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Managing Sales Tax

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If your business collects and remits sales tax, you have to set your Sales Tax preferences in the Edit > Preferences. Or if you answer ‘Yes’ to question ‘Do you charge Sales Tax?’ when you created your company file, Yes button is already selected when you open your Sales Tax preferences.

QB Managing Sales Tax 1

 

QuickBooks has 2 (two) features dealing with sales tax:

1. Sales Tax Codes.

Sales Tax Codes is used to specify whether to apply sales tax. As you can see from the above screenshot in the Assign Sales Tax Codes panel, there are 2 (two) Sales Tax Codes lists:
• For Taxable items, and
• For Non-taxable items.

And you can apply these tax codes to both your customers and/or items:

Applying Sales Tax Code to Customers.
A non-profit organization or government agency can be Non-taxable customer, while others are Taxable. You can specify this in Edit Customer window > Additional Info tab > Sales Tax Information panel.
When you assign your customer with a non-taxable sales code, QuickBooks does not calculate sales tax on any items you sell them.
When you assign your customer with a taxable sales code, it calculates sales tax only on taxable items on sales transactions.

 

QB Managing Sales Tax 2

 

Applying Sales Tax Codes to Items.
Some items are not taxable (tax exempt or zero-rated) whether or not customer is taxable or not. For example, many legal services or educational services are tax exempts, whereas basic groceries (bread, milk, & vegetables) are zero rated.
You can specify this when you create your item, at the Tax Code drop-down list as shown below:

 

QB Managing Sales Tax 3

 

When you created your company file, most of your provincial Sales Tax Codes are defaulted within, so you are basically good to go if you sell your products to only your province.

But if you need to create additional Sales Tax Codes, here is how:
• From Main menu > choose Lists > Sales Tax Code List to open its window.
• Click Sales Tax code bar > New or Ctrl + N to open New Sales Tax Code window.

 

QB Managing Sales Tax 4

 

• In the Sales tax Code box, enter a new code (maximum 3 characters).
• Enter required Description.
• Choose Taxable or Non-Taxable/Exempt button.
• If you choose Taxable, you can further select if Tax Item for Purchases &/or Sales.
• Click OK when you are done.


2. Sales Tax Items

Sales Tax Items are used to specify tax rates in your sales transactions (at the bottom of invoices or sales receipts), and to track the amount you owe to the agencies you remit the tax to.
If you sell your products &/or services in more than one province, or if you have PST and GST to remit, then you need this Sales Tax Items. If you only sell your products and services in 1(one) province, all the required Sales Tax items are already done by filling in your company provincial location when you created your company file.
To track the taxes you owe to different agencies, you have to create different Sales Tax Item for each agency. For business that sell products with provincial & federal tax, you have to set 2 different Sales Tax Items.
In other words, you can only apply Sales Tax Items to your customer's location.

Here is how to create a new Sales Tax Item:
• Open New Item window > select ‘Sales Tax Item’ from Type drop down list.

 

QB Managing Sales Tax 5

 

• Enter Sales Tax Name.
• Enter Description.
• Enter tax rate and Tax Agency.
• Assign Sales Tax Return line if required.
• Click OK when you are done.

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