Solving Sales Tax Problems for QuickBooks Clients

The Sales Tax Liability report shows total sales in each county (e.g., Sales Tax Items Contra Costa & Santa Clara), and shows the taxable sales separately from the nontaxable sales. In addition, you can see the tax rates and tax collected in each county.

The Tax Collected column shows how much tax you have collected on sales for the period. If you have made any sales tax payments for this period or owe tax from prior periods, the Sales Tax Payable column will reflect these activities.

To see the detail of transactions that comprise the Sales Tax Liability report, double-click on any dollar amount in the report.

The State Board of Equalization – Other line on the report shows any adjustments to the Sales Tax Payable account that you make using a General Journal Entry or the Sales Tax Adjustment window. This line is zero because no sales tax adjustments were recorded for this period.

CATEGORIZING REVENUE BASED ON SALES TAX CODES
QuickBooks provides a breakdown of revenue by Sales Tax Code on the Sales Tax Revenue Summary report (see Figure 3). To display the report, select Vendors & Payables from the Reports menu and then select Sales Tax Revenue Summary.

If your sales tax agency requires a detailed breakdown of tax exempt sales, use Sales Tax Codes to produce information you need and to categorize your sales by the reason you charged, or didn’t charge, sales tax.

For example, you can create a separate Sales Tax Code for each type of non-taxable customer, like government agencies, not-for-profit organizations, or resellers (see Figure 5).

Then, when you use these Sales Tax Codes on sales forms according to why you charge or do not charge sales tax, QuickBooks will show a separate column for each Sales Tax Code in the Sales Tax Revenue Summary report. To display the report, select Vendors & Payables from the Reports menu and then select Sales Tax Revenue Summary.

To view each individual sale, double-click on any amount in the Sales Tax Revenue Summary report. This will display a Transaction Detail report showing each transaction affecting that Sales Tax Code.

SALES TAX PROBLEM SOLVING PROOFING SALES TAX REPORTS
To prepare your sales tax return, you must first validate the numbers on the Sales Tax Liability and Sales Tax Revenue Summary reports. The following list of questions will help you confirm the accuracy of information on sales tax reports and will provide ideas for making corrections.

Does the total of the Sales Tax Payable column on the Sales Tax Liability report match the Sales Tax Payable figure on the Balance Sheet?

If not, make sure that the reporting basis is the same on both reports. For example, if you accrue sales tax “Upon Receipt of Payment,” make sure to use a cash basis Balance Sheet.

Does Total Sales on sales tax reports agree to the total income on the Profit and Loss? If not there may be several causes:

Items Used On Sales Forms That Post To Non-Income Accounts
QuickBooks calculates the sales columns on the sales tax reports from the total of each Invoice, Sales Receipt and Credit Memo (net of sales tax) regardless of the type of item used. Since some items may point to non-income accounts (e.g., an item to record prepayments that posts to unearned income), the total sales on the Sales Tax Liability and Sales Tax Revenue Summary reports will not agree to total income on the Profit & Loss. To correct this problem, filter the Sales Tax Liability and Sales Tax Revenue Summary reports by account for “All Ordinary Income Accounts.” Then memorize the report for future use.

Discounts Taken on Bills
If you take discounts on bills by clicking Set Discounts in the Pay Bills screen, QuickBooks increases Income but does not increase sales on the Sales Tax Liability and Sales Tax Revenue Summary reports. You will need to reduce this amount for Total Income on the Profit & Loss by the amount of discounts taken before attempting to reconcile the two reports.