4 Things You Should Know About QBO and Sales Tax
- May 20, 2016 | Laura McCamy
1. Setting up rates for QBO and sales tax
QBO is smart, but it’s not a mind reader. Before you start using the platform for invoicing, set up your sales tax rates. Simply follow the directions and managing sales tax on QBO is a breeze.
Good news for online retailers: QBO allows you to enter multiple tax rates. This makes it easier for sellers who have nexus in more than one state.
You can set up single or combined sales tax rates to account for differences in taxing jurisdictions and origin vs. destination based states. If your state charges sales taxes based on origin, in the drop down under "Default sales tax," choose the sales tax rate for your home base. You will charge this rate to all your customers in your home state.
If your state is destination-based, add rates under the combined tax rate setting. You can name each portion of the sales tax (e.g., the base state rate plus add-on rates for different city, county, and district taxes). When you create an invoice, you can add the applicable components together to create the correct tax rate for your customer’s location.
These initial steps are particularly important because QBO doesn’t allow you to override or enter sales taxes by hand. There is a workaround if you need it, but taking time to set up your sales taxes mindfully will save you time in the long run.
2. Choose product and customer settings
QBO and sales tax go well together because you can choose a number of default settings to customize the way you charge sales tax. You can mark customers as taxable and nontaxable, so your wholesale orders are automatically sorted from your retail ones. To manage your customer settings, QBO has a taxable customer report that lets you look at the sales tax rates you have entered for each customer.
You can also mark some products as taxable and others as nontaxable. If your whole product line is subject to sales taxes in the states where you have nexus, choose the "Mark All New Products and Services as Taxable" option as your default when setting up your sales taxes.
Happily, you aren’t bound by your defaults. You can change the settings for individual items as needed.
3. QBO and sales tax on shipping
Sales tax on shipping is one spot where QBO is a bit inflexible. The platform won’t let you add sales tax to shipping charges when you enter them into the shipping field. If you have nexus in a state that charges sales tax on shipping, there is an easy way to handle this: Create a product/service item for shipping and mark it as taxable. Be sure and leave the shipping field blank -- it will disappear when you print or email the invoice.
4. QBO reports and sales taxes
To find out your total sales tax liabilities in QBO, run the "Sales by Customer Detail" report with some customizations. You will want to add columns for the sales tax you collected and the taxable amounts of the orders you shipped. You can save this setup with the "Save Customizations" button so you don’t have to go through these steps every time you need a sales tax report.
QBO helps you invoice your customers the right amount of sales tax so you don’t have any unpleasant surprises when it’s time to file your returns. Since QBO integrates with Avalara, you have all the tools you need for invoicing and sales tax compliance in one seamless package.