Sales tax has a vital role in QuickBooks. It is required for the goods and services that you provide to your customers. By using the sales tax service in QuickBooks, you can record taxes and it will be easier for you to monitor and set them aside for the tax-collecting agency. If you want to learn how to set up sales tax in QuickBooks Online and Desktop, this guide is all you need.
This guide demonstrates step by step instruction for creating sales tax within your QuickBooks account as we cover the following topics:
- Advantages of Setting Up Sales Tax
- How Do I Set Up Sales Tax in QuickBooks Desktop?
- 1: Set up Sales Tax Preferences
- 2: How to Set up a Tax Agency
- 3: Create a Sales Tax Group or Item
- 4: Assign the Sales Tax Codes
- How to Set up Sales Tax for Other Provinces
- How to Setup Multiple Sales Tax in QuickBooks Online?
Advantages of Setting Up Sales Tax
Every business owner needs to collect a combination of PST and GST (or GST only) or HST only based on the rules of sales tax.
As is well known, QuickBooks allows you to set up the sales tax so that you can keep the proper record. There are other benefits to setting up the sales tax in QuickBooks. A couple of them are listed below:
- It makes it easy to create reports to fill up the tax form especially when you pay the sales tax liability.
- Also, setting up the sales tax unlocked the accurate invoicing.
As you are aware of the advantages, you can proceed with the sales tax set up. However, there is the information needed to set up sales tax in QuickBooks Online and Desktop. Continue reading to know more.
Must Read: How to Record a Loan Payment in QuickBooks
Things to Remember Before Setting Up the Sales Tax
Before you know how to set up sales tax in QuickBooks 2013, one should keep the following things into consideration:
- Under the law, you should check the requirements of sales tax for a location where you are selling or shipping the services and products.
- To pay your collected taxes, you should recognize your tax agency.
- Also, you can use the CRA website as your sales tax resource.
Special Note: QuickBooks sets all the provincial and standard Sales Tax Codes depending on the information of the company you mention in the Express Start Interview while you create a company file.
For instance, if you are in the domain of Ontario and registering for the Sales Tax then QuickBooks will add a tax code that eventually calculates and then shows Ontario HST (H) and Ontario PST (P).
How Do I Set Up Sales Tax in QuickBooks Desktop?
To set up the sales tax for your business, you will have to follow the procedure in a number of steps. For instance, you will first have to set up your sales tax preferences, set up the tax agency, set up sales items and groups, assign tax codes for items and customers. If it is required to charge sales tax for the additional province then you can do that too.
In this following guide, we will show you how to set up sales tax in QuickBooks Desktop and QuickBooks Online. So let’s get started!
1: Set up Sales Tax Preferences
The first and foremost step is to set up your company preferences for the Sales Tax. To do so, follow the instructions given below:
- Click on the “Edit” option.
- Then, click on the “Preferences” option.
- When the “Preferences” window opens, click on the “Sales Tax” button.
- Now, switch to the “Company Preferences” tab.
- Hit the “Yes” button. This will enable sales tax service.
- Now, go to the “Customer and Supplier Tax Codes”, mark the checkboxes to allow the tax code for your suppliers or customers.
Note: The code for sales tax (that is assigned to your supplier or customer) has the priority for the sales tax codes for the services and products.
- Now, change the preferences of how you would like your sales tax to be displayed. For this, go to the “Display Taxes” field.
- Here, you will find two options which are as follows:
- Allow tax-inclusive prices and costs to be entered
- Only display tax total on transactions
- Then, go to the “Assign Sales Tax Codes” section, click on the tax you wish to use for both Non-taxable and Taxable items.
Once you are done adding your preferences for the sales tax, you can start creating the tax agency. Read more in the next step.
2: How to Set up a Tax Agency
In this step, you are required to create the tax agency for the location where you are planning to pay the sales tax. To make this happen all you have to add a sales tax agency as your supplier.
Once you change the sales tax codes, QuickBooks automatically sets up the sales tax agencies as your suppliers. This must be linked with the same tax code.
Note: Each sales tax code and item are linked with a sales tax agency. This helps you to make sure that the sale tax you are collecting is getting paid to the right tax agency.
In case you have no idea how to add a tax agency in QuickBooks, you can go through the following instructions:
- In QuickBooks, click on the “Supplier” option.
- Then, go to the “Supplier Centre”.
- Now, click on the “New Supplier” option. This will open a new supplier window.
- In the “Supplier Name” area, add the name of your tax agency, contact information, and address.
