 QuickBooks Online. Manage sales tax. Get ready to start moving on up with QuickBooks Online. We're gonna be using the free QuickBooks Online Test Drive searching in a search engine for QuickBooks Online Test Drive looking for the result that has Intuit.com within the URL Intuit being the owner of QuickBooks. I'm gonna be using the United States version and verifying that we're not a robot. Zooming in a bit by holding down control up on the scroll wheel currently at 125% on the zoom in. Remember that if I hit the cog dropdown, we could switch between the business view and accountant view. I'm working into the accountant view. We'll try to toggle back and forth periodically to look at the differences between the views. We're gonna duplicate a couple of tabs to put our major financial statement reports in as we do every time. Right click on the tab up top to duplicate it as it's thinking. Right click again and duplicate again back to the middle tab and then we're gonna go down to the reports which is on the left hand side in the accounting view and then choose the balance sheet. Tab to the right, back to the right tab and go back to the reports. And this time we're gonna choose the profit and loss. Scrolling up to the top to see where the date range is. I'm gonna select the date range and do this as fast as possible in the data input which is 010122 January 1st, 2022. Tab to 123122 December 31st, 22 and tab. It then adds the dashes and so on. Run the report to make sure it is up to date. Go back to the tab to the left. Scrolling up, same thing on the range. 010122 January 1st, 2022 to 123122 December 31st, 2022, let's run it. That's the setup process we do every time. And then I'm gonna go back to the first tab where we'll actually be doing the navigation. So if I hit the plus button here, we've been thinking about the vendor cycle. The vendor cycle represents the people that we are paying money going out at the end of the cycle for goods and services that we are purchasing. Now the sales tax is what we're gonna be concentrating on here and the reason I'm looking at it in the vendor cycle is because basically it's a money going out type of function. There's gonna be money going out for the taxes. Taxes always complicate things. So we have our normal accounting process and then wherever we are located, whatever tax we are dealing with will complicate that process to some degree. Right now we're gonna have like a usage tax, a sales tax, sales tax in the United States is a tax that's a state and local tax as opposed to a federal tax which actually makes it a little bit more difficult from the bookkeeping standpoint because then we need to know what the taxes are for a particular location. If you're just doing business in one particular location then it's still pretty straightforward but if you have multiple different locations it could get quite complex quite quickly. So the United States usually the sales tax is gonna be on goods and services that are gonna go to the end user and it's a state and local tax which will be picked or have different taxes depending on the locality. There's kind of three things that we wanna think about with regards to the sales tax to get it up and running and functioning within the system. Number one, turn on the sales tax and set up the sales tax based on the locations that were subject to the sales tax. Number two, we then have to set up the items which are the things we sell, service items but we're really focused mainly on inventory items because in the United States those are the ones likely subject to the tax applying the tax rates to those items. So in other words, when we make a sale which is over here in the customer area this is why it gets a little bit confusing we're gonna pay taxes at the end that's why we're talking it in kind of like the vendor section but we're gonna be collecting the taxes on the sales side of things and we'll make sales with sales receipts or invoices the forms used to create the sale and those forms need to know whether or not there's tax subject to it and usually that will be done by us entering the item into the system which will be subject to tax or not. So we'll take a look at that and then three, we've got the customers meaning you could have some customers that possibly are exempt from the tax possibly because they're not the end user of the inventory. So even though the item normally if going to someone else would be subject to tax the customer may be not subject to tax also the customers might have different taxation based on where they're located. So the system could change the rates if you have multiple tax rates you're subject to based on the location of the customer. So those are the three things we gotta set up the tax we gotta put the people that we're gonna pay for the tax and whatnot the rates and everything in then we gotta look at the items the things we're selling to drive whether or not someone's gonna be taxed when we make a sale and then we gotta think about the customers to make sure that the tax is gonna be applied to the proper location and if there's any exemptions to particular customers. Okay, so if I go down to the left hand side in the accountant view we have the taxes tab and then we've got the taxes tab here we've got sales tax and then we've got the 1099s. Now notice here we've got the new item so I'm gonna go through this