Texas Sales Tax Sourcing in QuickBooks Online

Learn how QuickBooks Online calculates sales tax in Texas. 

Texas is an origin-sourced state for sales tax. This means that for sales within Texas, the tax is usually based on where the seller is located. The seller's address is where the tax is calculated. There are a few exceptions, as explained in Texas Publication 94-105. For these exceptions, sales tax is based on the destination address, like the job site or where the service is performed.

Texas sales tax categories

QuickBooks Online uses tax categories to support exceptions for destination sourcing. Categories for construction, electrician, and flooring services apply sales tax at the ship-to location. A general category is also available for other services. To calculate tax at the ship-to address, use one of these categories in your transaction:

1. Nonresidential real property repair and remodeling - for use in Texas only.
2. Separated new construction or residential repair and remodeling - for use in Texas only.
3. Professional goods & services - Electrician services.
4. Time and materials contract, new residential construction - Material charges only for real property improvement where the contractor is the final consumer of the materials used in performing the project
5. Time and materials contract, new commercial construction - Labor charges only for real property improvement.
6. Time and materials contract, new commercial construction - Material charges only for real property improvement.
7. Time and materials contract, repair or remodel commercial construction - Labor charge only.
8. Time and materials contract, repair or remodel commercial construction - Material charges only.
9. Lump sum contract, repair or remodel commercial construction - Resulting in a capital improvement.
10. Apply sales tax at ship-to address where permitted under the law.

Apply sales tax categories to the services on your invoice:

1. In Product and Service, select Add New from the dropdown.

2. Select the Products and Services list, then Service.

3. Select the Edit Sales Tax tab from the screen that appears. 

4. In the search bar, enter one of the categories listed above you wish to use.

5. Select the category from the search, then Done.

When one of the above tax categories is used, be sure to select the expand button in the See the math drawer to view the rate. You'll see that the tax rate is applied at the ship-to location.

If you don't use a tax category, you can turn off shipping in the invoice. A box will appear for Ship from (hidden) or Location of Sale (hidden). Use this as the address to calculate sales tax.