Author: Charlie Russell Intuit has released a major update dealing with QuickBooks Online sales tax management, and I think that this will significantly help small businesses improve the accuracy of their sales tax reports as well as save them time. Any business that sells taxable items in the United States has to deal with sales tax. It is complicated! If you sell items in multiple states, you may have to deal with a wide range of very different sales tax rules and regulations. Even if you sell to just one state, keeping track of multiple overlying sales tax districts can be a horrendous chore. It takes a lot of time to manage this, and it is very easy to make mistakes. Up to now the sales tax feature in QuickBooks Online has been very simplistic. You have to manually enter your sales tax rates, and keeping them up to date has been a chore. Determining what sales tax to apply in different situations was extremely difficult. Aren’t our accounting systems supposed to improve accuracy and save us time? Sales tax wasn’t an area where QuickBooks Online excelled. With this new update, QuickBooks Online takes over managing your sales tax calculations, simply and accurately. With the new system:
- Sales tax information is created for you automatically, all you have to do is select the tax agencies that you need to work with.
- The proper rates are applied to your invoices, based on your address, the customer’s address, the type of item being sold, and even the date that the item was sold.
- Reminders are generated when you need to pay your accrued sales tax to the appropriate agencies.
Note that this feature is only available in the US versions of QuickBooks Online and QuickBooks Online Accountant. Also, it won’t be immediately available to all existing QuickBooks Online users, as I’ll explain in detail below.
Setting Up Sales Tax in QuickBooks Online
Sales tax management is not enabled in QuickBooks Online by default. To enable this, you will go to the Taxes option in the left navigation menu. This was a bit odd to me, as I was initially looking in Account and Settings, where most preferences are found.
Enabling Sales Tax
When you select Taxes, if your QuickBooks Online account has the new feature you will see a setup screen like the following: Note that at this time, if you have already enabled sales tax in the past, even if you never used the feature, you will not be able to use the new sales tax feature. It is only available to new QuickBooks Online users, or existing users that have never enabled sales tax. I’ll discuss the ramifications of this at the end of this article. Clicking Set up sales tax takes you to this screen, where you enter your current address. If you change what is here it will be stored in your company settings as the Company address. The program will select the appropriate sales tax agency for you automatically, based on this address. Some businesses are required to collect sales tax in multiple states. You are given that option in the next step. If you aren’t sure about this, you can say No here and then add the other tax agency later. In my case, it already has the California Board of Equalization on the list. All you need to do here is to select the Start of tax period, your filing frequency, and the date that you want to start sales tax calculations. Although Intuit doesn’t tell you at this point, the Start Date is important. In my example I selected January 1 of the current year, even though I’m setting it up in November. This causes some minor hassles because I selected half-yearly for the frequency, so QuickBooks Online will tell me that I have a past due report for July. I really only need to use this feature to file a report for the last half of the year, so I should have picked a start date in this half of the year. Fortunately, it is easy to change the start date later on. If I am required to collect sales tax in other states I can click the Add agency button. This asks you a few simple questions: In the Agency field you get a very detailed dropdown list. As you can see in the next screen shot, this can be very specific, even getting down to a municipal or county level. You cannot enter your own agency name, you have to select one from this list. Let’s compare this to the old method of setting up an agency. The prior method did not automatically pick an agency based on your company address. In addition, you had to enter the agency name and sales tax rate yourself. If you had a combined rate, you would have to enter each of the components yourself. When tax rates changed, you had to manually update the rates. What’s worse, if the rates changed on a particular date, invoices would not pick the right rate based on the invoice date. With the new system:
- Agency names are entered for you automatically, so that they are standardized.
- Tax rates are set up for you automatically.
- Combined rates are managed for you automatically.
- Rates are date sensitive, so that the correct rate is applied based on the date of the invoice.
After you have added the agencies you need, you will see the sales tax dashboard.