QuickBooks

Major Update for QuickBooks Online Sales Tax

Written by Charlie Russell

Intuit has released a major update dealing with QuickBooks Online sales tax management, and I think that this will significantly help small businesses improve the accuracy of their sales tax reports as well as save them time.

Any business that sells taxable items in the United States has to deal with sales tax. It is complicated! If you sell items in multiple states, you may have to deal with a wide range of very different sales tax rules and regulations. Even if you sell to just one state, keeping track of multiple overlying sales tax districts can be a horrendous chore. It takes a lot of time to manage this, and it is very easy to make mistakes.

Up to now the sales tax feature in QuickBooks Online has been very simplistic. You have to manually enter your sales tax rates, and keeping them up to date has been a chore. Determining what sales tax to apply in different situations was extremely difficult. Aren’t our accounting systems supposed to improve accuracy and save us time? Sales tax wasn’t an area where QuickBooks Online excelled.

With this new update, QuickBooks Online takes over managing your sales tax calculations, simply and accurately.

With the new system:

  • Sales tax information is created for you automatically, all you have to do is select the tax agencies that you need to work with.
  • The proper rates are applied to your invoices, based on your address, the customer’s address, the type of item being sold, and even the date that the item was sold.
  • Reminders are generated when you need to pay your accrued sales tax to the appropriate agencies.

Note that this feature is only available in the US versions of QuickBooks Online and QuickBooks Online Accountant. Also, it won’t be immediately available to all existing QuickBooks Online users, as I’ll explain in detail below.

Setting Up Sales Tax in QuickBooks Online

Sales tax management is not enabled in QuickBooks Online by default. To enable this, you will go to the Taxes option in the left navigation menu. This was a bit odd to me, as I was initially looking in Account and Settings, where most preferences are found.

Enabling Sales Tax

When you select Taxes, if your QuickBooks Online account has the new feature you will see a setup screen like the following:

QuickBooks Online Sales Tax Update

Note that at this time, if you have already enabled sales tax in the past, even if you never used the feature, you will not be able to use the new sales tax feature. It is only available to new QuickBooks Online users, or existing users that have never enabled sales tax. I’ll discuss the ramifications of this at the end of this article.

Clicking Set up sales tax takes you to this screen, where you enter your current address. If you change what is here it will be stored in your company settings as the Company address.

QuickBooks Online Sales Tax Update

The program will select the appropriate sales tax agency for you automatically, based on this address.

Some businesses are required to collect sales tax in multiple states. You are given that option in the next step. If you aren’t sure about this, you can say No here and then add the other tax agency later.

QuickBooks Online Sales Tax Update

In my case, it already has the California Board of Equalization on the list. All you need to do here is to select the Start of tax period, your filing frequency, and the date that you want to start sales tax calculations.

QuickBooks Online Sales Tax Update

Although Intuit doesn’t tell you at this point, the Start Date is important. In my example I selected January 1 of the current year, even though I’m setting it up in November. This causes some minor hassles because I selected half-yearly for the frequency, so QuickBooks Online will tell me that I have a past due report for July. I really only need to use this feature to file a report for the last half of the year, so I should have picked a start date in this half of the year. Fortunately, it is easy to change the start date later on.

If I am required to collect sales tax in other states I can click the Add agency button. This asks you a few simple questions:

QuickBooks Online Sales Tax Update

In the Agency field you get a very detailed dropdown list. As you can see in the next screen shot, this can be very specific, even getting down to a municipal or county level. You cannot enter your own agency name, you have to select one from this list.

QuickBooks Online Sales Tax Update

Let’s compare this to the old method of setting up an agency. The prior method did not automatically pick an agency based on your company address. In addition, you had to enter the agency name and sales tax rate yourself. If you had a combined rate, you would have to enter each of the components yourself. When tax rates changed, you had to manually update the rates. What’s worse, if the rates changed on a particular date, invoices would not pick the right rate based on the invoice date.

