Solving Sales Tax Problems for QuickBooks Clients

From the Aug. 2009 Issue

For several years, I’ve been writing about the difficulties of getting sales tax right in QuickBooks. It seems that virtually every client we look at has some type of problem with their sales tax data, caused by a combination of improper setup or inconsistent data entry. On the surface, it seems pretty easy to set up QuickBooks sales tax codes, items and “rules” for how to treat sales transactions, but when clients have any significant transaction volume, it seems that we always find some type of problem when preparing sales tax returns.

Sales Tax “rules” are relatively simple in some states, but in many states, the rules get quite complex by requiring businesses to track multiple taxing locations, rates and agencies. And it gets even harder when there are special rules for when and how much to tax items, based on factors such as the “reason for the purchase.”

Truth be told, I have yet to find an accounting program that does a very good job of handling sales tax. Admittedly, I have pretty high standards for what I call “good.” To be good, I think the software needs to allow someone who does his/her own setup and bookkeeping to be able to correctly set up the sales tax rules, enter the data, pay the taxes, and prepare the tax returns. And the program must be able to calculate the correct sales tax for any sales item, in any jurisdiction, and it needs to have always-up-to-date tax rate information. That’s a VERY tall order because there are so many obscure rules for sales taxation no matter where you do business. So most accounting low-end applications get you close, but to make sure the client is fully compliant, expert intervention is almost always required.

The good news is that add-on developers have developed exactly the solution I’ve been looking for. There are a couple of products that plug directly into QuickBooks and most of the popular accounting applications to address the whole sales tax problem. From the taxation calculation all the way through to filing the tax returns and providing complete information for a sales tax audit.

The company with the most complete solution in this area is Avalara (www.avalara.com). I first wrote about Avalara in 2004 when they were just testing their product, and now with five years of experience in the market, they have gained quite a presence in the marketplace, serving thousands of clients and millions of transactions. Another company that has a very similar product is SpeedTax (www.speedtax.com). Their product is much newer, and I haven’t had the chance to dig deeply into it yet, but it’s worth checking if you’re looking for the full solution.

With Avalara’s AvaTax subscription-based SaaS solution, you get an add-on that dynamically calculates sales tax by looking up the current taxability for each item on an invoice, based on the ship-to location. In real-time, the product connects to Avalara’s online tax database, calculates the taxation for a whole invoice, and returns the correct amount to QuickBooks as the user records each transaction. AvaTax can also be plugged into web stores such as Prostores for those businesses who sell products online. This is key because so many businesses have a mix of sales transactions: Some are created manually in the accounting application, and some are imported from a web store or POS system. And the sales taxation needs to be consistent across all sales transactions.

AvaTax also has a sister product called AvaFile, which takes the data directly to the sales tax return and allows you to efile your return. So if you’re looking for a full solution to sales tax, I think the best approach is to seek out a product like AvaTax or SpeedTax.