How to Set Up Sales Tax in QuickBooks 2019 – Part 1

Watch this QuickBooks 2019 video tutorial, we will discuss working with sales tax. We will demonstrate how to set up your sales tax items and help you decide which customers are taxable or not and whether each item is subject to tax or not.

We have made it all the way down to module twelve and in this particular module I want to talk to you a little bit about how sales tax works.

Typically, if you sell physical items in your store, you will want to charge sales tax to your customers on those particular items. If it’s a service you provide; you do not usually charge sales tax.  A good way to think about it is, if you purchase the item and you paid sales tax, then you would want to charge your customer for that.

The way sales tax works is you always charge the tax for the county in which you delivered the physical items. If you have a storefront and people come to you, then you just charge the tax in that particular county.

But like I’ve said, if you ship out the items and you ship them all over your state, you would need to know for each place that you ship the items, what that county’s sales tax happens to be.

Typically, there is a flat rate that everyone pays in the state. Then, each county the voters vote on the additional taxes. Sometimes those taxes are used for buses, sometimes they’re used for road work.

Every county is different. You would need to go to your Department of Revenue website, and they’ll probably have listed there somewhere what the tax rate is per county. You could charge the same rate to your customers, and you could put it in QuickBooks that way.

But you really need to break down the taxes individually in QuickBooks, so that when you get ready to pay them, you know how much to pay, and which entity to pay them to, and which taxes you’re paying for. You’re going to be asked all that when you go to actually pay the taxes.

I want to show you in QuickBooks how to go through and set all that up so that QuickBooks. We will run reports for you, and tell you all that information and make life a lot easier for you.

Let me go ahead and start off by showing you where a sales tax would show up when you’re actually invoicing a customer. I’m going to create invoices and then what you’re going to notice is in the bottom of the screen there there’s going to be a place where it asks you which sales tax rate does this particular customer get charged, and that’s going to be right down here.

We’ve got a couple set up for the practice exercise, and what I want you to see is that there are sales tax items, and those are the individual items I told you that make up the one sales tax rate.

Then, there’s a sales tax group. If you notice you can only put one thing in this field. So the way QuickBooks works is you create all the individual items, and then you put them in this group, and the group is the one you actually use when you’re invoicing your customers.

You’re going to see as well that we won’t have to pick it every time. Because we can set it up in the customer setup so that QuickBooks knows which tax rate they get charged and it pulls it automatically.

Let me go ahead and close this! I want to show you where the sales tax items are set up.

If you go to Items & Services and you scroll to the bottom of this list, you will see all of your sales tax items, and your sales tax groups. If you have any already set up, and these are the ones we just saw on the dropdown a few moments ago.

You’ll notice that the account they go back to is Sales Tax Payable. What that means is that when we go ahead and set up the items we’re going to have to forward this money to our state Department of Revenue.

So I’ll show you how to set that up as well.

The first thing I want to show you how to do is set up a sales tax item. I’m going to start by actually setting up the flat rate that every county in your state would pay.

To set up any new item you right click and you choose New. One of your choices on the list where it says Type will be a sales tax item or notice a sales tax group.

If you do not see these on your list it means that when you set up your company file you told QuickBooks that you do not charge sales tax. You can actually go turn these back on if you go back to your Preferences and turn on the sales tax option.

You’re always going to start with sales tax items.

I’m going to set up the state tax because that’s like I said, the one that everyone in the state would pay, and typically it’s somewhere around like 6% or 8%. I’ll go ahead and just set this one up at 6%.

Now, the description here! I don’t ever really change that. You don’t need to. Because it’s never going to pull the individual sales tax item onto an invoice anyway. So I just leave sales tax for all of these.

The tax rate is always a percentage, and then you’re going to have to put in the agency or the vendor that you collect this from. Now, in some states, you set up all these individual taxes and you mail it just to the Department of Revenue and they distribute it.

Other places you send it to those different agencies directly. You would need to check with your state to find out how that works in your state.