get started process. I'll do it very quickly just for the defaults that are in here we're gonna go into this in more depth in the second half of the course when we start a new company file and we create the sales tax ourselves but I'm just gonna go through the get started here to get an idea of the process. So set up your sales tax center double check your address to make sure it's right. Here's the address we have for you we use your physical business address to calculate your sales tax rate. So it's a state and local tax in the United States by default typically it's gonna be based on our location. Now again that could if we're selling to people and we're subject to other sales tax it might also we might change that by basically the address of who we're selling to or something like that which could get fairly complex but that's the default. So then bulk matching to apply multiple rates and to an agency select your rates then select your agency. So the agency is who we're actually gonna be paying here. So notice what we have set up down below we've got multiple different rates which are based basically on the locations. And if we're gonna set up the rates from scratch QuickBooks is getting better and better at knowing the rates for particular locations. So you can pick the location and QuickBooks will kind of automate the rates based on that information which can be quite nice. And so then we gotta have the official agency so I'm just gonna select a random agency. So I selected the California Department of Tax the Arizona Department of Revenue and the Arizona Department of Revenue. These are just for the example purposes here. So you've got the rates you've got your agency and then the official agency name I'm gonna select next. So review your rates. Here's what we're bringing over to your new sales tax center. So now we've got our rates if we need to change them we can go into this item here and then make any updates to the rates. I'm gonna go to the prior and then let's go through this again next, next and then save it. And then it'll have these items set up so I'm gonna say continue. It goes through our little setting here for how to be using these items. I'm gonna close this out. You might wanna look at that if you're working with a practice file then how often you file your taxes. So now when you're setting up the taxes then the first thing you need to know is well what agencies do I need to set up the taxes which will be dependent generally by location. And then you gotta think well what's gonna happen when I have the sales tax I'm gonna make a sale and then I'm gonna have to collect the tax from the customer. Now note how the sales tax works here the tax is a tax on the person that's buying the goods generally the goods because we're usually not taxed on the services and we are just the tax collector. So they forced us the government has forced us the business owner to be their tax collector. So in theory the tax is not imposed on the business it's imposed on the purchaser and we are now the agent that's gonna be collecting the tax. So how's that gonna work? I'm gonna collect the tax and then I'm gonna have a payable and I'm gonna have to pay it at some future point in the future. So then the question is well when do I have to actually pay the tax because I'm gonna collect it how often do I have to then pay it out to the government? Now you've got different laws depending on where you're located and they may differ notice that usually the general idea would be that if you have lower amounts of sales the governments are more likely to say hey look maybe we're just gonna allow you to file annually because we're not too worried about you given the sales tax you could just do it annually or semi-annually if you have more sales quarterly or else we wanna have it monthly. So I'm just gonna pick one here randomly I'm just gonna pick monthly here but you're gonna have to set up whatever would be correct for your location. I'm gonna do monthly for all of them if you have multiple places as your subject to sales tax then the rules could differ with the multiple different locations. Now we've got this kind of sales tax center so I'm in the tax tab we've got the sales tax and we've got the 1099s we're on the sales tax side this would be similar kind of process for usage taxes and what not possibly but in the United States we're talking the sales tax and then you've got your little recap down here on how much would be owed and then when we owe the money we're gonna have to process the payment which would be basically a check form but it would be another kind of special check form because we're using the sales tax widget to process the payment. We can always go back up to the sales tax settings up top if we need to make any changes to the settings if we have to add a new agency we can add a new agency and if we have custom rates that we need to add we can go to the custom rates down below I'm gonna go back to the sales tax center and then we've got the economic nexus so all states have rules about collecting sales tax from out of state businesses so sales tax can get somewhat complex when we start to be talking about like different types of locations so you can get into some of the weeds here if you're in a more complex situation about the sales tax I'm not gonna do that right now we're gonna go through basically the basics