5 Things You Need to Know About Sales Taxes in QuickBooks Online

The most important thing you need to know about sales tax is that administering it correctly can be challenging.

If you sold only one type of product to customers in one city, collecting and paying sales tax would be easy. But most businesses have a wider reach than that.

QuickBooks Online offers tools that allow you to set up sales tax rates and include sales tax on sales forms. Further, it calculates how much you must pay to state and local taxing agencies.

This is one of the most complicated areas in QuickBooks Online because you may have to deal with numerous taxing agencies. If you’re not already working with sales taxes, we strongly recommend you let us help you get everything set up correctly from the start. Taxing agencies can audit your recordkeeping and you want to make sure it is set up correctly.

That said, here are five things we think you should know.

QuickBooks Online calculates sales tax rates based on:

  • Where you sell. Every state is different. If your business is located in Florida and you sell to a customer in Minnesota, you’ll be charging any sales tax levied by the state of Minnesota and possibly the city and county and other taxing authorities – if you have a connection, a “nexus” in that state (a physical location, active salesperson, etc.).
  • What you sell.
  • To whom you sell. Some customers (like nonprofit organizations) do not have to pay sales tax. You’ll need to edit their customer records to reflect this in QBO. Open a customer record and click the Edit link in the upper right. Click the Tax info tab and make sure there’s no checkmark in the box that says This customer is taxable. The Default tax code will be grayed out, and you can enter Exemption details in that field.

QuickBooks tipsCustomer records for exempt organizations should contain details for that exemption. You’ll need to see their exemption certificate or at least know its official number.

Intuit now offers a revamped version of QuickBooks Online’s sales tax features.

At some point, you’ll be asked if you want to switch to the new, more automated system. The actual mechanics of the process are simple, but you’ll be moving historical and in-process data to a new structure. If you have sales tax set up right now and your situation is at all complicated, you’re going to want our help with the transition.

This enhanced feature only supports accrual accounting.

You can combine individual tax rates.

If you are required to pay city, county, and state sales tax rates for a particular customer, for example, you can create a Combined tax rate that contains all of the individual components. The customer will only see the total on an invoice or sales receipt, but QuickBooks Online will track each one accordingly for payment and reporting purposes.

QuickBooks tipsYou can combine sales tax rates in QuickBooks Online (image above from current Sales Tax Center in QuickBooks Online, not the enhanced one).

Product and service records should contain sales tax information.

This is another area that will require some research. Just as some services are subject to tax, some products are not (like groceries in Arizona). So, you’ll need to find out what the rules are for what you sell. You can find this information on the website of the state’s Department of Revenue (sometimes called the Department of Taxation).

Once you know, you can record that status in QuickBooks Online. Open a product record by going to Sales | Products and Services and clicking Edit in the Action column or create a new one by clicking New in the upper right. Scroll down to Sales tax category in the record. You can choose between Taxable – standard rate and Nontaxable.

There’s a third option here: special category. This gets complicated. We can help you determine whether it applies to you.

QuickBooks Online tracks the sales tax you owe.

You can see what you owe to each agency by running the Sales Tax Liability Report, and record payments when you’ve made them. Summary and detail versions of the Taxable Sales report are also available.

Once you get sales taxes set up in QuickBooks Online, it’s easy to add them to the relevant sales forms. Getting to that point, though, takes time, study, and careful attention to detail. If you’re getting ready to sell, or you’re already selling and struggling with sales taxes, let us know. We can schedule an initial consultation to see how we can be of assistance.

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Did you know that QuickBooks Online can calculate and apply sales taxes to transactions? However, setup requires some upfront research. Here are a few things to get started.

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QuickBooks Online calculates sales taxes based on where and what you sell, and to whom. It’s a bit complicated and here is why. We can help you get through setup.

Did you know that Intuit has released an enhanced version of QuickBooks Online’s Sales Tax Center? Here are the details and we can help you make the transition

Understanding Sales Tax in the Post-Wayfair World

If your business operates in two or more taxing jurisdictions, the Supreme Court’s decision in South Dakota v. Wayfair applies to you.

In June 2018, the U.S. Supreme Court decided South Dakota v. Wayfair. Since then, businesses that operate in two or more of the nation’s 10,000-plus tax jurisdictions have been struggling to understand what they need to do to comply with the new definition of economic nexus. Wayfair affects all businesses, from strictly online sellers to manufacturers and wholesalers to brick-and-mortar retailers.

The Court’s ruling was vastly different from its 1992 ruling in Quill Corp. v. North Dakota, which found that sales tax did not have to be collected unless the company had a physical presence in the state. Then again, Quill was decided when the Internet was in its infancy.

Understanding Wayfair

Wayfair did not expressly state a threshold for collecting sales tax, but the South Dakota statute in the case stipulates that any out-of-state business that makes $100,000 in sales or that has 200 or more sales in South Dakota must collect sales tax. Although that is a good guideline, businesses need to remember that not all jurisdictions follow it: some are higher and others are lower.

This creates problems for businesses for a number of reasons, including the following:

  • Business registration. Every state has different rules about how businesses must register as taxing entities. In some states, it is enough to register at the state level, whereas in others, the business needs to register at the county and municipality level as well. Some jurisdictions may ask businesses to prove they do or do not meet its thresholds. Noncompliance with these requests can lead to steep penalties. Other jurisdictions have voluntary disclosure programs that can help limit exposure.
  • Goods and service exemptions. There is no one standard for taxing goods and services. For example, clothing is not taxed in New Jersey, but in New York, a neighboring state, the only clothing that costs more than $110 is taxed. There is a never-ending list of discrepancies between jurisdictions, and this list can change quickly.
  • Other factors. Your business may need to rethink its operations. For example, is your inventory stored in another jurisdiction?
  • Effective dates. Just as there is no universal list of which goods and services are taxed, there is no one list of effective dates. A new effective date takes effect every time a jurisdiction decides to tax a good or service, exempt one from taxation or impose a new dollar limit.

Analyzing Exposure

The Wayfair ruling is not going away, so businesses need to take several steps to analyze their exposure. Businesses need to:

  • perform a detailed analysis of the business’s annual sales and number of transactions in every jurisdiction in which it operates;
  • determine which goods and services are taxable in each of those jurisdictions;
  • figure out when and where to register, what penalties it may incur and whether registering will make it subject to other taxes, such as franchise taxes; and
  • determine how it will manage sales tax compliance going forward.

Businesses don’t need to do this on their own. Contact us today for professional help in figuring out your business’s sales tax responsibilities.