My customer is tax exempt. and my automatic late fees are classed as non-tax. but in the invoice, the late fees are taxed. why is this?

Hello jbolton,

The calculation of Automated Sales Tax in QuickBooks Online is based on the following factors:

• Your customer’s tax exempt status
• Where you sell and where you ship
• What you sell

We can review the late fees if it is set up as non-taxable item.

1. Select Sales on the left menu and go to the Products and Services tab.
2. Click Edit on the late fees item.
3. Make sure to select Nontaxable in the Sales tax category field.

From there, we can go back to the invoice and toggle the late fees item.

1. Open the affected invoice and take note of the late fee's amount.
2. Click Save and select Yest to confirm the changes.
3. Add the late fees item and the amount again.
4. Click Save and select Yes to confirm the action.

You can use these links to know more about Automated Sales Tax:

• Learn how QuickBooks Online calculates sales tax
• Set up and use automated sales tax in QuickBooks Online

Let me know how this goes so we can further assist you. Additional details and screenshots would be much appreciated.

My customer is already in qbo as tax exempt and late fees are already set up as non-taxable item. However, it still appears on customer invoices with tax auto-enabled. Do I have to remember to Uncheck tax on every invoice or can I change something somewhere so that it appears on invoices without tax enabled?

Thanks!

Let's perform some steps to get your customer tax-exempt, jbolton.

It's possible your customers are set up to be taxable before creating the transactions. We can go to the Customer information page to set up them as tax-exempt.

This way, taxes are not included and there's no need to manually uncheck the Tax box when creating an invoice.

Here's how:

1. Click Sales on the left side menu.
2. Choose Customers.
3. Select the customer name.
4. Tick the Edit button.
5. Tap the Tax info tab.
6. Place a checkmark on the This customer is tax exempt box.
7. Enter the details for Reason for exemption and Exemption details field.
8. Press the Save button. 

You can check out this article to check of your sales are exempt from tax: Conducting non-taxable sales.

I've got a link here where you can find articles about managing your sales tax: https://quickbooks.intuit.com/learn-support/en-us/taxes/pay-sales-taxes/08?product=QuickBooks%20Onli....

Feel free to go back to this post if you need a hand with running sales tax reports or any QBO related. I'm always here to ensure your success. Take care always. 

I already said that the customer is set up as tax exempt, so I do not need help changing the customer's tax status to tax exempt. I believe there may be an issue within quickbooks on this matter. The customer is set up as tax exempt in quickbooks and late fees are classified as nontaxable; however, on these tax exempt customers, only the product "late fees" automatically charges tax when it is added to an invoice.

I've checked my resources, and there aren't any reported issues about this, @jbolton. But I have an alternative method to stop the system from calculating sales tax when the late fees are added to an invoice. 

QuickBooks Online (QBO) calculates automatic late fees based on the balance due. It includes sales tax, shipping, and discounts. This may be the reason QBO charges tax after you've set up this item as non-taxable. For more information, see the How are late fees calculated? section through this article: Set Up and Apply Automatic Late Fees To Invoices. 

There may be limits on the types and amounts of fees you may charge your customers. With this, I'd first suggest contacting your tax agency to confirm if the late fees are tax exempt in your jurisdiction. It's because we want to ensure we're compliant with their rules and regulations. 

Once verified, you can perform the alternative method by unchecking the Tax box on each invoice. This way, the system won't charge a sales tax to your customer. View the screenshot below for your visual reference. 

After that, you can run the Sales Tax Liability report from the Reports or Taxes menu. It helps you get a detailed look at the taxes you owe and why you owe them. Also, this ensures everything is accurate before you pay and file your sales taxes. For more details, visit this article: Sales Tax Liability Report. 

I'm just a comment away if you need further assistance. Enjoy the rest of your day, @jbolton.