- In the “Opening balance” field, enter the amount if you have to repay the sales tax to the tax agency.
- Also, in the “As of field” add the date.
Note: QuickBooks will track your balances and sales tax payments depending on the customer sales tax collections and opening balance. Once you collect your sales tax from the customers, the amount that you owe starts increasing.
This is how QuickBooks update the opening balance so that it can reflect the sales tax amount you deposit with your tax agency.
- Go to the “Sales Tax Settings” tab and select the “Supplier is a Sales Tax Agency” checkbox.
- Then, enter the “Business Number”.
- Click on the “Tax Return” option using the “Tax Return” drop-down.
- Now, in the “Reporting Period” field, click on the reporting period using the drop-down. This is for your tax agency.
- Select the “Period Ending” based on your “Reporting Period”.
- Enter your “Tax label”.
- Pick the account that is used to track the sales and purchases separately.
- Now, verify if your tax agency calculates the tax on other taxes.
- Also, verify if you are including the tax during the time of billing.
After following these steps, the tax agency will be created successfully. Thereafter, you can track payments and balances easily.
3: Create a Sales Tax Group or Item
In QuickBooks, sales tax items are used to count the sales tax on transactions. It also associates with the right sales tax agency. Thereafter, the counted tax follows the accountability for that particular agency.
Here, in this step, we will show you how to add sales tax items and rates. Along with that, you will learn to set up sales tax group items.
Add Sales Tax Items and Rate
QuickBooks creates the sales tax items that can be used in the field where the business is situated. In case you ever have to add additional sales tax items then you can go through the following steps:
- Click on the “List” menu.
- Select the “Item List” option.
- Click on the “New” button using the “Item drop-down menu”. This will open a “New Item” window.
- Now, select the “Sales Tax Item” option using the “Type” drop-down list.
- Here, enter the name of a sales tax. This name will display on the sales forms in the “Tax” field.
Note: This name can be seen by the customers on their invoices or forms.
- Now, you can add the description. This is an optional step as this description will be for your use. However, you can add a description so that it can remind you of the items for purchases or sales.
- Then, add the sales tax dollar amount or rate:
- In case it is rate tax then enter the digit with a % sign (e.g., 7.6%).
- But, if the tax amount is fixed (e.g., Fifty dollars) then you can add the number i.e., 50, and hit the Tab key on the keyboard.
- If you see a prompt on your screen, click “Yes” to confirm that your tax is a fixed amount.
- Now, select the sales tax agency using the “Tax Agency” drop-down list. This will collect the sales tax.
- Select the “Sales Tax Return” line or select the “Tax on Sales” or “Tax on Purchases”.
- Hit the “OK” button.
- Generate the sales tax code so that you can represent your sales tax items on transaction forms.
Add Sales Tax Group Item
Many fields use an S sales tax code. This represents a sales tax group that combines PST and GST items. When you use the S code in the transactions, both the taxes charged and calculated however they track to separate accounts.
If you want to charge over one tax then you can combine the sales items. To understand better, you can follow the steps mentioned below:
Note: Make sure that you set up all the single sales tax items that will be required to set up your sales tax group items.
- Click on the “Lists” menu.
- Select the “Item List” option.
- Click on the “New” option from the “Item” drop-down.
- Select the “Sales Tax Group” using the “Type” drop-down.
- Now, add the group name.
- Add a description that will be printed on the sales forms.
Note: The description cannot be edited on the forms. Also, the group rate including the combined sales tax items rates will be printed on the sales forms.
- Now choose the first line (in the available table) located at the bottom of the “New Item” option.
- Then, select the dropdown named “Tax Item” and pick your first sales tax item that you prefer to add to the group.
- Then, press the “Tab” key on your keyboard.
Similarly, you can do this to add more sales tax items to your group. Once done, click the Ok button. This is the whole procedure of creating a sales tax group and rates. Now, you can set the code for the sales tax. Read ahead to know more.
4: Assign the Sales Tax Codes
As is well known, QuickBooks set up sales tax codes based on the field where the company is located. Below are the few provinces that use sales tax codes accordingly.
- Most provinces have codes such as Z for the Zero-Rated and E for the Tax Exempt.
- Some provinces have a G tax code for GST except maritime provinces where the provincial and federal sales taxes get harmonized. For these provinces, H is used as a sales tax code which means HST.
- Those provinces where PST is being charged, use P as their sales tax code for PST alone, and S is used for Standard (the combination of PST and GST).
Now that you know about codes for sales tax, you can add them for the items and customers. Let’s know how to do that in the following discussion.
