The Easiest (and Most Accurate) Way to Calculate Sales Tax on QuickBooks
Ask the Accountant…
Question: QuickBooks Online automatically calculates sales tax. Isn’t that the simplest way to go?
Answer: QuickBooks Online (QBO) is one of several options from QuickBooks. It is very different from QB Premier or Enterprise, which are more robust and better suit our industry. For instance, QBO does not have customer sales orders, which are pivotal in QB Premier and Enterprise.
That being said, you must set up and maintain sales tax in QB Premier or Enterprise. The setup allows you to run a sales tax liability report for the appropriate time period to determine the totals needed to file sales tax reports with your state. You can also drill down on the numbers to see what orders are in the report to review for accuracy.
In QBO, the sales tax will be calculated automatically, which can make life simpler. This does not let you off the hook, however. On each invoice, there is a button by the sales tax amount that says “See the Math.”
This will show you all the components of sales tax calculated (state, county, local, for example). You would be wise to understand your sales tax requirements and make sure that what is charged is correct. I have discovered that should you put in an invalid address, the “automatic” calculations may leave out a local or county component of your sales tax, causing you to collect less sales tax than required.
This can occur if you transpose numbers on a street address to a street number that doesn’t exist, or merely misspell a street name. Unfortunately, you will not get an error message in QBO—you will just under-collect the amount of sales tax. Regardless of which you use, the onus for correct sales tax is on you.
Please email your questions to Harriet at Ask The Accountant.
QuickBooks Premier and Enterprise can be modified to better serve ad specialty distributors. Harriet Gatter is a QuickBooks ProAdvisor, a former accounting professor and a former ad specialty distributor. She advises ad specialty distributors to use QuickBooks Premier and Enterprise, often in conjunction with other industry-specific software, to manage the complexities of the ad specialty business, with the results being time saved, errors eliminated and an overall accurate accounting of your business. Contact her at firstname.lastname@example.org.