Yes, sales taxes can be complicated, but they have to be accurate. Here’s a look at how to handle changes.
Whether you learn QuickBooks from a book, trial and error, or QuickBooks training courses, sooner or later you will face this issue. As statewide rates change, and as more and more cities and counties create their own districts with increased rates, you will undoubtedly need to change these in your QuickBooks company file.
The best way to make the change is by setting up new sales tax items with the new, correct rates. This can be a challenge if you have many sales tax items that affect sales in many different sales tax districts in the state. But it is a better solution than editing existing sales tax items and changing the percentage rate.
A portion of the item list, showing sales tax items, from one of QuickBooks’ sample company files.
Sales tax items generally appear at the bottom of the Item List (Lists | Item List ). The arrow in the above graphic points out the item type, and the circled area shows the column in which QuickBooks displays the rate for the item.
The setup for new sales tax items is pretty straightforward. A right-click of your mouse anywhere within the Item List will open a popup menu. From this menu, choose New .
Select Sales Tax Item as the item type. Create a Sales Tax Name, one that will identify the district for which the item is being created. This will make it much easier to select the correct sales tax item off the list in future transactions. Include a description, the name of the sales tax vendor, and the correct percentage in the Rate field.
As new sales tax items are created, old ones can be marked as inactive, leaving only the new sales tax item with the correct rate showing on the list.
Sales Tax Groups
If you live in a state where Sales Tax Groups are used, you will have to edit your QuickBooks sales tax group to include the new sales tax item.
Ideally, at this point, you would re-assign sales tax items to all of your customers, a daunting task if you have many. But if you don’t take the time to reassign all customers and you have made the existing (old) sales tax items inactive as suggested above, the next time one of those customers is selected for an invoice, QuickBooks will display the following message.
The message QuickBooks displays when an inactive sales tax item is associated with a customer.
Make it active is the choice you want to avoid. Choosing Use it once will cause QuickBooks to use the old, inactive item on the invoice. Simply change the sales tax item once the invoice has been filled in.
Changing the sales tax item to the new one created, thus using it for this invoice and allowing QuickBooks to associate the new sales tax rate with this customer.
In the image above, the arrow points to the location of the sales tax item on the invoice form. Once the down arrow is selected, the list shown in the screenshot opens. Select the new sales tax item and save the invoice. Once Save is selected, QuickBooks will display the following message.
QuickBooks will reset the sales tax item to be associated with this customer for all future transactions if you select Yes .
Select Yes to have QuickBooks associate the new sales tax item with this customer on all future transactions.
If these procedures seem confusing to you, you should definitely invest some time in a QuickBooks class. It’s easier to learn these steps ahead of time than to try to untangle problems with taxing agencies.