Learn how to determine if your transaction or customer is exempt from sales tax, and how to set up a customer or product with a tax exemption.
While most items, transactions, and customers are subject to sales tax, there are some that aren't. We’ll talk about items and customers that aren’t subject to sales tax, and how to set up QuickBooks for tax exemptions. We’ll also show you how to run a report to identify which customers are tax-exempt.
Important: Always check with your state tax authority to confirm which goods and services are subject to sales tax.
Learn about tax-exempt items and customers
Generally, you're not required to collect sales tax for the following items:
- Resold items: Retailers don't typically have to pay sales tax on wholesale purchases. It's assumed that the end consumer will pay sales tax on these items at the point of purchase.
- Raw materials: If you produce and sell goods that will be used as raw material for other goods, these items are typically considered sales tax exempt.
- Transactions with nonprofit organizations: Sales made to nonprofit organizations are normally exempt from sales tax. If you conduct business with tax-exempt organizations, you'll need to get a copy of the buyer's tax-exempt number or certificate issued by the state/province they’re in.
Set up your tax-exempt products
To add a product or service and mark them as nontaxable, see Step 1 in Add product and service items to QuickBooks Online.
Set up your tax-exempt customers
To keep a customer from ever getting charged sales tax on an invoice, see the Add a new customer section (step 5) in Add and manage customers in QuickBooks Online.
Identify taxable and nontaxable customers
You can run a customer list report to identify taxable and nontaxable customers.
- Sign in to your QuickBooks Online account.
- Select Reports (Take me there).
- In the Sales and customers ▼ dropdown, select Customer Contact List.
- Select Customize.
- Select Change columns, then select the Taxable checkbox.
- Select Run report to show taxable and nontaxable customers.
Note: Taxable customers are marked with Yes in the Taxable column, while nontaxable customers are left blank.