Problem with QBO Tax center incorrectly showing a customer prepayment(retainer) as gross sales even though it is a liability account.

It seems that an invoice or credit memo will always show as a gross sales in the tax center even if the line item on the invoice is a liability item, and not an income item.

Should I send a retainer invoice to the customer from a third party program instead of through QBO. Instead of applying a deposit to a QBO invoice , I would just apply the deposit (from the cash received as a retainer from the customer) straight to the liability account? I could do this instead of what I show in step 2a

The only invoice I would create it when the service are rendered just like in step 2b.

Would this keep the QBO tax center from showing income from the retainer?

Hi there, @hello32 

 It looks like this is a duplicate post. Let me link you to the original thread where answered by my colleague.

https://quickbooks.intuit.com/learn-support/en-us/account-management/re-why-does-the-customer-prepay... 

For additional reference, you can check these articles below:   

• Set up and use automated sales tax in QuickBooks Online 

• How to Set Up Sales Tax: Settings, Sales, & More 

• Enter and apply credit memos and delayed credits in QuickBooks Online 

If you have any questions, please let us know. We'll be right here to help with anything you need. Have a great day!

I create this post.

This topic has not been answered yet. It seems like the answer I receive from the QBO team are just about how to set this up and create the transactions.

I have already stated that I have done this correctly. The issue is not with my steps taken. It is with the QBO tax center.

I really need someone out there to read my post carefully, and I would really appreciate some guidance to the issue I am having

It seems like this is a duplicate post, hello32.

I've added this link as to where my colleague Mary Land, answered your concern: https://quickbooks.intuit.com/learn-support/en-us/account-management/re-why-does-the-customer-prepay....

Feel free to get back to me if there's anything that I can help. Stay safe!

Unfortunately this issue is still not resolved. No one has yet to quite understand the problem here. I can create my own work around by not having an invoice at all and just showing the cash deposit as a liability so it does not show up in the tax center. 

At this point I’ll just assume this is a glitch in the program

Helping you is our top priority, @hello32. And I personally want to get this fixed for you.

As mentioned by my colleague MaryLandT from the other thread, it may affect the accounting method from the Sales Tax Center that's why the cash deposits aren't showing there. The Cash basis will not reflect the deposit/retainer as received until the invoice is paid in full.

You can read through this article to learn how Cash and Accrual accounting affect sales tax.

If the same thing happens after changing the accounting method, I'd suggest contacting our Phone Support Team. This way, they can further investigate the Sales Tax Center and create an investigation ticket if other users are experiencing the same.

To reach them, click the ? Help button and select Contact Us to contact a live agent.

Also, I'm adding this article to know more about how to manage sales tax payments in QuickBooks: Manage sales tax payments in QuickBooks Online.

Please let me know if you need clarification about this, or there's anything else I can do for you. I'll be standing by for your response. Have a great day.

Thanks for your reply. I am on accrual basis. I understand what you are saying. It's not quite the issue here. 

It's fine. I will report taxes manually instead of through  QBO tax center. It's a problem with the tax center counting a liability account as gross sales only because I put it on an invoice.

I will just have to figure out some other way to resolve this. I am pretty sure this is a QBO issue not an entry issue.

I will reach out to an expert like everyone has suggested

Thanks for trying.

Hello.  I am running into the same issue with sales tax.  I am wondering whether you found a resolution in QBO for this?  Thanks.

Almost 3 years since your question, but I've found an answer that works (at least for me).

My conjecture was that using an invoice was causing QBO to classify the transaction under "Sales". So the first step was to use journal entries -- first between A/P and a liability account "Customer Advance Payments"; then, when the customer pays, between A/P and a bank account. Unfortunately, this still resulted in the advance payment showing up in "Sales".

So then I looked at the journal entries to see if anything could be causing them to be considered "Sales". Sure enough, I had put "Exempt (Sales)" in the Sales Tax field. When I deleted this (the "Sales Tax" field is now empty) and hit "Save", the transaction magically disappeared from "Sales".

When you use a Sales Invoice in QBO, the Sales Tax field cannot be left blank. So using journal entries is the only workaround for this bug in the software.

I have had this same problem.  Is there any engineer that's working on this issue?

Hi there, @lseibel.

I can see how this can be challenging for your business. As of now, we don’t receive a similar issue about the incorrect posting of tax centers to the accounts in QuickBooks Online (QBO). Before anything else, you’ll want to ensure you’ve chosen the correct posting account for the following liability transaction.

If none of the solutions outlined by my colleagues above works for you. It would be best to contact our Technical Support Team. This way, they can double-check your account to verify while maintaining your privacy and initiate a further investigation if necessary. 

Feel free to post back if you need further assistance with QuickBooks-related concerns. Stay safe!