How to track Use Tax for inventory items that I use (not sell)?

rvwoodfloors · ‎October 15, 2018

I buy items with no sales tax because I have a resale certificate. I track inventory of all of my items. Some items I don't sell, I use it myself. I created a customer called "My business" so I can make invoices in order to decrease stock every time I use an item. But now, I have these invoices all open, because I did no pay myself for items I used and I wont pay. This may be easy for most people, but my head is not finding a way to do it. So, my problem is: I need to track what items I have used myself, decreasing stock, but not creating a bill to pay and still tracking use tax that I need to pay for that item. How can I do it?

Rustler · ‎October 15, 2018

Use tax on items purchased tax free is based on average cost of the item, and NOT retail sales prices - an invoice or sales receipt does not work for that reason. And in QBO, since there is no by purchase reporting for inventory you have no way of knowing what cost will be used since QBO uses FIFO costing

@ rv

There are several work arounds for use tax floating around, this is my preference

When you take inventory, use inventory adjust, set the adjusting account to the business expense account or owner equity drawing if you are taking the item for personal use, and lower the qty.

Report on that adjusting account to get the total value of the items adjusted

Use enter bills, select the tax agency vendor, select a use tax paid expense account you set up in the chart of accounts first, enter the qty as your sales tax rate expressed as a decimal. ie 8.25% tax rate enter .0825

and then enter the value you got from the use tax account report.

In the memo block enter something to remind you what it was for

when you use pay sales tax, insure you check both the normal sales tax payable line and the use tax line that will show up.

View solution in original post

john-pero · ‎October 15, 2018

If I read it correctly you need to pay sales/use tax on items you consume but did not sell. Either an Invoice or Sales Receipt with "My Business" as a taxable customer is certainly one way of approaching it. But you do have to account for "paying" the company or "buying" the items from stock. If you are an LLC or a Sole Proprietor you can post the payment received from a member/owner equity account which reflects your cash contributions to the company. In effect you will be "paying" for the items you use. No way around it

Rustler · ‎October 15, 2018

Use tax on items purchased tax free is based on average cost of the item, and NOT retail sales prices - an invoice or sales receipt does not work for that reason. And in QBO, since there is no by purchase reporting for inventory you have no way of knowing what cost will be used since QBO uses FIFO costing

@ rv

There are several work arounds for use tax floating around, this is my preference

When you take inventory, use inventory adjust, set the adjusting account to the business expense account or owner equity drawing if you are taking the item for personal use, and lower the qty.

Report on that adjusting account to get the total value of the items adjusted

Use enter bills, select the tax agency vendor, select a use tax paid expense account you set up in the chart of accounts first, enter the qty as your sales tax rate expressed as a decimal. ie 8.25% tax rate enter .0825

and then enter the value you got from the use tax account report.

In the memo block enter something to remind you what it was for

when you use pay sales tax, insure you check both the normal sales tax payable line and the use tax line that will show up.

daciew · ‎October 15, 2018

Rustler,
How do I set up a Use Tax Paid Expense Account?
Thank you for all your help

Rustler · ‎October 15, 2018

open the chart of accounts, click new, select expense and fill in the rest

daciew · ‎October 15, 2018

When I first read your answer, I thought that it was a Subaccount to Sales Tax. I thought it would be on the sales tax liability report. Now I think I understand that I have to run a report on the tax we owe and make an adjustment in the sales tax owed. Right?

Rustler · ‎October 15, 2018

correct
QB keeps sales tax payable and sales tax reporting very strictly controlled

addyourventure · ‎May 24, 2020

Hi Rustler,

In my case we are using product to pay for services received and want to record the expense and track the outgoing inventory. In your solution below would we be creating an inventory adjustment account which offsets the inventory account and then doing a journal entry with the inventory adjustment account on one side and the expense on the other? How do we actually track the outgoing inventory with that approach? Thanks kindly for your help!

JHcontroller · ‎November 27, 2023

If you just need to pay Use tax on an item you purchase and use, the easiest thing is to Adjust Sales Tax Due to increase the sales tax owed. This can be found under Vendors > Sales Tax > Adjust Sales Tax. Use the correct Sales Tax Agency Vendor and expense to original expense account of bill and increase by sales tax amount. You will need to add the bill to your total reportable gross sales when you report your sales tax for your state in order for the sales tax due to equal.

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How to track Use Tax for inventory items that I use (not sell)?