For the tax agency, I’m going to put in the Department of Revenue and then I’m going to go ahead and click OK, and I’ll quickly add the Department of Revenue since they’re not on the vendor list yet.

Now you’ll see down here your state tax, and notice over here it says it’s 6%.

Now, let’s go ahead and set up a couple of others. I’ll go ahead and right click and New. This time I’m going to say it’s a sales tax item and I’m going to call this one Local Option.

Just because two counties have a name, that’s the same for their sales tax and does not mean that they charge the same rate. So just kind of know that. Let’s just say this one is 1% and it’s going to go to our Department of Revenue again, and I’ll set up one more, and in this particular case, I will call it Capital Education.

That’s another one that’s often used in different states. Let’s say this one is 1% and it goes to our Department of Revenue again, and I’ll click OK.

Now. you can see I’ve got all three of those setups. So I’ve got my 6% for the state, there’s Local Option at 1% and the Capital Education at 1%. Now, I can see I misspelled this so I’m going to right-click and Edit.

That’s how you’d edit the name of any item. Then, I’m going to go ahead and fix that and click OK.

Let me show you how to create a sales tax group. All you have to do is right click anywhere and choose the New option because this is a new group.

I can name the group anything I want. I’ll just call it in this case Sales Tax. Remember if you have different counties though you’ll want to have different names for these.

Here’s where you choose the items that go in your group. I’m going to choose Capital Education, it’s 1%. On the next line down, I’m going to click and I’m going to choose my Local Option, and on the next line down after that, I’ll choose my state tax. Now, I’ve got my 8%. I’ll go ahead and click OK. Now, that’s ready to use.

The next thing you have to look at with sales tax is your items can be taxable or not. I mentioned that if you have a service you provide it’s nontaxable. If you have a physical part that you want to sell then it is taxable.

Let me give you an example. Let’s say I open up labor. I’ll just right click and Edit. You’ll notice that right here it says this is a nontaxable item. So even if the customer pays sales tax they will not pay sales tax on labor.

Now, let’s look at another one, a physical part. We’ll come down to an inventory part. If I right click on the door frame and look at it then you’ll notice this particular one is taxable. Again, if it’s a physical part you probably do charge sales tax on it. Then, I’ll click OK.

You’re going to have to go through all of your items and tell QuickBooks whether they are taxable or not.

Now, the third thing you need to know is that certain customers will be nontaxable. It could be that it’s a nonprofit organization. When you look at your customer list you’re going to see in the customer setup there’s a place where it says is the customer taxable or not.

If I go ahead and double click on Sherry Smith down here then you’ll see sales tax settings on the left and here’s where it says is the customer taxable or not. If they are taxable which item do they get charged tax on?

Remember when you’re picking your item to pick the group and not the individual items because you want to be able to pull the full tax on to the group, and here it is right down here.

The field that says Resell Number, what this is, is if I sell chairs and then Sherry also sells chairs in her store she can apply to the state for a resell certificate.

That means that she does not have to pay sales tax when she buys that chair from me. I would want to keep that resell number on file just in case I get audited.

I’ll go ahead and click OK and those are the three things you have to know as far as sales tax is concerned. You have to tell it which taxes to set up, you’re going to have to tell it if a customer is taxable or not, and also is an item taxable or not.

Now, this does not go back to any prior invoices and charge sales tax. It’s only from here on out.

Let me go ahead and close some of these windows and we’re going to go ahead and go over into part two and talk a little bit about how to actually invoice your customers and use the sales tax option.

Cindy McGuckin

Cindy McGuckin is an IT trainer with over 20 years of experience. Cindy currently manages the IT Training Department at Trident Technical College, she's a Member of the Association of IT Professionals, Charleston, SC chapter and the Treasurer of the South Carolina Association of Continuing Higher Education.Cindy is a Microsoft Office and QuickBooks expert and her online courses have received hundreds of 5-star reviews. Her no-nonsense approach to teaching complicated topics makes her classes engaging and interesting.