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Refund sales tax collected from tax exempt customers

SOLVEDby QuickBooks1Updated over 1 year ago

You may be required to collect taxes for certain goods and services you offer. QuickBooks Desktop helps you keep an accurate record of these taxes so you can easily monitor and remit them to the appropriate tax collecting agency.

This article is part of a series on Sales Tax. It covers the usual sales tax workflow in QuickBooks Desktop.

It also helps you complete other sales tax-related tasks.

If you encounter problems while working on your sales tax, see Resolve common sales tax issues.

If you have inadvertently charged sales tax for a tax exempt customer, you can process a refund for them using one of the options outlined below. Contact your accounting professional to know which option works best for your business.

  1. Create a credit note.
    1. From the Customers menu, click Create Credit Notes/Refunds.
    2. Enter required information. Note that the credit note must match the original invoice items and quantity (including the sales tax amount).
    3. Enter current date.
    4. Select Save & Close.
  2. Create a new invoice.
    1. From the Customers menu, click Create Invoices.
    2. Enter required information. The new invoice should match the original invoice for the same items but mark them Non-Taxable using today's date.
  3. Select Receive Payments window and apply the existing credit to the invoice.

This will leave a credit balance for only the amount of the sale tax that can be applied to a future invoice or refunded via check.

On the original invoice, change the item from Taxable to Non-Taxable. This will reduce sales tax amount. Customer Payment screen will show an overpayment. You can process a refund or create a credit for this.

  1. From the Customers menu, click Create Credit Notes/Refunds.
  2. In the credit note, enter the item and quantity you sold and make it Taxable.
  3. Enter the item you sold again but enter a negative number for the quantity and make it Non-Taxable.

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