of it but hopefully that'll help guide you through any more difficulties with relation to it you've got your reports which you can also find in the report center you got the tax liability report the tax customer report and the non-taxable transaction review information so this is where you would go now on the taxes area to sort through and process with the payment or how much is owed on the taxes the next thing we need to set up once we have the rates set up would be the items that we're selling inventory items which of those are subject to taxes so then I'm gonna go okay that's gonna be in the sales area which is gonna be up top sales center and we're looking products and services which you might know as items that we're gonna sell another term often used and you can see down here we have the items that are service items not likely subject to tax so if I edit this item for example and I was to scroll down we've got the tax the taxable standard rate edit sales tax so I think this is basically saying that's gonna help us to determine whether or not tax is gonna be applied to this particular item automatically if I go down to an inventory item we're gonna let's go down to like this one you would think sales tax would be subject to it if I edit that one we're gonna go down to taxable standard rate so if I edit the sales tax we go through the little widget what kind of product or service is this so tell us what it is and we'll make sure the correct tax rules apply anywhere so we can go through here once again QuickBooks is trying to kind of automate the process to be able for us to enter the data and then QuickBooks will derive kind of the rules that will apply to the data that we're entering to pick the proper sales tax so we can browse through the items to pick the proper item whether it's taxable or not down here it says it's taxable based on a location only so we could select that item and then I'm gonna say done so tax is gonna be applied to it so now we've got this particular item subject to sales tax so when I then create an invoice on the sales side I make an invoice here or a sales receipt or an invoice then when I choose that item QuickBooks will hopefully apply the proper tax but we've got one other thing to think about in this process that being the customer so if I go into the sales center which I'm already at I go into a customer here and I open up a particular customer for example and let's edit that customer and just check out the customer layout with regards to the sales tax so I'm gonna scroll down to the tax information and notice down here it's got the tax is exempt so this customer is exempt from taxes so what that would basically mean is if we're gonna make an invoice for this particular customer and we choose an item that generally is subject to sales tax due to the item telling the system this will kind of override it for this particular customer possibly because this customer isn't the end user so otherwise you could take that amount off and then the default is based on location so now it's gonna apply the sales tax based on location if I hit the drop down we've got also our sales tax options manually in essence here as well so I could select which sales tax option to apply so let's close this back out and test one out here for example I'm gonna say do you want to leave without saving I'm gonna say yes and I'm gonna say okay let's go and make an invoice now so I'm gonna say new let's make an invoice and let's say that let's just make a new customer again A-A-A for the customer and then I'm just that's all I'm gonna do is set that up I'm gonna close that or save it and no email address I'm just gonna create an invoice terms net 30 that's good for the current date it's due in 30 days I'm not gonna put any tags on it let's create an item as we go so I'm gonna make it an inventory item inventory item I'm just gonna call it inventory item one I'm gonna copy that no SKU no category here the quantity on hand I'm gonna say is zero as of date I'm just gonna say the beginning of the month reorder point is zero the inventory account is the account that will be affected when we purchase these items and the description I'm gonna put here and we're gonna say that the sales price actually I'm gonna put a quantity on hand so that we could sell some of them let's say there's 10 on hand here so that'll make a transaction to put it on hand which you wouldn't normally do unless it's like the first time you're entering into the system but this will help us to have something there that we could sell so then we're gonna say the sales price is gonna be let's say 250 is what we did before I think it's gonna go to the sales product income when we make the invoice and then here's where our focus is where we have it says the taxable standard rate so if we were to edit this item we have once again our information here alcoholic beverage, in-person training and then down here is it taxable or is it a non-taxable item so in essence we're just gonna say it's gonna be a taxable item we'll have it based on location done so it should apply the tax and then down here with the cost I'm gonna say is 100 let's say cost of goods sold, the expense account when we sell it the vendor we're gonna say is we'll just keep it blank on the vendor so let's save it and close it okay so let's say we sell like three of those so now 250 times three