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Learn how QuickBooks automatically calculates sales tax

by Intuit•9381• Updated 2 days ago

Take the guesswork out of collecting sales tax. If you charge sales tax for your products or services, you don't have to worry about calculating each tax rate yourself. QuickBooks can do all that for you. Here's how it works.

If you need to remove sales tax, learn how to turn off sales tax in the app

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How the app calculates the correct tax rate on each sale

Sales tax is automatically calculated for each sale based on the following:

  • Your customer's tax-exempt status
  • Where you sell and where you ship
  • What you sell

Some customers, such as churches, schools, and non-profit organizations, are tax-exempt in the US.

If your customer is tax-exempt, find them in your Customers (Take me there). In their Additional info, check This customer is tax exempt and select why in the Reason for exemption ▼ dropdown.

Note: Because tax-exempt rules aren't the same everywhere, the app will sometimes need to calculate sales tax even for tax-exempt customers.

Total sales tax rates are the state sales tax plus local (city/county/district) sales tax, based on where the sale was or an invoice or receipt’s listed “ship to” address. 

If your business doesn't have a physical presence in other states, you generally don't need to charge sales taxes for out-of-state sales. But if you have an “economic nexus” in another state, you have to pay and collect local sales taxes for sales there. This can get a little complicated, so talk to your accountant.

Note: Some states require sellers to charge tax based on business location, even when you sell or ship to a different address in your state. The app knows the tax rules, wherever you run your business.

Rules for how to tax a product can change from state to state. You can assign tax categories to anything you sell. This lets the app know how much tax you need to charge based on what exactly you're selling.

Special tax scenarios

The app calculates your sales tax, even when the rules get a bit complicated. If you want to learn more about sales and use taxes in the US, we have a sales tax guide. You can also contact your accountant or visit your state's sales tax website.

See automated sales tax in action

When you create an invoice or sales receipt, total sales tax is listed above the invoice or estimate total. To see a detailed breakdown, select See the math.

If the sales tax shown isn't correct, make sure your customer’s address is correct and your items are categorized properly.

Related links

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