Finance Charges

Hi there, @missmissySEI.

QuickBooks Desktop (QBDT) calculates the finance charges based on the customer's total overdue balance. This means it uses the full invoice amount, including sales tax, rather than just the subtotal.

As for whether late fees themselves should be taxed, that depends on your state's tax rules. In many states, late fees are treated as finance charges and are not subject to sales tax. A local tax professional can confirm what applies in your area.

If you have follow-up questions, please don't hesitate to click the Reply button.

Thank you.  I know that the late fees are not taxable.  I guess I wasn't clear on my question.  I am asking if the lates fees should include the sales tax amount? For example, Purchase was 100.00, sales tax (Ohio) was $7.25.  QuickBooks attaches late fee (1.5%) to the total amount of $107.25.  Should the late fee only be on the $100.00 and not the $107.25? Or is it OK to charge the late fee on the total amount? I do not see an option to change how it charges late fees and it would be horrible to have to adjust every invoice.

I appreciate your effort getting back in the thread, @missmissySEI.

QuickBooks calculates late fees based on the total amount due, which includes sales tax, shipping costs, and discounts. While the late fee itself is not taxable, the calculation is based on the total invoice amount, including the sales tax portion.

Using your example, if the purchase was $100 with $7.25 in sales tax, QuickBooks will calculate the 1.5% late fee on $107.25.

You can also visit this article to explore more about how late fees work in QuickBooks. Although the article is for QuickBooks Online, the calculation method is the same in QuickBooks Desktop: Understand automatic late fees in QuickBooks Online.

If you have any additional questions, please feel free to Reply in this thread.

That's what I thought was going on and makes me very disappointed in QuickBooks because I don't know of any state that allows finance charges on sales tax.  Every state that I have looked up only allows finance charges on the product/service, therefore the subtotal before sales tax.  Therefore, the option to have QuickBooks calculate finance charges is wrong because it configures the calculation on the wrong total.  Disappointing.