tax exempt refund

If you the invoice is recent and you have not reported the sales tax, the easiest fix is to edit the invoice and make it not taxable and then save it.

After doing that, the payment will have an unapplied amount. Apply it to his upcoming order once you record it. Use the receive payments window to do that, applying the credit the unapplied portion of the payment will create there.

Hello there, @Eve2019. Let me help you apply a refund of the sales tax in a new invoice using QuickBooks Desktop (QBDT).

QuickBooks allows you to issue a credit to apply a refund to a specific customer. This feature is for retaining a customer's business by providing them with a credit that they can use towards their next order. To create a credit, you may have the Credit Memo feature within the software and apply it to your customer's next purchase. Here's how:

Step 1 is to create a credit memo.

1. In the Customers menu, choose Create Credit Memos/Refunds.
2. Select the customer you want to refund in the Customer: Job drop-down.
3. Put the items you're giving a credit for and hit Save & Close.

Applying the credit memo to an invoice.

1. Make sure to select the Customer: Job when creating the credit memo. Note that this will open the Apply Credit to Invoice window.
2. Choose the credit you want to automatically apply, then click Done.

 On the other hand, you may also review this article as a guide for handling upfront deposits using QBDT: Manage upfront deposits or retainers.

Reply to this post if you have more questions about having a refund to your customers. I'm here to help you anytime. Take care!

Thank you for replying.  I have not yet reported sales tax but have received payment (credit card). 

I could unapplied payment, remove sales tax, and then pay the invoice/ enter the full amount I originally received it would be overpaying the invoice and when finished,  select option "leave the credit to use late" ? Does this sound correctly. Thanks in advance.

Yes, you could do all that, or you could do what I suggested, which is fewer steps and will have the same result.