up the daily sales reports (typically 3 shifts a day). I won’t even mention tips, cuz that another matter all together!! If you can help me out with the Sales Tax Collected (Payable), and how to get the padded Liquor tax in there, I would be very appreciative. I actually was trying to use the Sales Tax Group, and have the sales tax add as 10%, and create the expense entries kinda like it does in Payroll. Am I all washed UP? -
Elisa, this situation needs far more attention than a simple answer on a blog. Part of your problem is the way the owner wants you dealing with the transactions. If you still need assistance at this point, please contact me through my website and we’ll see if we can’t get a consultation appointment set up to get the situation straightened out properly.
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Lynn said on July 8th, 2011 at 3:14 pm
Hi, Gabrielle,
This was a terrific tutorial – wish I’d have found you earlier!
I have 3 questions:
1) For sales tax, my state uses a percentage calculation for the dollar portion of the sale, but for the decimal (cents) portion, they use a bracketing system which I figure cannot be duplicated inside QB (especially QB Simple Start, which I am using). Is there a way to still set up the sales tax as you’ve shown, and when I create an invoice, manually adjust the amount in the tax line?
2) I heard that QB has a bug concerning the assignment of invoices to Taxable and Non-Taxable categories (I’ve experienced this myself, as I’m seeing non-profit customers show up in “Sales – Taxable” even though I used the “Non” designation in their invoices). Do you know any way to correct this?
3) My state gives a discount on sales/use tax if paid on time. If I use the “Pay Sales Tax” method in QB, can I use the “Adjust” button to implement the discount? Do I need to account for that discount in some other account (double-entry)?
Thanks so much! -
Al Eaton said on July 8th, 2011 at 3:43 pm
Gabrielle,
I have watched your instructional video about “How to Prepare Form 1099-MISC in QuickBooks”. That is an EXCELLENT tool!! I learned a lot and now know how to properly set up vendors AND generate 1099 reports. I am excited!! It is so simple…once one knows the QB “secrets”. I am so pleased to have you as a resource!
Thank you! I have passed the information along to my client
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Hi Lynn,
Glad the video was helpful. Regarding your questions….
1. Yes, you are correct, QB is expecting % to calculate taxes (Ug, Simple Start – upgrade to Pro as soon as you can. There are so many limitations in Simple Start). You cannot manually adjust sales tax on invoices, but when paying the sales tax, you can make an adjustment. If you must adjust at the invoice level, you may need to create a special item to make the bottom line come out right, and then use the account that item is tied to to make it balance when making the sales tax adjustment.
2. I am not aware of a “bug” on invoices regarding taxable and non-taxable items. Remember, you mark the customer coded as exempt (if they are) AND each item. The bottom of the invoice is based on the customer default, whereas the line items are based on the items chosen. But you should be able to adjust on each invoice as well. Again, I’ve not seen this problem, but if you spot it you can make the adjustment in the Manage Sales Tax area.
3. By now, you probably realize the answer to #3 is yes. And yes, you will tie the adjustment to the appropriate expense/income account.As you can see, sales tax can get quite complicated, depending on your state laws.
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Thanks, Al. I aim to please.
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Hi Gabrielle,
Your guidance is awesome!
I own a sandwich shop and also sell retail to tourists. My issue is that I collect sales tax for food and for retail both are at different rates. What is the best way to enter daily sales of these items into quickbooks. Since I do a large amount of sales each day I deal with lump sums of sales on a Z tape. I also accept credit cards and cash. -
Hi Laurie,
Thanks for your comments and question. Sales tax can get real tricky, especially in a situation where you are dealing with multiple rates. Generally, a simple setup in a retail situation is to use the Sales Receipt form to capture your daily sales, and you would set up your items to separate the types of sales. For example, you would have an item for food sales and make that taxable for the sales tax rate that applies to food items, and then if you have retail products you sell as well, that would be included with a different item, coded as taxable at that appropriate sales rate. Much of how you design your sales capture system for your business depends on how much detail you need to track for your management and reporting purposes. It can get complicated very quickly. If that happens, you may want to consider looking into QuickBooks Point of Sale (not cheap) to integrate with your cash register for cleaner reporting.
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Renee Bowers said on March 20th, 2012 at 9:34 am
I just started a business in February. How do I use the information on the sales tax liability report to fill out Form E-500? I don’t know what to use for Gross receipts, Sales for Resale, and Receipts exempt from sale. Any help you can give me will be greatly appreciated.
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Liz said on April 24th, 2012 at 6:51 pm
My question is the same as Renee.
Writing the check is easy with QB, however, I still need to fill out the form to mail in or efile with the correct gross, deductions etc and I have tax groupings set up for state, county and city. Is there an easier way to do this than what I’m doing now? (Currently, I go into each invoice for the period I’m filing for and manually write down how much tax was collected for the deduction). Also, I’ve had a problem in the past with figuring tax on invoices that aren’t paid in full for the taxable period. There has to be an easy way to see how much tax I collected for the partial payment but I can’t seem to find it.
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Renee,
Each state and local sales tax agency uses different forms for filing, but they generally require the same information more or less. (I’m assuming that the Form E-500 is a state sales tax return?) You will find the information you need from the sales tax reports. You can get to them from the reports menu, but the easiest way to find them is by using the “Manage Sales Tax” icon from the home screen. In the Pay Sales Tax area, click on the link for the Sales Tax Liability report, and specify the time period being covered. You will also want to confirm that the report is on the correct basis (accrual or cash). Generally you need total sales and total sales subject to sales tax. Usually sales made for resale are considered exempt from sales tax, assuming the customers have a resale certificate.
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Liz,
Yes, there is a MUCH easier way than what you describe! Use the Sales Tax Liability summary report, which will break out your numbers by tax groupings. As far as partial payments, as long as your report is on a cash basis, QB will do the calculations for you (this is assuming all coding and preferences have been followed consistently). That being said, if you do have a complicated sales tax situation, you may want to use add-on services that are designed for that purpose, such as avalara.com , since QB does have its limitations and is not designed for intricate sales tax situations.
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Liz said on May 16th, 2012 at 6:57 pm
Hi Gabrielle,
I guess what I’m saying is that even though QB correctly figures the tax I owe, I still have to fill out the actual form to file with the information neccessary by state, county or city. I can’t just write down the total amount of tax owed on the form, they want total sales minus all tax witheld (state and local) as well as the contractor deduction figured on the form. QB doesn’t do this for me on each agency’s level.
Does that make sense? Even though QB figures it out for me, I still have to figure it and send it in with the totals broken down.
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Liz,
Still sounds like you can get the numbers you need for the tax forms by running reports. If you get a summarized total, you only need to double-click on any number to see the detailed breakdown of that total. You can also modify reports to filter for only the specific information you need. Good luck with streamlining your system.
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Gabrielle Fontaine, PB is an Advanced Certified QuickBooks ProAdvisor who specializes in QuickBooks software training and consulting with small business owners exclusively via the Internet
