Now, after a bit more research, I find that one time, back in 2014, I managed to get a transaction split so that a single check to the Washington Dept of Revenue included both expense $$ (business taxes) plus Sales Tax Liability--that posted to the Sales Tax Liability account. However, I either did that by mistake or have completely forgotten how I did that, and attempting to do this manually now (enter a split transaction in the checking account with one of the line items to Sales Tax Liability account) results in a message indicating that "You must specify a vendor name for the sales tax account"--even though it is the same vendor as on the check. But it gives me hope that perhaps I can at least update my existing sales tax transactions to post against the ST Liability account...need help on how to do it though.

OK, so now I have something more. Evidently, I can create a check in my checking register and having one or more lines post against the Sales Tax Payable account. But I have to manually type the sales tax VENDOR under Customer.

But working through a few of these (converting the old sales tax line items to the Sales Tax Payable account) creates another anomaly: while the balance of my sales tax is working its way down, it is only because the entries I am doing are increasing the amount of a single debit with no item (i.e. not specific to a tax location). So, while I might eventually get my overall balance down to $0 with this vendor, it will still consist of positive credits for each tax location and one summary debit for the tax payments. It is really not feasible to create a separate Sales Tax Payable account for each tax location, and I am not sure what the effect would be if I got the balance to $0, then posted all those tax-location-specific credits (in the Sales Tax Payable account) against the one big debit that comes from the check splits.

On top of this, there are other payments to the same agency for things such as my corporate renewal. So that would throw the balance off--meaning that I still need somewhere tax-neutral to dump an adjustment to account for that payment.

Thank you!

I am not calculating sales tax manually. I configured sales tax so that it calculates automatically, with different tax rates per tax location. That all works perfectly; all my questions related to accounting for sales tax payments via the built-in process. Many of my comments are entirely moot if I figure that out.

I was just coming up blank trying to figure out how to use the built-in Pay Sales Tax process. The built-in Make Deposits functionality, as you point out, uses a clearing account/process, but it does so in a way that is entirely transparent to me. I know only that I enter payments, click Make Deposits, select payments, and it then creates the required deposit in my bank account. I never thought to investigate how it does that. Looking at it now, I can see that it uses the Undeposited Funds account, which is an "Other current assets" account.

But the Pay Sales Tax process had nothing I could find like the "Make Deposits" function, and it will let me use only bank-type accounts as the destination, so please let me know if what I finally tested below sounds right:

1. Create new bank account called "Sales tax"; tax-line mapping is B/S-Assets: Cash. This will be the ST clearing account.
2. Post "Pay Sales Tax" to that account. This creates a debit against that account with the payee being my state tax agency.
3. Create my check in the bank account, posting my business taxes against my business tax expense account and sales tax against the sales tax clearing account. The payee here is the same state tax agency.

This creates the credit against the clearing account, retaining the correct check amount for the state and resulting in a clearing account balance of $0. And I think I understand it to also leave the entire sales transaction income-tax-neutral. Am I reasonably close yet, or have I just jumped from the frying pan into the fire? This is all something of a brain-teaser for me, but I think it makes sense now (at least unless/until I find that I did not understand, which is entirely possible...).

Sorry, but I'm still a little confused by the mechanics of the operation.  I get the theory behind what you're saying, but I'm not sure how to make it work.  I hope I'm just overlooking something really simple -- not seeing the trees for the forest, as it were.

The "Pay Sales Tax" function doesn't allow for making the payment to another account; it wants to credit a bank account and debit a payable account via a payment to a specified vendor.  Here in the State of Washington (where I'm guessing Beethoven is also located) we DO combine all excise taxes into a single payment to the Department Revenue -- in my clients' cases that can include B&O tax, lItter tax, and sales tax (there are dozens of others).

The question boils down to: how do I either (a) make the sales tax payments go to another account, or (b) pay sales tax to the vendor and include other taxes that are included in the same actual payment?

(I suppose I could make the company its own sales tax vendor, but this means paying the taxes becomes a three-step process -- make the payment, receive the payment, and make the real payment -- as well as changing a few hundred sales tax vendors.)

OP (Beethoven) here.

There are three parts in doing this:

1. For the WA Department of Revenue check (or EFT, since that is how I do it) in the check register, enter the sales tax paid line item using a sales tax clearing account. This gets payment made to WA state without counting it as an expense and debits against that account.
2. Use Pay Sales Tax to credit the sales tax against that same account.
3. Use a Sales Tax Adjustment expense account for sales tax adjustments. These should normally be just the few cents' difference between the sum of individual invoice tax withholdings and the tax payment of the sum of all invoices' taxable amounts for the quarter (i.e. as calculated on the DOR return as a percentage of the sum).

