Sales tax is getting easier! Through the New Automated Sales Tax experience, you just need to answer a few simple questions and QuickBooks Online will know what taxes apply to your business, set them up, and automatically track your sales taxes.
You no longer need to select a tax rate when you create an invoice or other transaction. As long as your Sales Tax Center and all applicable tax agencies are set up, the system will automatically do it for you!
You can also watch this video on how to set up your sales tax real quick:
So... how exactly does Auto Sales Tax work? Here's a quick guide to this feature.
The new sales tax feature looks at a variety of information to calculate your sales tax.
Note: If you want to see a breakdown of taxes that were calculated, select the Sales tax link on your transaction.
The Automated Sales Tax (AST) center now displays your tax liability in either Accrual or Cash basis accounting. The taxes will be displayed based on the accounting method you have chosen in your company settings.
The new set up flow is very easy for you to go through.
Note: When Auto Sales Tax is enabled, you'll see a Permit no. field on your checks and other expense transactions. There is currently no way to turn off or remove the field. If you don't want to see it on your transactions, send us a message (Gear > Feedback).
Previously, the Sales Tax Drawer will only show you the total tax amount due, the tax agencies involved, and the tax categorization of the line items. With the updated Sales Tax Drawer, you can now see line level breakdown of the sales tax due and if needed, make additional edits. If you know your tax rates, you can even override sales tax amount.
To access the Sales Tax Drawer from your invoice, select the Sales tax link in the lower right.
When your customers are located in other states – a common situation for e-commerce and online business owners, your tax situation will vary depending on what state you are located and where you are selling. We advise you to contact your state tax authority, or your accountant, to get information for your specific situation. The general rules are as follow:
If your company has retail stores in two or more states, each store may have a different sales tax rate. If you simply need to record your daily sale, you can create a customer for each state and use the retail store address as the billing/shipping address. This ensures that correct sales tax is used.
Adding a shipping address in the buyer's profile within QuickBooks will allow sales tax to calculate as accurately as possible. However, we know that this information is not always available while creating transactions. If the shipping address is completely blank, sales tax calculation will depend on YOUR Company Address in QuickBooks until you are able to provide the buyer's correct shipping address. You will receive a message on the top of your transaction reminding you that adding the shipping address will provide the most accurate tax calculation.
Many companies have multiple business locations where they sell and/or ship products from. The Sales Tax feature can support you on sales tax calculation based on a different business address.
On your sales transaction forms (invoices, estimates, and sales receipts), you will either see a Shipping From or a Location of Sale field prepopulated by your company address:
If you are using Automated Sales Tax: QuickBooks automatically calculates tax for shipping charge based on the rate in your state/area.
If you are using the Sales Tax Center: The Shipping charge field on sales transactions doesn't provide a field to mark it as taxable and QuickBooks will NOT automatically calculate tax for shipping. To work around this, you need to create a product/service item for taxable shipping charges and use it on your sales transactions.
Sometimes you will have sales tax agencies listed that you no longer use and want to make inactive or others that are inactive you would like to use again. Please follow the steps below to make a sales tax agency inactive or active.
To make an existing agency inactive:
To make an inactive agency active again:
Tax categories help you track and calculate sales tax more accurately. For more info, find out how to add sales tax categories to your items.
While you should check with your individual state tax authority as to which goods and services sold in your state are subject to sales tax, generally you are not required to collect sales tax for the following transactions:
Important: In setting up exemptions in the system, you need to make sure you are selecting the correct exemption type for your customer. For instance, in AZ, having a “federal” exemption does not mean goods or services sold to a customer will be 100% tax exempt, but rather AZ only allows a percentage of sales tax to be discounted. There are several states that do not allow certain types of exemptions (educational, hospital, etc.) or only allow a percentage to be discounted rather than all of the tax be 100% exempt. The type of exemption your customer has should be clear on the certificate they provide to you.
To make a customer tax exempt, select the checkbox next to This customer is exempt.
The new Sales Tax Center lets you make sales tax adjustments with just a few clicks.
QuickBooks Online Automated Sales Tax is equipped to handle several special tax scenarios. Below are a few common examples:
Items that are marked "non-taxable" by the user but should be taxed in certain states/circumstances
In certain cases, QuickBooks Online may still recommend a tax amount when an item is non-taxable.
Example: An item that is non-taxable everywhere except when a customer address falls into a specific Zip code/address. In this case, you'll see the tax applied and the special details indicated on the sales transaction.
Track tax items with thresholds
QuickBooks keeps track of tax thresholds on specific items based on the tax law for the location.
Example: NY Clothing Threshold: Currently, clothing sold in NY that is less than $110 per item (or pair) are exempt from the NY State 4% sales tax, the local tax in localities that provide this exemption, and the 3/8% MCTD tax within the exempt localities in the MCTD.
“Max Tax” rule for Florida transactions in the amount of $5k or higher
FL has a Discretionary Sales Surtax that is in addition to the FL State sales and use tax. Individual counties may impose the sales surtax (also called a local option county sales tax) at their discretion. Not all counties impose this surtax. However, there is a limit. A Discretionary Sales Surtax is applicable only to the first $5,000 of the sales amount for the sale, use, lease, rental or license to use any item of TPP (Tangible Personal Property being defined as personal property that you can see, weigh, measure, or touch; or that is any manner perceptible to the senses, including electricity) This $5000 cap does not apply to rentals of real property, transient rentals or services.
You can also watch our quick video on Collecting and Recording Sales tax.