Taxable Products and Services
The next step is to identify which records in your Products and Services list are taxable. Edit each item that should be taxable and check the Is taxable box. There are two additional questions to answer.
Each taxable item has two fields that define the taxable status. The information in these dropdown lists is set by Intuit, you cannot edit the lists.
Sales tax category is a broad description of the item. There are a limited number of choices here.
Once you have selected the sales tax category, you can choose from the What you sell list. The options here are modified by the sales tax category that you select.
These choices are important because they can affect how items are taxed in some districts. Bottled water may be taxed differently than alcohol, for example. This is a major advantage to this new system.
Turning to customers, note that they are always assumed to be taxable unless you mark them as tax exempt.
There are a couple of differences to note in the Tax info tab from what we had before:
- We now have a Reason for exemption dropdown list, instead of a Default tax code. The new sales tax feature is going to use your company address, and possibly the Shipping address of the customer, to determine the sales tax rate. The program won’t just use the zip code, it will look at the street address. Sales tax boundaries are not limited to zip codes.
- Prior to the sales tax change, the Customer record had a box: “This customer is taxable.” In the new system, the box is: “This customer is tax exempt.” That is quite a change, really. Before, all customers would be non-taxable by default, you had to enable taxes by selecting a tax rate. Now, all customers are taxable unless you mark them as exempt. This is a big change.
Sales Tax in Invoices
Now that we have a sales tax set up, let’s see how it works in an invoice.
First, let’s take a look at how sales tax worked in an invoice in the prior system.
In the footer of the invoice I see the sales tax rate that was selected in the customer record. I can override that to select a different sales tax rate from the list of sales tax agencies. I also can override the sales tax amount by simply editing that field. There is no warning if I change the tax amount.
Now let’s look at an invoice created with the new sales tax system:
There isn’t a dropdown list of sales tax rates to apply to the invoice. The rate that is applied is based on your address, the list of sales tax agencies that you have created, the address of the customer, the date of the invoice, and possibly the sales tax category of the item that you sell. All of this is calculated for you by the system. You cannot change the tax rate directly, as before. You can override the sales tax amount if you wish, but now you will get a warning if you do.
If you aren’t sure about how the program calculated the tax rate shown, you can click on the Sales tax label in the invoice to get more details.
One other difference I want to point out is that if you have marked a customer as exempt, you will see an additional checkbox at the top of the invoice. And, something that I think is odd, even if the customer is marked as exempt you can still manually enter a tax amount. I’ve not played with this aspect to see how it affects sales tax reports.