Sales Tax Over Payment

tramach · ‎December 20, 2018

How do I fix a sales tax over payment? I'm on accrual. In October I sent out an invoice with tax to a non-taxable customer. I paid my sales tax before I entered their payment into QB. Not thinking I just fixed the original invoice when I received their payment and sales tax exemption paperwork.

Then this month the difference between sales tax collected and payable were way off. I had to adjust my sales tax up by $60-something dollars, where normally it's down by $5 or so. Found that my taxable sales I reported last month was higher than they should of been. So now it makes sense.

How do I fix it? I want to make a credit to my sales tax account for sales tax I paid, but never collected do to the customer being non-taxable.

tramach · ‎December 21, 2018

I figured out how to correct it since the transactions spanned two different months. I pay sales tax monthly.

I went to the original invoice and made the customer taxable (as they were originally). This made the customer have a $50.40 negative balance. I then made a credit for the sales tax. I dated the credit memo today. That gave me a $50.40 reduction of my sales tax payable for December 2018. This should balance out when I pay December's sales tax.

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Anonymous · ‎December 20, 2018

I've got you the steps how to adjust sales tax in QuickBooks, tramach.

Here's how:

From the Vendors menu, select Sales Tax, then click Adjust Sales Tax Due.
From the Sales Tax Adjustment window, set the Adjustment Date to the date when you want to start tracking sales tax.
From the Sales Tax Vendor drop-down, select the sales tax agency you pay sales tax to.
Set the Adjustment Account. (Note: that it should be an Expense account as you will be reducing sales tax.)
In the Adjustment box, make sure Reduce Sales Tax By is selected, then enter the amount of sales tax to be adjusted. (This will be the value you have from the Sales Tax Liability/Tax Agency report.)
In the Memo field, enter a note about the adjustment. Example: Adjustment due to nontaxable invoice last month.
Click OK to finish.

When you're ready to pay sales tax, here's how:

From the Vendors menu, select Sales Tax then click Pay Sales Tax.
Select the Bank Account, Check Date, Show Sales Tax Due Through, and Starting Check No.
Put a check mark on the Sales Tax Due and the Sales Tax Adjustment showing in the list. Note that they zero out each other.
Check your Sales Tax Liability report and the sales tax up to that point will now be zero.

With regards to which expense account to select, I recommend asking for more help from your accountant.

Should you need anything else, please post it here.

tramach · ‎December 21, 2018

I figured out how to correct it since the transactions spanned two different months. I pay sales tax monthly.

I went to the original invoice and made the customer taxable (as they were originally). This made the customer have a $50.40 negative balance. I then made a credit for the sales tax. I dated the credit memo today. That gave me a $50.40 reduction of my sales tax payable for December 2018. This should balance out when I pay December's sales tax.

tramach · ‎December 21, 2018

Yes, this makes an adjustment. However it doesn't properly reduce my December sales tax liability by the extra amount I reported for October. I changed an invoice to non-taxable after I already paid the sales tax to the state. I resolved it by reverting the invoice, and making a credit for the sales tax to the customer's account.

AldrinS · ‎December 21, 2018

It's a pleasure to have you here in the Community, tramach.

I appreciate the effort you made to resolve the sales tax overpayment, and that you decided to share your wonderful answer with us. For the benefit of all, I'd also like to include our guide on how to handle sales tax in QuickBooks.

Thank you again for your contributions and all you do for the QuickBooks family, be sure to let me know if there's anything I can help you with. Looking forward to hearing from you again, wishing you a lovely day.

Blue-River · ‎February 07, 2019

Can you explain how you made a credit for the customer? My issue is that the original invoice was charged a town tax rate but the customer was actually in unincorporated county and was over charged by 2.5%. We're accrual and the error was discovered after the deposit was received but before the final payment was made. Unfortunately, that spanned the end of a month and sales tax (including the 2.5%) was paid before the error was corrected. So the customer never paid the extra 2.5%. I can't figure out how to make a credit invoice for only the 2.5% and not for the merchandise. How did you make a credit for only the tax?

FritzF · ‎February 07, 2019

Greetings, @Blue-River.

Thanks for joining this conversation. Allow me to chime in for a moment and share some information about creating a credit for a customer in QuickBooks.

Just to confirm, are you using the QuickBooks Desktop (QBDT) version? If so, the steps below will show you how to credit a sales tax that was charged to your customer.

To start off, you need to create a credit memo:

1. Go to Customers menu at the top, then pick Create Credit Memos/Refunds on the drop-down.
2. Enter the necessary information. Make sure that it'll match to the original invoice items and quantity (including the sales tax amount).
3. Enter the current date, then Save & Close.

Next is to create a new invoice, here's how:

1. Go back to Customers menu, then pick Create Invoices on the drop-down.
2. Enter the necessary information. This should match the original invoice for the same items but mark them Non-Taxable using today's date.

Once done, go to Receive Payments page, then apply the credit to the invoice. For your reference, you can also check out this article for further guidance: Refund sales tax collected from tax-exempt customers.

That's it! Please let me know how it goes or if you're referring to something else in the comment section below. I'm only a post away should you have any additional questions or concerns. Take care and have a great rest of the day!

tramach · ‎February 07, 2019

@Blue-River

There are several ways to do it. Take a look here:

https://quickbooks.intuit.com/community/Reports-and-accounting/Refund-sales-tax-collected-from-tax-e...

This is the way I did it:

Option 3: Create a credit memo

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

Blue-River · ‎February 08, 2019

Very clever! Thanks for you help...I have fixed the problem!

Blue-River · ‎February 08, 2019

Thanks for the assist. Problem solved!

FritzF · ‎February 08, 2019

You're always welcome, @Blue-River.

I'm happy to know that you already resolved this.

Post again here in the Community or leave a comment on this thread should you have any other concerns. Cheers!

JNBMech · ‎October 28, 2019

So, say i invoiced a customer with the incorrect sales tax item which ends up being more than what they should have been taxed. They have already paid the invoice and it was in months past, so we already paid the sales tax to the state and cannot just change the original invoice.

Would i create a new invoice dated this month, exact same items and amounts, but with the proper sales tax item this time? Then create a credit memo showing all the same items and amounts, but using the tax rate i used on the original invoice. Apply credit to the new invoice, then the left over amount on the credit memo is what we owe to the customer and from there i can apply else where or reimburse.

Correct?

PreciousB · ‎October 28, 2019

Thanks for sharing your concern here in the Community, JNBMech.

Yes, you can create a new invoice using the same items and amounts. Then, add the correct sales tax item. This will reverse the transaction you've entered before. However, it can cause duplicate entry.

With that said, I suggest contacting the sales tax agency. They'll be able to give an advice on how to correct the sales tax amounts.

You can also consult with your accountant for the best way to enter the correction in QuickBooks Desktop.

Here's an article that may come handy when adjusting sales tax: Process sales tax adjustment.

If there's anything else I can do for you, please leave a comment below. I'll get back here as soon as I can to help you again.

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