Refund Sales Tax

Thank you for reaching out to the Community, @toni1.

Let me help you refund sales tax to your customer and provide information on how to adjust sales tax in QuickBooks Desktop (QBDT).

If you have charged sales tax for your 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.

Option 1: Credit sales tax charged to a sales tax-exempt customer.

1. Create a credit memo.
2. From the Customers menu, click Create Credit Memos/Refunds.
3. Enter the required information. Note that the credit memo must match the original invoice items and quantity (including the sales tax amount).
4. Enter the current date.
5. Select Save & Close.

After that, create a new invoice.

1. From the Customers menu, click Create Invoices.
2. Enter the required information. The new invoice should match the original invoice for the same items but mark them Non-Taxable using today's date.
3. Then, select the 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.

Additionally, the Sales Tax Liability Report will show taxable sales reduced by the amount of the credit memo and the non-taxable sales increased by the amount of the corrected invoice.

For more detailed information and to check for Options 2 and 3 in refunding sales tax for your tax-exempt customer, refer to this article: Refund sales tax collected from the tax-exempt customer.

In regards to how to adjust your sales tax, When you make sales tax adjustments, you move money into or out of your Sales Tax Liability account. You adjust your sales tax liability for reasons like:

• A credit for previous overpayment or early payment discount given by your sales tax agency.
• A fine charged to you by your tax agency for late or non-payment in the previous tax year.
• Corrections to sales in a previous period.
• Rounding differences between QuickBooks and your sales tax forms.
• Sales tax holiday declared by your agency.

For more detailed information and how to adjust your sales tax, refer to this article: Process sales tax adjustment.

I'll also add these articles to help you how to exempt your company from sales tax and track sales tax on purchases from vendors.

• Track sales tax on purchases from vendors.
• Request sales tax exemption and refund.

Please don't hesitate to leave a comment below If you have any other concerns about Sales Tax. I'll be here to assist you.

Thank you for your response.  In Option 1, what happens to the original invoice?

Hello there, toni1.

I appreciate you coming back to seek clarification on the process shared above about refunding sales tax. I'll provide additional insights on this to ensure you can manage your sales tax transaction or data in the program efficiently.

You'll need to delete the original invoice before creating the new one. This way, you can ensure that the only most recently created non-taxable invoice appears when the payment is received. Doing so 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.

In case you need steps on how to send statements to your customers to show them summaries of their invoices, payments, credits, and balances, you can read this article: Create and send customer statements in QuickBooks Desktop.

Should you need additional assistance recording a customer refund or managing sales tax in QBDT, please don't hesitate to add comment below. I'm always available to lend you a hand, toni1.

I don't think that will work for us.  Many of these invoices are already paid by the customer.  I've identified approximately 25 invoices to this one customer that were charged sales tax in error.  I've calculated the total of sales tax we need to refund to the customer.  Is there a way I can use the lump sum of all the tax on these invoices and generate a credit to the customer and reduce our sales tax liability?  Thank you.

I appreciate your follow-up on this, @toni1. Let me share some information about refunding sales tax collected from your tax-exempt customer.

Using a lump sum of all taxes on the invoices to generate a credit memo isn't possible in QuickBooks Desktop. You'll need to manually calculate the sales tax for each invoice and process a refund for them. You can use one of the three options provided in this article: Refund sales tax collected from tax-exempt customers.

Since the invoices are already paid, it's best to consult with your accountant to know which option works best for your business. This way, we can ensure that your records are accurate and free from any discrepancies. If you're not affiliated with one, you can visit this link: Find a ProAdvisor.

Additionally, you may visit this link if you're looking to exempt your company from sales tax and get refunded: Request sales tax exemption and refund.

Know that you can always get back to us here in the Community if you have any other sales tax questions. We'll be around to lend a helping hand.