Why does giving a discount increase the amount of sales tax?

Here’s what’s likely happening: when you apply a discount in QuickBooks Online, it reduces the taxable amount, which is what you want, but it also gets logged in the Sales Tax Liability Report under non-taxable sales. So even though the tax itself goes down, the report layout makes it look like something weird is happening, especially if the discount pushes that column into a negative.

It’s not a bug, just QuickBooks’ odd way of representing how discounts interact with taxable vs. non-taxable totals. But yeah, it’s confusing at first glance. The key thing is: your actual tax due should still be calculated correctly based on the post-discount subtotal, just double-check the transaction details.

If you're doing a lot of discounting and need cleaner tax reporting, I’d recommend exporting a custom report or using a connected sales tax tool that breaks it down more clearly. Avalara has been helpful in some cases, but also overkill if you're not doing multi-state stuff.

I  know how you want for QuickBooks to work smoothly for your business. May I know how you add a discount in QuickBooks? The confusion on why giving a discount increases the amount of sales tax happens due to how discounts are applied and how sales tax are calculated.

If you are adding  discount as a negative line item when creating an invoice, this is one of reasons why the non-taxable amount will show up as a negative number. 

On the other hand, if you haven't had utilized the Discount feature yet, you can turn this on. Here's how:

1. Go to the Gear icon and then Account and settings.
2. In the Sales menu, click Edit under the Sales form content section.
   
3. Turn on the discount. 
4. Hit Save and then Done.

Once enabled, this will show that discounts are calculated first before charging sales tax. I've added a screenshot for your visual guide:

In the meantime, you can drill down into your transactions in the Sales Tax Liability report to verify and compare how discounts and sales tax are applied and calculated. Simply click the See the math hyperlink when routed to a transaction and check the computation. 

For more information when adding discounts in your sales form, check this out: Add a discount to an invoice, estimate or sales receipt in QuickBooks Online.
 

You can always get back to us if you have any questions or other concerns when adding discounts. We're always around to help you anytime.