Here are the details of what I finally worked out as a way to use a clearing account for the sales tax but combine all WA B & O tax in one payment with sales tax without inadvertently counting sales tax as an expense. Keep in mind that I do not use the Pay Bills feature in QB; I just enter transactions (checks) directly into the bank account check register. So, while I cannot speak to the detail of exactly how to go through this using Enter Bills and/or Pay Bills to get the entry into the check register, the result should be the same if done that way. Also note that I, as an Information Systems consultant, have two separate WA B & O tax classifications: Service for my professional/IT service, and Retail for any computer hardware I sell to my clients.

Setup:
Lists → Sales Tax Code list
Tax (Taxable Sales)
Non (Non-Taxable Sales)
Sales tax items
Create one for each sales tax jurisdiction (city or unincorporated area of a county I serve)
Type: Sales Tax Item
Name them using tax location code and description
e.g. 3000 Skamania County
Make one called Out of State with 0% tax. This is used for retail sales delivered to customers in Oregon or other non-taxable states
Tax rate: percentage per WA Department of Revenue total rate (i.e. state rate + local rate)
e.g. for 3000 Skamania County, this is 6.5% state + 1.2% local/county, so I enter 7.7%
Tax Agency: Washington Department of Revenue
Tax Code for Item List
Taxable items: Tax
Non-taxable items: Non
Customers
Under Sales Tax Settings, select the Tax Item
e.g. for a customer in Skamania County, select 3000 Skamania County
e.g. for out-of-state customer, select Out of State
Account #1
Name: B & O tax
Account type: Expense
Tax-Line Mapping: Deductions: State franchise or inc. tax
Account #2
Name: Sales tax clearing
Account type: Bank
Tax-Line Mapping: B/S-Assets: Cash
Account #3
Name: Sales tax adjustment
Account type: Expense
Tax-Line Mapping: Other miscellaneous taxes (or could/should, I suppose, be the same as for B & O tax above, Deductions: State franchise or inc. tax, but that is a nuance, not critical)
Tax accrual
As invoices are created, the tax rate is calculated and added automatically based on the Sales Tax item set for that customer.
This accrues to the Sales Tax Payable account.
Payment processing
Create a single check in the bank register
Payee: WA Department of Revenue
Detail Line 1
Account: B & O Tax
Amount: Amount of B & O Service tax based on amount calculated in quarterly return
Detail Line 2
Account: B & O Tax
Amount: Amount of B & O Retail tax based on amount calculated in quarterly return
Detail Line 3
Account: Sales tax clearing
Amount: Amount of sales tax due on quarterly return
(Detail Line 4 & 5: state & local use tax for any business-related items purchased out of state)

That gets the state paid the correct amount without treating sales tax as an expense. Now I just need to get it all accounted for correctly without coming through as an expense; since I report pre-sales-tax $$ to the IRS, I obviously cannot claim the sales tax paid as an expense. But note that Detail 4 & 5 above (use tax) do go to a tax expense account when I complete my 1120 at the end of the year.

Vendors → Sales Tax → Pay Sales Tax
Pay From Account: Sales tax clearing
Check Date: date of DOR quarterly filing; same as check date above
Show sales tax through: end of prior quarter
Check Pay All Tax
Compare the amount here with the total sales tax due on the return and recorded in Detail Line 3 of the check above.
If there is a discrepancy (which should be just pennies due to taxes being collected per invoice but paid per quarter, all customers/invoices combined), click Adjust, then:
Sales Tax Vendor: WA Department of Revenue
Adjustment Account: Sales tax adjustment
Increase or decrease as required, but the amount of the discrepancy above
Complete the adjustment and pay the tax
Reconcile the Sales Tax Clearing account; set ending balance as $0 and clear the in from the check & out to the Department of Revenue.

The net effect is that the sales tax is (correctly) never an income nor expense, the state gets exactly what they are due, and the pennies' discrepancy/adjustments become either a positive or negative expense. Actual payment goes through the single check to WA Department of Revenue from the bank account. the clearing account is required only to accommodate 1) QuickBooks' requirement to go through Pay Sales Tax to keep the sales tax payable account from continuing to build up ad infinitum in combination with 2) QuickBooks' inability to combine sales tax payment with any other payments.

The only thing I do not have here is a record of exactly how much tax was paid for each local jurisdiction; however, that does not really matter to me, since the state gets what they require, and I can always run a report based on sales tax collected by invoice to see how much was collected alongside a report of sales tax adjustments to see the pennies' adjustments.

