QuickBooks Online Adding Sales Tax Agencies & Activating Sales Tax Center

 

QuickBooks Online Adding Sales Tax Agencies & Activating Sales Tax Center

Welcome to our article on QuickBooks Online Activating Sales Tax Center

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What Is Sales Tax?

Well we know when we sell to a customer the sales price is what we actually earned an income and the sales tax is the money amount that the customer pays above the sales price.

for example if the sales price was $100 and the tax was 8% that means the tax would be $8 and the customer would have to pay the total 108 dollars.

QuickBooks online must keep separate records of how much is earned by us and how much is actually the sales tax that we owe to the government.

Now some of the money that we owe to the government is owed to one tax department for one type of sales tax and some of the money that we owe to that we collected from the customer that we owe to the government could be to a completely different Department for a different type of sales tax. These are all distinctions that the records and QuickBooks must keep.

Sales Tax Agency’s In QuickBooks Online

We have to know how much money is owed separately to each different Department of government in order to do that.

One of the first things we have to do to set up sales tax is to put the different tax agencies on the vendors list the tax agencies are not technically vendors. They are payees because we will pay them the tax in the future.

 

So it's convenient for QuickBooks to put them on the vendors list with all the other payees. So now let's go ahead and add these two agencies of government to the vendor list in the file we provided for you from the main menu click vendor. Vendor Center notice there are no other vendors in this file because we wanted to make the illustration as clear as possible.

Adding Sales Tax Agencies in QuickBooks Online on Vendors List.

From the top left you can click new+ vendor. The first one will be New York state sales tax agencies that might not be the name but you get the point. Now after we click OK. we can do it again for New Jersey. New Jersey sales tax agencies. The name might really be of course in a real situation. you would put all the other relevant information that you could save and go back to if you need it but at least we have completed our first step in setting up sales tax.

Sales Tax Items on the Items List

The next step in the setup process is to put the sales tax items on the items list. we all know that the items on the items list are things that go in the body of a sale receipt or an invoice. Sales tax is also listed in the body of a receipt or an invoice. That’s why the sales tax items have to go on the same items list. The only difference is sales tax items are a percent of the other items.

Here are the two sales tax items we will use.

1.    NY- New York Sales Tax – 8%.  New York State Tax here's the name in the description and the percent.

2.    NJ- New Jersey Sales Tax – 6%, for the New Jersey customers we have New Jersey sales tax and here's the name and the description and the percent.

The only problem is we can't put them on the items list now because we have not yet activated sales tax. We will use the New York state sales tax item to be able to activate sales tax.

Activating Sales Tax Center

Now we activate sales tax in the Preferences window and the reason I say that we will use New York State Tax to activate sales tax is because at the moment we flip the switch in the Preferences window to activate sales tax.

QuickBooks asks us for at least one sales tax item to be put on the list at the moment we activate sales tax.

I understand this is bizarre and confusing but for decades QuickBooks has required that we do it this way. activating sales tax is one little click but at the moment we click we are required to add to the items list at least one sales tax item.

from the main menu click Edit preferences scroll down to the category of sales tax then click company preference do you charge sales tax click yes. Now we cannot save this until we specify a most common sales tax in other words we have to add a sales tax item at the moment we activate sales tax in this Preferences window.

So we could either click Add Sales Tax New which is the same thing as clicking this dropdown and clicking add new you get to the same window and as you can see one of the item types that's added to the item type list is sales tax item. The name of the first one we will put on the list is NY s sales tax and of course the description is sales tax New York State we know the percent will be 8%. The tax agency we put on the vendor list earlier New York State sales tax agencies we click OK.

Now QuickBooks will allow us to click OK in the Preferences window and by default which means automatically all items and all customers will be taxable. We will learn in a future Article How to make some of them non-taxable. We click OK and now sales tax is activated.

So what changes have been made to the file since we activated sales tax in the Preferences window? Well …..

·         sales tax transactions have been added to the main menu

·         sales tax reports have been added to the main menu

·         a sales tax payable account which is a current liability has automatically been added to the chart of accounts.

This account will show the total accumulated sales tax that we owe to all of the different agencies of the government and of course sales tax fields have been added to customer’s items sales receipts and invoices.

Let’s take a look if you click the vendor main menu you will notice that sales tax has been added and when you click on sales tax this submenu gives you a whole bunch of activities that you can do regarding sales tax. you may also notice that when you click list item list you notice new York state sales tax is now on the items list and if you click item new sales tax item or sales tax group is one of the choices or two of the choices actually in the items list you may also notice that under vendors in addition to sales tax activities.

There are also sales tax reports and of course if you open the Customer Center you will notice that when you double click to edit a customer sales tax settings have been added to the Edit customer window.

Let’s associate Alan and Betty with New York state sales tax and imagine they are New York customers and let's make candy a New Jersey customer and associate her with the New Jersey tax in order to do that we have to add New Jersey tax to the items list.

Click item new choose sales tax item the name will be NJ sales tax and the description will be sales tax New Jersey and of course the rate we remember was 6%. The tax agency was the one we put on the list New Jersey sales tax agencies. Click OK.

Now we have a choice of two different types of sales tax that we can add to a customer's permanent information. So we click customer, customer center we can double click Allen and in the sales tax settings we can use New York state sales tax click OK, for Betty same thing double click Betty click her sales tax settings and where it says tax item we will click New York State and click OK, for candy we double click we choose sales tax settings and her item will be New Jersey sales tax then we click OK.

Now we're set up and prepared to use sales tax when we make receipts or invoices