Learn how to set up and know the new automated sales tax experience in QuickBooks Online.
Sales tax is getting easier! With the new automated sales tax experience, answer a few simple questions and we will automatically do it for you.
You can also watch this video on how to set up your sales tax real quick:
The new sales tax feature looks at a variety of information to calculate your sales tax.
- The state where you have nexus and are registered to collect sales tax.
- The physical address of your business.
- The physical address on the sales receipt or invoice.
- The product mapping you have associated with the products or services you are selling.
- The exemption status of your customer.
Note: Select the Sales tax link in your transaction to see the breakdown of the calculated taxes.
The Automated Sales Tax (AST) center now displays your tax liability in either Accrual or Cash basis accounting. The taxes displays the accounting method you have chosen in your company settings.
Reminder: Cash basis is now supported for calculation only. E-filing isn't supported for cash basis users yet.
The new set up flow is very easy for you to go through.
- Go to Taxes, then select Set up sales tax.
- Verify your business address, then select Next.
- Complete your street address to make sure that the tax calculations are correct.
- If you need to edit the address, select Edit ✏, then correct it.
- Answer the information for your Agency to know if you're only required to collect tax in your home state.
- If you select No, we have additional questions for you like the filing frequency of your sales tax, the start of collection for your agency, and the start of your current tax period.
- If you select Yes, you'll need to enter the information of the other agencies you pay, then select Add agency.
- Select Got it to confirm the setup, then you'll be taken to the sales tax page.
Note: After the setup is complete, you'll see a Permit no. field on your checks and other expense transactions. There is currently no way to turn off or remove the field. If you don't want to see it on your transactions, send us a message (Go to Settings ⚙ and select Feedback).
Previously, the Sales Tax Drawer will only show you the total tax amount due, the tax agencies involved, and the tax categorization of the line items. With the updated Sales Tax Drawer, you can now see line level breakdown of the sales tax due and if needed, make additional edits. If you know your tax rates, you can even override sales tax amount.
To access the Sales Tax Drawer from your invoice, select the Sales tax link in the lower right.
When your customers are located in other states – a common situation for e-commerce and online business owners, your tax situation will vary depending on what state you are located and where you are selling. We advise you to contact your state tax authority, or your accountant, to get information for your specific situation. The general rules are as follows:
- If you don’t have a presence in a state, then you are not required to collect sales taxes.
- Every state has a different sales tax rules. For more information, contact your local tax authority.
- If you create a transaction for a state and haven't set up your sales tax, you'll get a message to add your tax agency.
If your company has retail stores in two or more states, each store may have a different sales tax rate. If you simply need to record your daily sale, you can create a customer for each state and use the retail store address as the billing/shipping address. This ensures that correct sales tax is used.
The shipping address in the customer's profile lets QuickBooks calculate sales tax accurately. If this information is not available, the calculation will depend on your listed company.
Note: You'll see a reminder to add the shipping address to accurately calculate the sales tax. Enter the complete address, including the street, state, and country (if it's outside US).
With this feature, you can now calculate your business sales tax even in a different location. On your sales transaction forms like invoices, you can see a Shipping from or a Location of Sale field. These fields are auto-populated of your company address:
- If customer’s Shipping address is recorded, you'll see the Shipping From field.
- If not, you will see a Location of Sale field.
Note: Select the Sales Tax link on the bottom right to edit the fields.
If you are using Automated sales tax, QuickBooks will automatically calculate the shipping charge based on the rate in your state/area.
If you are using the Sales tax center, the Shipping charge field on sales transactions doesn't provide a field to mark it as taxable. You'll need to manually set up a taxable item/service, then use it in your transaction, to do this:
Step 1: Create a taxable item/service
- Go to Settings ⚙, then select Products and Services.
- Select New, then choose Non-Inventory or Service for the product type.
- Enter the name, then select the Is taxable checkbox.
- Leave the sales price/rate field bank.
- Select the appropriate Income account, then Save and close.
Step 2: Use it in a sales transaction
- Add the shipping charge as a line item on your sales transaction.
- Select Tax to apply the sales tax.
Note: If you are going to use shipping charges as a Product/Service line item in order to add tax, make sure to leave the Shipping field blank so there is no duplication. The customary Shipping field will not appear on sales transactions if emailed or printed when the field is left blank.
Here's a quick guide to make active or inactive of a tax agency.
To make an agency inactive:
- Go to Taxes, then select Sales tax settings.
- Select the Edit ▼ drop-down under the Action column, select Make inactive.
- On the window that pops up, select the Make Inactive.
To make an agency active again:
- Go to Taxes, then select Sales tax settings.
- Select the small gear ⚙ icon right next to Add agency, then select Include inactive.
- From the list, find the agency and select Make active.
You can add sales tax categories to your items or services to help you track and calculate sales tax more accurately.
Check with your state tax authority to know the products and services that can be tax-exempt. Here are some of them:
- Resold items: Retailers don’t have to pay sales tax on these items since the end customer is the one who will pay for the tax. If you're a retailer, you should have the exemption certificate of the product given by the state.
- Raw materials: In most states, it's considered as sales tax exempt. It's also known as an Industrial production/Manufacturing exemption.
- Non-profits: Sales from these organizations are exempt from sales tax. If you have this business, you must have a copy of your customer's tax-exempt certificate or number issued by their state.
- Other type of exemption certificates:
- Federal Government
- State Government
- Local Government
- Tribal Government
- Charitable Organization - called as Non-Profit
- Religious Organization
- Educational Organization
- Direct Pay Permit - your customer will pay the tax to the state
- Direct Mail
- Agricultural Production
- Industrial Production/Manufacturing
- Foreign Diplomat
Important: Make sure to select the correct exemption type for your customer, then select the This customer is exempt checkbox. In AZ, a federal exemption allows a discount in the percentage of the sales tax. There are states that don't allow certain types of exemption or only allows discount. The type of exemption your customer has should be clear on the certificate they provide to you.
- Go to Taxes, then choose the tax that you need to adjust.
- Select View return, then select Add an adjustment.
- Select the small arrow ▼ drop-down for the Reason and Account.
- Enter the amount of the adjustment, then select Add.
QuickBooks Online Automated sales tax is equipped to handle several special tax scenarios like:
Scenario 1: Items marked "non-taxable" by the user but should be taxed in certain states/circumstances
In certain cases, we can recommend a tax amount when an item is non-taxable.
Example: An item that is non-taxable except when a customer address falls into a Zip code/address. In this case, you'll see a tax applied and the special details indicated on the sales transaction.
Scenario 2: Track tax items with thresholds
We keep track to tax thresholds on specific items based on the tax law for the location.
Example: NY clothing threshold that is currently sold less than $110 per item (or pair) are exempt from the NY State 4% sales tax, the local tax in localities that provide this exemption, and the 3/8% MCTD tax within the exempt localities in the MTCD.
Scenario 3: "Max Tax" rule for Florida transactions in the amount of $5k or higher
FL has a Discretionary Sales Surtax that's added to the FL State sales and use tax. Individual counties may impose the sales surtax (also called a local option county sales tax) at their discretion. Not all counties impose this surtax. But, there is a limit. A Discretionary Sales Surtax is applicable only to the first $5,000 of the sales amount for the sale, use, lease, rental or license to use any item of TPP (Tangible Personal Property known as personal property that you can see, weigh, measure, or touch; or that is any manner perceptible to the senses, including electricity). This $5000 cap does not apply to rentals of real property, transient rentals or services.