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Setting Up Sales Tax in QuickBooks 2014

The Sales Tax Process:

Collecting and paying sales tax can be complicated for some companies. For example, a company may have to collect and pay more than one sales tax. Many companies have a mix of taxable and non-taxable products and services to sell, and many also have some customers that are taxable while other customers are not.

In QuickBooks, you can apply sales tax on selected items for taxable customers during the sales process. It also keeps track of how much sales tax is collected and for which taxing agencies the sales tax is collected. From this information, QuickBooks later can create the check or checks for the appropriate tax agency or agencies when the sales taxes collected are due. However, in order to use QuickBooks to track and pay sales tax, you must perform the following steps listed in the table below. We will examine each part of this process in detail, to assist you in setting up your company to track and pay sales tax.

Creating Tax Agencies

The first thing to do when setting up QuickBooks to collect sales tax is to create the agencies for whom you collect sales taxes, and to whom you pay the sales taxes collected, as vendors within the Vendors List. This will allow you to remit checks for the sales taxes that you have collected to the selected vendors when the time comes for you to pay your sales tax within QuickBooks. If you would like to review the process of adding a new vendor record to the Vendors list, please review lesson “3.5- The Vendors List.”

You must create the vendor records before creating the sales taxes, because when you later create the individual “Sales Tax Items,” you must specify the vendor for whom you are collecting the sales tax. Once you have created vendor records for all of the agencies to whom you must submit sales taxes, you can then continue to create the actual “Sales Tax Items” needed by your company file as items within the Items list.

Creating Individual Sales Tax Items

After creating the vendor records to indicate the agencies for whom you are collecting sales taxes, you can then create the actual sales tax rates within the QuickBooks Item list. You can open the Item list by selecting “Lists| Item List” from the Menu


Within the “Item List” window, you must create a separate “Sales Tax Item” for each sales tax that you must report, not necessarily for each sales tax you collect. This is because in states that collect both a state and county sales tax, some states want you to report state sales tax and county sales tax as separate items, while other states want you report them as one item.

To create a “Sales Tax Item” within the Item list, click the “Item” button in the lower-left corner of the “Item List” window and then select the “New” command from the pop-up menu that appears to open the “New Item” window.

In the “New Item” window, select “Sales Tax Item” from the “Type” drop-down at the top of the window that is displayed immediately upon opening the window. Then click into the “Sales Tax Name” field and enter the name for the sales tax. You can then enter a description of the sales tax into the “Description” field. Note that if this “Sales Tax Item” is the only sales tax collected within customer forms, then you will want to enter the sales tax description as you want it to appear within customer sales forms into the “Description” field. Then enter the sales tax rate, as a percentage, into the “Tax Rate (%)” field. Then use the “Tax Agency (vendor that you collect for)” drop-down to select the name of the vendor to whom you submit the payments of this sales tax that is collected. When you are finished creating the “Sales Tax Item,” click the “OK” button to save the item into the “Item List.”

If needed, you can then repeat this process until you have created all of the individual sales tax rates that you must report that are required for your company file. If you collect and pay more than one sales tax for multiple taxing authorities, such as a state sales tax and a city sales tax, you can now create a “Sales Tax Group” within the “Item List” so that customers will see one cumulative sales tax amount on invoices and sales receipts. In the next lesson, you will learn how to create a “Sales Tax Group” item within the Item list to collect multiple sales taxes for multiple taxing authorities as a single line item within the sales forms.

Category: Taxes

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