Add Codes for Items
- Go to the “Lists” menu.
- Select the “Sales Tax Code List”.
- Click on the “New” button using the “Sales Tax Code” dropdown.
- In the “New Sales Tax Code” window, add the code so that you can recognize it on a form.
- Then, add the description as your reminder.
- Select the option if your code is non-taxable or taxable.
- These codes represent sales tax items or group items. It contains the details about your tax including amount, rate, and links:
- If you prefer to track sales tax then click on the “Sales Tax item for Purchases”, and select the valid item that links to the return line for the paid tax.
- Choose the “Sales Tax Item for Sales” and select the item that can link to the return line for the collected tax.
- Hit the “Ok” button.
In case you ever require to edit the code then this can be done in the item list. Follow these steps to understand better.
- Click on the “Lists” option.
- Go to the “Item List”.
- Click twice on the item that you wish to edit.
- Select the “tax Code” dropdown menu.
- Pick the taxable status for your item.
This is how you can add the new sales tax codes based on the preferences for items and edit them if required in the future.
Add Codes for Customer
Most customers are taxable in QuickBooks. However, you can create a tax code for the customers individually. Here we will show you to add tax codes for customers using the customer menu and sales tax menu.
Option 1: Customer Menu
- Click on the “Customer Centre” followed by the “Customer” menu.
- Choose the “New Customer” option using the “New Customer & Job” drop-down.
- Add the names of your customer.
- Then, click on the “Sales Tax Settings” option.
- Select your tax code using the dropdown.
- Hit the “OK” button.
Options 2: Sales Tax Menu
- Go to the “Sales Tax” menu.
- Click on the “Manage Sales Tax” option.
- Then, choose the “Assign Tax Codes” on the “Manage Sales Tax” window.
- Select the “Customers” option using the “Change tax codes for” dropdown.
These are the two simple ways to add tax codes for customers. You can pick your option and follow the steps carefully.
How to Set up Sales Tax for Other Provinces
In case you ever have to charge sales tax for the additional province then you can easily add sales tax codes, sales tax agencies, sales tax items, and sales tax account for that particular province. To do so, you can follow the steps mentioned below:
- Click on the “Sales Tax” menu.
- Go to the “Manage Sales Tax”.
- Now, click on the “Change Tax Setup” on the “Manage Sales Tax” screen.
- Choose the “Add the provincial sales tax for a different province” option in the “Sales Tax Setup Wizard” screen.
- Hit the “Finish” button.
- Select the province that you prefer to set up and hit the “OK” button.
Once you follow these steps, the tax code and the tax agency will be generated automatically. This is an easy way to create or manage the sales tax for more than one province.
How to Setup Multiple Sales Tax in QuickBooks Online?
If you use QuickBooks Online then you can set up the sales tax. All you have to enable the Sales Tax feature within QuickBooks Online and then turn on the Sales Tax service in the Commerce Sync Settings. Let’s know how to set up multiple sales tax in QuickBooks Online in two simple steps.
1: Enable Sales Tax
- Click on the “Taxes” option located on the left. This will open the “Sales Tax Center” option.
- If you don’t find any sales tax, click on the “Set Up Sales Tax” option. ALternatively, you can click on the “Edit Sales Tax” on the right.
- Then, follow the on screen instructions.
2: Enable Sales Tax in the Commerce Sync Settings
- Go to the “Commerce Sync Dashboard”.
- Click on the “View for the Settings” (the center option).
- Check the option: “Transfer Sales Tax”.
- Hit the “Save” button located at the bottom.
These are two simple steps to create sales tax in QuickBooks Online. All you have to turn on the sales tax feature and then enable the sales tax in Commerce sync settings to transfer sales tax.
This is all about creating sales tax in QuickBooks!
To Sum Up
Sales tax serves an important purpose in business. If you manage your business via QuickBooks then it is very easy to set up the sales tax for your customers. In this guide we have shown you how to set up sales tax in QuickBooks Online and QuickBooks Desktop.
The steps can vary for both the QuickBooks version. For instance, for the QuickBooks Desktop, the procedure includes numerous steps such as setting up the sales tax preferences, tax agency, sales items and group, assigning tax codes for items and customers. If it is required to charge sales tax for the additional province then you can do that too.
On the other hand, for QuickBooks Online, you can enable the Sales Tax feature within QuickBooks Online and then turn on the Sales Tax service in the Commerce Sync Settings.
If you have any questions, let us know in the comment section.
Apart from this, if you want to know how to delete a customer in QuickBooks then read this guide in detail.