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How to Setup in QB - Contractor Charges State Sales Tax, but it varies whether 1) Residential (7%) or 2) Commercial (< 10K - 7% or >10K - drops to 3.5%)

How to Setup in QB - We are a Contractor who Charges State Sales Tax, but it varies whether our customer is: 1) Residential (7% state sales tax) or 2) Commercial (< 10K - 7% or >10K - drops to 3.5%)


We need to invoice customers with these varying sales tax rates, but our State tax is the default at 7% in QB.    How do we set this up so that we can quickly choose whether the customer is Residential at 7%, Commercial at 7%, or Commercial at 3.5% (work over 10K)? thanks

QuickBooks Team

Re: How to Setup in QB - Contractor Charges State Sales Tax, but it varies whether 1) Residential...

Glad to have you back, @rh57.


I've got some steps for you on how you can set up sales tax on your QuickBooks Online. Let's get this started.


If you're entering you're sales taxes manually, you have the option to add each sales tax rate depending on your customer's classification. This way, you'll be able to select the appropriate sales tax rate for your customer's transaction.


To do that:

  1. Click on Taxes at the left pane.
  2. Under the Related Tasks list on the right, choose Add/edit tax rates and agencies.
  3. Select New and choose either a single or combined tax rate.
  4. Enter a name for the tax, the agency you pay, and the percentage for the rate. Use a single rate if you pay just one rate to a single agency.
  5. Select Save.

You can refer to this article for complete details about this procedure: Enter sales tax amount manually.


But, if you're using the automated sales tax, QuickBooks will calculate the rate depending on your customer's address. To deduct the sales tax amount, adjust sales tax on a transaction.


Here's how:

  1. From the left menu, select Taxes, then choose Sales Tax.
  2. Select the View Return button next to the tax you need to adjust. This will open the Return summary screen.
  3. Select Add an adjustment.
  4. Select the reason for the adjustment.
  5. Select the adjustment account.
  6. Add the amount of the adjustment.
  7. Select Add at the bottom. You can now review your adjusted sales tax and proceed with filing the payment.

In doing this, you may also reach out to your agency to verify if the deduction is correct.


Below are some references that you can read through about managing sales tax in QuickBooks Online:

Besides, if you need further help with this procedure, you can reach out to our QuickBooks Care Team. They have the necessary tools that can guide you with these steps.


This should get you covered today, rh57.


In the event that you should have questions about this, or need anything else, you can find me here. Happy weekend!

Frequent Contributor *

Re: How to Setup in QB - Contractor Charges State Sales Tax, but it varies whether 1) Residential...

Thanks for the reply.


We  have our QB online set at the standard MS Sales Tax Rate of 7%. That appears to be what you are saying in the 2nd option, and the recommendation is to then make a correction to the total tax due.


The problem is that we would have to go back and manually search for every commercial invoices over 10K  and then calculate the adjustment from that. We have lots of invoices and to take the time to manually search seems too many steps. 

We want the invoice to go out the first time with the tax rate adjusted to 3.5% if it is a Commercial account with a sale over 10K, and then have QB total that up in the taxes that will be due quarterly.

The 1st option listed below here is what seems to be the answer. The confusion, and thus my follow-up question is what happens to the taxes that have already been calculated at the straight 7% rate (default setting we are using) if we turn that off and switch to enter the tax rate manually?
Can you share any thoughts on that?


Re: How to Setup in QB - Contractor Charges State Sales Tax, but it varies whether 1) Residential...

Thanks for getting back to us, rh57.


Transactions will not be changed or edited  if you'll change the set up to manually add the tax rate. You can continue changing the setup or turning this off as long as the transactions were already saved.


You'll want to check this article how you can manage sales tax payments.


Let us know if you need more help with QuickBooks. We'll be right here.

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