QuickBooks

Managing QuickBooks Sales Tax with AvaTax Calc

Written by Charlie Russell

Managing Sales Tax in QuickBooks can be a pain for some businesses. In the past I talked about the basics of setting up sales tax in QuickBooks, and recently I showed you how to import sales tax rates into QuickBooks. It can be difficult! Now, let’s talk about how you can use AvaTax Calc by Avalara, an add-on product that will work with QuickBooks to provide a simple solution to sales tax problems. I like it!

Sales Tax Compliance can be Complicated

AvalaraIt used to be simple. You had your storefront, you sold to people who walked into your place of business. You know where you are located, you know what the local sales tax rate is, you charge that. Simple!

Now, however, you aren’t restricted to doing business from one location. You can ship products to multiple locations, you can sell over the Internet, you may have multiple offices or warehouses. Sales tax compliance has become incredibly complicated.

One of the key issues is the “Nexus” and how this interacts with tax codes, tax rules and more.

Please note that you should contact your accountant, tax attorney or other qualified tax professional to conduct a “Nexus analysis” for your business. Avalara Professional Services can also provide this service for a fee.

Reprinted with permission from Avalara

Nexus is the legal term that refers to the connection a business has with a taxing jurisdiction. If you have this kind of connection then you may have to calculate, collect, report and pay sales tax. It can be complicated, which is why we suggest that you talk to a knowledgeable tax professional. Part of the problem is that the rules governing this vary from jurisdiction to jurisdiction, AND you will find that in many jurisdictions the actual rate you have to charge can vary depending on the specific location WITHIN that jurisdiction. It isn’t always easy determining what tax rate you have to charge.

I can look at my own business as an example. I’m in California, in Yolo County. I can look at a zip code for local sales tax rates(for example), but within my own zip code I may be in a city, or one of two different counties, and all have different tax rates. How do I know what rate to charge?

QuickBooks Sales Tax

So how do you deal with this in QuickBooks? The sales tax system in QuickBooks is very simplistic. You are on your own in determining what sales tax rate to charge for any particular customer.

As I describe in my article on QuickBooks Sales Tax you can set up a sales tax item (or sales tax group) for each tax jurisdiction you work with. If you have a simple Nexus then this works fine – you just have to determine which sales tax item to use for each customer. You have to update the rates as they change over time, also.

If you have to be concerned with a large number of sales tax rates, you can download sales tax rates and import them as sales tax items. This handles PART of the problem – getting the rates – but it doesn’t help you in determining what rate to apply for any particular customer.

This is where AvaTax Calc comes in – this product integrates with QuickBooks and manages all of your sales tax compliance issues for you, easily and without a lot of work. The product will look at the delivery address of your invoice and determine the right tax rate to apply automatically, and the tax rate will always be the correct value.

AvaTax Calc Setup and Installation

I’m not going to provide a detailed tutorial of how to install AvaTax Calc – I’ll just give you an idea of what you will need to do.

Was installation and setup smooth? Well, there is good news and there is bad news.

  • Bad news: Given that I was setting up a QuickBooks desktop (Windows) installation, there wasn’t a lot of obvious on-screen help in getting the tax service set up to access QuickBooks properly. When I logged in to my “account” in the online portal, I was told that I had software to download (which I did), and then it jumps in to setting up the online preferences. The problem is, one of the early steps says to look for the Avalara menu item in my QuickBooks File menu – but that doesn’t happen until you install the AvaTax program. Nowhere in the initial process was I every told that I needed to install this, and I didn’t see instructions on HOW to install it. Not good! I did eventually find that there is a small link at the bottom of one page that took me to a QuickBooks installation document, but it was hard to find.
  • Good news: This ended up NOT being a big problem, because Avalara has outstanding technical support options and once I contacted them I was able to get the program up and running very quickly. Avalara provides an email address for support (I got a response in just a few hours, which is very good), an online “support ticket” option (which I haven’t tried yet), and also a toll free phone number that you can call. Being an impatient person, I called the phone number (during normal business hours), and I was connected to a support agent within minutes. The agent was able to show me how to install things, and then he led me through the rest of the setup process. I’ll also note that once you have your “company tax profile” set up you will find information in your AvaTax account portal, right there in the initial page, that shows your “account manager” with an email address and phone number. BETTER YET – I overlooked the BEST way to get started. I had an email from an Avalara “implementation consultant” who offered to set up an appointment to help me get set up and trained – but I had jumped ahead and tried it on my own. I should have started there!

So even though I have some gripes about documentation and initial setup, I’d have to say that Avalara did an excellent job in helping me get running. When it comes to software installation I’m one of those people who just charge in and start working, which isn’t always the best approach to take. With something as complicated as this the best approach is to let them take you by the hand and do the setup, and lead you through the product. Every support and training person I worked with at Avalara did an outstanding job of getting me up to speed, resolving my issues, and answering all of my questions.

AvaTax Initial Setup

There are a lot of options to consider – options are good, because that lets you tailor the product to fit your particular business situation. For example, is this a stand alone company, or a part of a multi-company organization? Should sales tax calculations be rounded by “line”, or by “document”? This is a big issue if you are trying to match tax calculations down to the penny with another system. How is freight and handling tax managed? LOTS of ways this can work out if you are splitting an invoice amongst multiple locations. This is a good reason why you should take advantage of their implementation assistance.

AvaTax in Action

So let’s see how this works, and why I like the product.

Here’s a simple invoice for a taxable sale in QuickBooks 2013 (desktop version). The customer isn’t in my neighborhood, so I’m not sure what tax rates apply, but I do have a Nexus there so it should be taxable.