Thank you for succinctly explaining how to use a Sales Tax Clearing Account for QuickBooks asinine handling of sales tax with multiple jurisdictions. One added note that I figured out. If you receive vendor compensation for paying taxes before the due date, one more step needs to be added.

When the single check is created in the check register to record the actual payment to the taxing authority,
Amount of check: Actual amount paid to tax authority (including vendor compensation)
Account: Sales Tax Clearing
Amount: Amount that QuickBooks shows as due on the quarterly return as a positive amount
Account: Other Income - Vendor Sales Tax Collection Compensation
Amount: Negative amount of vendor compensation received from taxing authority as a credit on sales tax return

Then go through the steps you mention above through Vendors - Sales Tax - Pay Sales Tax.

THANK YOU for posting this solution! You helped more than the hours of research I tried asking my question in different ways!!

"and resulting in a clearing account balance of $0."

That is Exactly Correct

The point of Clearing is to always end that task session at 0. So, reconcile that "bank" account to 0, to show you verified this session ends at 0 and everything is In Balance.

While I am struggling with the fact that QBO only adds up sales tax we collect from our sales and does not deal with B&O taxes that are reported on the same form as Sales Tax when filing, this is how I deal with the multiple Sales Tax rates for all the different locations:

 

(We are a service business; construction in different locations with differing sales tax rates). I put each location address in the Ship To section on the INVOICE and QB automatically computes the sales tax for that location even though we don't actually ship anything.  

 

See if that works.  At least it takes the manual computation for all the Sales Tax locations.  

 

However, I am still ticked off that when trying to add an additional WA State tax (B&O) there is no option to.  I see other States in the dropdown menu allow counties / cities to be added to their agencies, but not WASHINGTON.  Would be an easy fix for QBO developers to add.  

Hello there, @NWAdventure.

 

I appreciate you sharing this information about handling sales tax with differing rates. This would surely help other users who have the same concern as yours. 

 

On the other hand, our developers are continually working to improve our products to meet our customers' needs and demands. I'd encourage you to visit our QuickBooks Online Blog to be updated with our latest news and updates including what our Product Care Team is working on.

 

Additionally, if you need assistance in the future that requires live technical support, feel free to reach out to our Customer Care Team. 

 

You can always visit the Community if you have any queries with QuickBooks. I'll be around to lend a helping hand. Have a great weekend! 

yes I contacted both already

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@BettyJaneB wrote:

Hello there, @NWAdventure.

 

I appreciate you sharing this information about handling sales tax with differing rates. This would surely help other users who have the same concern as yours. 

 

On the other hand, our developers are continually working to improve our products to meet our customers' needs and demands. I'd encourage you to visit our QuickBooks Online Blog to be updated with our latest news and updates including what our Product Care Team is working on.

 

Additionally, if you need assistance that requires live technical, feel free to reach out to our Customer Care Team. 

 

You can always visit the Community if you have any queries with QuickBooks. I'll be around to lend a helping hand. Have a great weekend! 

---

yes, i contacted both    thanks

You're most welcome, @NWAdventure.

 

QuickBooks aims to help you run your business easier. That said, I will also do my part and notify you through this thread whenever I receive updates about this concern.

 

In the event that you should have questions about this, or need anything else, you can find me here. Cheering you to continued success in all of your endeavors.

 

 

 

My apologies for not responding long ago; for some reason I don't remember I wasn't able to find my way back to this thread.  Thanks for the instructions; they should get me past my sticking point!

 

Since my client pays many different sales tax localities I do separate them in the Sales Tax processing, but it should work exactly the same way (one rate for the state, one rate for each locality, then a sales tax group for each locality that splits the state and local amounts).  I do this more for my benefit, so I can cross-check the DOR return.  Occasionally have to make an adjustment when the state and local rates both round in one direction but the combined total rounds the other, but he's a monthly filer so it's seldom an issue.

 

(And thanks to NWAdventure for posting, generating an email that let me find this thread again!)

Thank you for joining back in this thread, @dsliesse.

 

I can share some more insights about the Sales Tax feature.

 

The calculation of sales tax in QuickBooks Online are according to your setup and the following information:

• 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.

To avoid creating adjustments, make sure to enter them correctly as QuickBooks do all the accounting for you. For further details, you can check the Automated Sales Tax article.

 

That should do it, @dsliesse. Keep me posted if you have follow-up questions about sales tax. I'm always here to offer assistance.