QuickBooks Online Sales Tax Update

With the new system:

  • Agency names are entered for you automatically, so that they are standardized.
  • Tax rates are set up for you automatically.
  • Combined rates are managed for you automatically.
  • Rates are date sensitive, so that the correct rate is applied based on the date of the invoice.

After you have added the agencies you need, you will see the sales tax dashboard.

QuickBooks Online Sales Tax Update


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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.

11 Comments

    • Anything is possible, and Enterprise is the desktop product where they are focusing development of NEW features. However, I haven’t heard anything about that, and I would be surprised if they did. Intuit really wants people to move to QBO.

      As I point out in the article, Exactor’s website says that they have an integration of their product with QuickBooks desktop. I have not used it, so the technology should be there. That doesn’t mean that they will roll that into Enterprise, however.

  • Hi Charlie,

    Thanks for sharing your knowledge about QuickBooks online Sales tax updates.
    Sales Tax Dashboard really help me to track the things in proper way.

    Looking forward to new things about QuickBooks.

  • Thanks for the article. One thing I missed is any way to indicate where the item was sold. I have to pay one rate if it is purchased at my address and another rate if I ship it to the customer’s address.

    • The product sees YOUR address as well as the ship-to address for the invoice, and should make the proper determination of sales tax based on both of those information points. As well as the classification of the item you are selling.

  • Hello, I have the desktop version and wanted to transition to the online version. After my QuickBooks advisor Lori came by Monday to set it up, we found that in order for taxes to be calculated automatically, I would have to subscribe to the $24.95 version not the basic one I currently have.
    Do you know if QuickBooks update will effect the tax calculation of the basic version? If so, when?

    • There are multiple versions of the product (three, officially, but there also are some special versions based on it), I don’t see them bringing it to all versions at this point. Although if there is enough user pressure for that, they will listen.

  • Wow, this is very promising news! Thanks for another great write-up. The integration with Avalara both on QBO (and in a somewhat lesser degreed QBD) has been very frustrating. A major reason why this is the case is supposedly Avalara’s difficultly in parsing the address in the format that QBO and QBD present it.

    Hoping a tight integration will prevent those issues. This has been and currently is a huge pain point for me and my clients.

    I can understand the complexities in converting existing files, but I hope that is something that will be available very soon as migrating data from one QBO file to another to get this new functionality would be come at a high cost. Any ideas on that time frame?

    What version levels of QBO subscription will this be included in?

    The QBO Sample Company still shows the old sales tax system. Do you know when that will be updated?

    Would like to give the new system a test drive, how should I do that?

    Thanks, Jeff

    • I’m clarifying with Intuit about which editions of QBO support this system. I had assumed all, but I’m checking.

      It won’t be in the “test company” QBO option, or the sample company. Because, I believe, that was set up using the old sales tax system, so it can’t convert. But I’m making an assumption as to WHY it isn’t. I know that they told me that it wasn’t in those versions yet. Simplest way to test this is to do what I always do – start up a new 30 day trial version.

      I don’t have a timeframe from them for being able to convert files that already used sales tax. I know that this is very high on their list of things to do (I was just talking to the product manager for the feature this morning, at QB Connect, and that came up). In any case, if they told me, I wouldn’t be able to publish that, as things like that are usually covered by an NDA. But, in this case, they haven’t told me.

  • That’s a great news and this will surely help small businesses in enhancing their accuracy of sales tax report. Thanks for the detailed information on this update.

  • Discussing this with Intuit product managers, the updated sales tax feature is offered in the US versions of QuickBooks Online Simple Start, Essentials and Plus. Again, if you have ever enabled sales tax prior to this release, the new version won’t be available to you (at this time). This won’t be in QuickBooks Self Employed, and it isn’t currently available in the cut-down version of QBO that you get for free with the Gmail Invoicing feature I’ve discussed recently.

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