QuickBooks

Major Update for QuickBooks Online Sales Tax

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.

QuickBooks Online Sales Tax Update

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.

QuickBooks Online Sales Tax Update

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.

QuickBooks Online Sales Tax Update

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.

QuickBooks Online Sales Tax Update

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.

QuickBooks Online Sales Tax Update

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:

QuickBooks Online Sales Tax Update

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.

QuickBooks Online Sales Tax Update

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.

QuickBooks Online Sales Tax Update

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.

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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