Sales Tax Payments and Entries

Thank you for the additional explanation, TX. 

The Sales Tax Center in QuickBooks Online (QBO) is for tracking purposes only, and we still have to pay outside the program. After submitting tax payments, we can Record payment  in QBO. If you opt not to, we can choose the QBO-generated State Comptroller account for creating Checks  or Expenses . 

Also, you don't have to set up an Expense account for your tax liabilities. To convert tax expense entries into liability entries such that the balance of the liability account will be zero, we can open and edit the previously created checks or expenses and change their category into State Tax Liability Account Payables, or we can delete them and Record payment  through the Sales Tax Center. 

Regarding your concern about the QBO Tax section allowing you to select the Texas State Comptroller, we can create a custom tax rate instead. To learn more about turning off Sales tax, check out this article: Turn off sales tax in QuickBooks Online. 

Lastly, you can refer to these articles managing sales tax in QBO: 

• Learn how QuickBooks Online calculates sales tax
• Edit sales tax rate in QuickBooks Online

I'm still all ears if you have more concerns with correcting your sales tax in QBO. Stay safe! 

Hello Erika, thanks for the quick reply.  Let me respond by each paragraph. 

Para. 1.  I do pay outside of the QB's program.  If you are referring to the Record Payments button in the Sales Tax section in QB's, I did not use it to record my tax payments.  So yes, I effectively opted not to. Quite honestly, I don't think I was even aware of the State Comptroller Tax Payable liability account until recently when I noticed it on my balance sheet.  I didn't create it myself (I believe QB's did it when I set up the Auto Sales Tax feature) so I really didn't even know it was there until recently.  I became aware of it because I was reviewing my tax info and saw it listed on my balance sheet. So yes, I could have, and probably should have used the Comptroller liability account as the category for my tax payments.  So bottom line, with my lack of accounting knowledge, I just didn't know that I had to use a liability account for my tax payments. 

Para. 2.  You offered "we can open and edit the previously created Checks or Expenses and change their category into State Tax Liability Account Payables, or we can delete them and Record payment through the Sales Tax Center."  As a test, I DID try to change the category of one of my tax payments to the Comptroller liability account.  But when I tried to save the change I received the following error message 

You have either selected a tax liability account on a transaction where it's not allowed, or haven't specified a tax rate along with it.  So not knowing what that meant (other than you're not allowed to do it) I changed it back.  I had thought about the concept of deleting all the expense tax payments and using Record Payment to document the payments.  But here's where it gets complicated for me.  I need to pay TWO tax agencies; state and city. The Sales Tax section only has one tax agency listed which is the State Comptroller. If I ONLY had to pay state taxes that would work.  If the Sales Tax section allowed me to select the city as a second tax agency and I could Record Payment for the city, that would work.  Keep in mind when I receive the tax money from Airbnb, it is a lump sum representing the total of the state (6%) and city )11%) taxes.  Now, please know that  my invoice is set up to calculate and enter the full 17% tax value on the invoice.  That 17% tax amount is what gets added to the Comptroller liability account.  If I use the Record Payment button, I can record the 6% tax amount against the State Comptroller liability account and I think that would be correct. But the Comptroller liability account would still contain the remaining 11% that needs to be paid to the city.  The Comptroller liability account would not be zero as it needs to be. So how would I record payment of the remaining 11% city tax? Man, I hope that made sense. 

Para. 3.  I do have custom tax rates created to the city taxes. Perhaps I need to make the state and city taxes separate line items on my invoice? Then create a state tax liability account and a state liability account? If I did that, could I then turn off the auto sales tax and record and pay the sales taxes manually?  BTW, I did try to turn off the auto sales tax but QB's displayed an error message.  Something to the effect, because I have created entries (invoices?) with sales tax, I am not allowed to turn sales tax off.   

OK, that's all I got (it's a lot, I know).  This is all way above me to figure out and I definitely need some guidance and instruction.  As I said, when it is said and done I would like to be able to disable the auto tax feature and enter my tax payments manually.  Thanks so much for your help. I look forward to your (or any other) replies. 

I appreciate you taking the time to share those details. TXFlipo.

I'll address each paragraph of your response to provide some clarification about the Sales tax setup and how it works in QuickBooks Online.

For Paragraph 1: Once you switch to automated sales tax, you will be asked to match your current tax rates to the official tax agency listed in QuickBooks. If you have fewer than 20 tax rates, you still have to match all of them. It is also understandable that without prior knowledge of accounting principles, you may not have realized the need to use a liability account for tracking tax payments. 

Accounting concepts can be complex, and it is common for small business owners to encounter challenges in understanding the intricacies of bookkeeping. With that, if you're still unsure about how to handle your sales tax payments for city and state, I recommend consulting with your state's tax agencies or a professional accountant. They can provide guidance and further information to help you understand and ensure your taxes are tracked accurately.

For Paragraphs 2 and 3: In QBO, you normally encounter that error message if you change a default expense account to a sales tax liability account. Also, considering your specific situation where you need to pay both state and city taxes, but the Sales Tax Center in QuickBooks only allows for one tax agency, recording the remaining city tax payment can be complex. There are possible ways to handle this kind of situation one of which is to create a custom sales tax rate just like what my colleague mentioned above, and create a separate liability account specifically for the city tax so you can match it with the correct tax agency. However, I'd still recommend consulting an accounting professional for further guidance.

Furthermore, QuickBooks recently implemented automation for sales taxes for all users. Once you've switched to automated sales tax, you can't go back to your previous experience. This means you can no longer turn off the option to manually track your sales taxes. I've added this article for more info: Switch to automated sales tax in QuickBooks Online.

Let me know if you still have other questions or concerns about sales taxes. I'll be checking this thread for your response. Have a great day!

@TXFlipo 

When you issue the payments for the sales tax collected, you should be assigning the State Comptroller Taxes Payable liability account to the payments made to both the city and state.  That's all you need to do.  Sales tax is not an expense, it's a liability when you collect it because you owe it to the city and state.  When you issue the payments, it will reduce both your bank account and the State Comptroller Taxes Payable liability account by the same amount.  If you have a balance in you Sales Tax Expense category, you need to close that out and reduce the State Comptroller Taxes Payable liability account by the same amount.  To do that, make a journal entry: debit State Comptroller Taxes Payable and credit Sales Tax Expense for the balance in Sales Tax Expense.