A taxable QuickBooks invoice

Once I have created this I simply click the Save button. After a brief delay AvaTax displays the tax calculation (note that this is a feature you can turn off, you don’t need to see this window each time you create an invoice).

AvaTax Sales Tax Detail

I also have the system set up to re-display the updated invoice after the tax is calculated, which is another option. As you can see, AvaTax has added the sales tax as a detail line (using a sales tax item).

QuickBooks Invoice with AvaTax sales tax

Very simple! I didn’t have to worry about finding the right sales tax rate to apply to this customer. AvaTax looks at the address and determines what the appropriate tax rate should be, as well as determining if this should be a taxable location for YOUR business. Nothing could be simpler.

You may wonder, why does this show as a tax line item instead of showing in the tax subtotal? This actually is the best way for a QuickBooks add-on product to work in this situation, and I applaud them for using this approach.

  • If you use a sales tax item in the footer, other than the zero rate “AVATAX” item, then you must have a sales tax item for every jurisdiction. AvaTax gets around this problem by NOT adding sales tax items for EVERY tax jurisdiction. That would be difficult to manage, and would clog your item list with unnecessary records.
  • By inserting the amount of the calculated sales tax detail line, you avoid having QuickBooks do it’s own calculations of the sales tax. If you use the sales tax item in the footer then you can only select a tax rate (through that item) – not an amount. QuickBooks might calculate the actual tax amount in a different way than you want, and you would have no control over the tax amount. By inserting it as a line item this way the program can specify the exact tax amount that is needed.

As soon as you have saved the invoice you can see the transaction in your AvaTax online portal.

Transaction in AvaTax

The Reports tab has your sales tax reports. Note that the files are updated each night so you have to wait to the next day to see transactions show up here (which is not a problem). You will not be using the sales tax reports in QuickBooks itself.

Sales Tax Reports Tab

Here is a sample of one of the reports:

What Else Is There?

What I’ve been showing you here is just one of the AvaTax services – AvaTax Calc. This handles the actual calculations as I’ve shown above. However, this is just one of your sales tax processes.

  • You also need to manage your exception certificates. This can be a MAJOR issue. Back in the 80’s my business underwent a “sales tax audit”, and I had to provide proof of an exemption certificate for every tax exempt customer for a three year period. It was brutal! A product like AvaTax Certs would have saved me days of time in that audit (and probably several thousands of dollars in fines).
  • You need to file your tax returns with all of these various agencies. AvaTax Returns helps you manage this easily and effectively.

AvaTax also has a version that works with QuickBooks Online that performs the same basic tasks.

What Does It Cost?

AvaTax Calc pricing is based on transaction volume. The higher your volume, the lower the rate per transaction. At this time it starts off at $425 a year for 720 transactions, with bundles for higher volumes.

Help for Accounting Professionals

Avalara has an “Accounting and Advisory Services Program” for accounting professionals, with three levels. There is an Accountants Resource Center which provides you with sales tax and local tax rate information, educational materials and more. The Referral Partner Program allows you to work together with Avalara to provide services to your clients. The Pro Partner Program is aimed at firms that wish to expand their sales and use tax capabilities. For more details see the Accounting and Advisory Services Program website.

Is It Worth It?

That depends on your situation. If you have a simple tax jurisdiction / Nexus I’m not sure if you need this – although certificate compliance can be a big issue even if sales tax rates aren’t complicated.

However, if you do business in a more complicated situation with multiple tax jurisdictions, this can save you a HUGE amount of time and money. It starts off at about $0.60 a transaction, which isn’t too high of a cost when you consider what you are getting. In addition, the product integrates well with QuickBooks, and the support they provide is outstanding.


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About the author

Charlie Russell

Charlie Russell has been involved with the small business software industry since the mid 70's, and remembers releasing his first commercial accounting software product when you had an 8-bit microcomputer with one 8 inch floppy disk drive. He has a special interest in inventory and manufacturing software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor with additional certifications for QuickBooks Online and QuickBooks Enterprise, as well as being a Xero Certified Partner. Charlie started blogging about QuickBooks in 2008 (Practical QuickBooks) and has been the managing editor and primary writer for the Accountex Report (formerly the Sleeter Report) since 2011. Charlie can be reached at [email protected]

Visit his CCRSoftware web site for information about his QuickBooks add-on products. He is also the author of the California Wildflower Hikes blog.

9 Comments

  • Does Avalara generate reports to help the user prepare monthly sales tax filings, including being either accrual or cash basis sales tax payer?

  • I have been using Quickbooks Enterprise 12.0 and Avatax for for several years now and like the process! However, there is one thing I have not been to figure out… how to remove the extra tax line from the QB invoice. As I understand it, both Avatax and Quickbooks need to have their own separate tax line on the QB invoice, and both must appear on the invoice. While you can blank out the text on QuickBooks tax line because it is no longer necessary when using Avatax, you can not get rid of the “0.00” that print in the amount column on this line. Do you know how to correct this? Thanks!

    • Julie, that is one of the annoying things about how QuickBooks works.

      One workaround:
      -edit your invoice template so that you have a “sales tax” box in the footer. This will prevent QuickBooks from adding the 0%/$0 tax item itself in the detail.
      -use the Layout Designer to set the font color to be white for the sales tax label and sales tax value boxes. Remove any borders also.

      QuickBooks adds a sales tax line if there is no sales tax box in the footer – so what we do is to change the fonts to white so that they don’t show up (assuming you print on white paper).

  • Hi Charlie,

    I think I have a similar issue with above. How do you get to customize the invoice line item description for Sales Tax by showing “State Sales tax” text instead of “Total Sales by Avatax…”? Can I customize that on my invoice?

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