Hi, vre-jbw.
 

A non-zero taxable income on an invoice-by-date report for an invoice that doesn’t collect tax usually indicates that the invoice contains items that are defined as taxable, but tax was not applied, due to tax-exempt status or manual overrides like special tax rules applied. This helps in compliance and audit scenarios, where it’s important to know what portion of sales could have been taxed. 

You can check your invoice item tax setting and mark it as non-taxable , and review if the customer or invoice is set as tax-exempt, the system records the items as “taxable income” (since they would normally be taxable), but does not collect any tax. 
 

Here's a link for more details: Processing invoice as non-taxable income.

Feel free to leave any additional questions in the comments if there's anything else you need further assistance with.

Hi vre-jbw,

I just wanted to follow up to check if the resolution we provided helped resolve your issue. Please let us know if everything is now working as expected or if you’re still experiencing any problems. We’ll be glad to assist further if needed.

Thank you very much for the response.  I'm still having a bit of trouble finding where I have my non-taxable items classified as taxable.  Maybe it's because I don't have my "Sales tax settings" page set up right? .. MY APPS->Sales Tax Settings?  Or would it be because on my invoices I'm using "Select sales tax rate" with menu option Automatic Calculation selected?  Basically, I'm setting up auto repair invoices that don't charge sales tax on labor (but do charge tax on parts).

1. Go to the Gear icon and select Products and services under LISTS.

    

    

   
   
   

2. Find the item you want to edit and click Edit.
3. Change the Sales tax category from Taxable to Nontaxable.
4. Hit Save once done.