we got the 750 and then it applied the sales tax down here we got the 7125 so if I hit the drop-down it's based on location we could choose the manual items of California or the other here and there we have it so now let's see what would happen if I remove this one I'm gonna take this one out and then let's add an item that does not have inventory or taxes applied to it so let's just pick like a service item for example so I'm gonna say add a new item and let's say that it's gonna be a service item and I'm just gonna call it service item one and then it's not gonna have anything here category no description, sales price let's make it you know whatever $300 income account is services and then the taxable I'm gonna edit the tax item here and say that this is gonna be non-taxable so we're gonna say that this is a non-taxable item and done here so there we have it so I'm gonna say save and close and so now you can see in our sales tax item we don't have any tax that is being applied to this one right so it doesn't have any tax you could go here and you could turn the tax on but by default it shouldn't have the tax on so let's close this one out without recording it I'm gonna say let's close this out and then let's go into our customers here into our customers and let's go into that AAA customer and then let's say that we edit that and we're gonna say that now they're exempt from taxes right we can go down here and say or we can change the location so let's first say well what if they were this customer's tax exempt because whatever charitable organization or something and then we'll save it so now if I make another invoice I'm gonna say another invoice and we're gonna say this is gonna go to AAA again which is that customer that we chose and we'll select the inventory item that we set up which was INV one and so now even though the item is subject to tax and you can see it here because it's checked off we don't have the tax calculation below because the customer is not subject to tax so if you enter something you're saying hey there's something that should be taxed but it's not being applied possibly to check the customer let's close that back out before without recording it and then go to the customer again let's edit it again and then we might say okay let's try one other one unchecking that and let's say instead of based on location I'm gonna say that this customer is taxed at the California 8% rate automatically so let's just save that and so now if I go to new and I go to invoice and then I say AAA here I say AAA then why are you saying AAA okay so then if I'm gonna go down here this is gonna be inventory item one so we're gonna say inventory INV one there we have it and we'll say the quantity let's say is three so now it's being taxed again because the customer's back on is taxable and it's applying the rate as the California rate we could change it but the default didn't go to based on location but went to the California rate now what does this do when we record the invoice we'll talk about an invoice more later but it's a fairly complex transaction notice how easy the data input was but the transaction invoice is gonna increase accounts receivable because it's an invoice the other side is gonna go to sales but only for the amount we charge in this case 750 and then the difference between the 750 and the 880 that we're gonna collect on it once we've received the payment is the sales tax which is gonna be the 60 in this case which is gonna go to a payable account it's gonna be increase in the payable account also because it's an inventory item we're gonna have a decrease to the inventory yeah decrease to the inventory and we're gonna have a cost to good sold expense account impacted but our focus right here is on this tax so it's gonna be a payable account what it's not gonna do it's not gonna be included in income that means that when we pay it it's also we're not gonna have a sales tax expense which often confuses people people say hey look I'm paying sales tax why can't I deduct it for my taxes for income taxes why don't I have an expense for sales tax expense because the theory is that you didn't it's not a tax on you the business it's an attacks on the customer you're just the collection agent and therefore when you collect the money it's not income to you therefore you record income at $7.50 and not $8.10 and you put it on the liability as a payable and then sometime periodically whether that be monthly, semi-yearly or yearly you've gotta pay the amounts that you collected as a collection agent in essence to the government so if I record that let's check it out let's go ahead and save and close it and just verify that and go to our reports over here and we need to refresh the reports running them again closing the hamburger, holding control scrolling up a bit we know that then the accounts receivable should have going up so I'm gonna go into the AR drilling back down on the accounts receivable scrolling back, holding control, scrolling back down and we have this one sale that was made to AAA so there it is notice it's only record it's recording the full amount the A10 including the sales tax if I go into that one back to the source document that's the full amount not our sales price it includes the sales tax because we're gonna collect what we charged plus the sales tax closing that back out scrolling back up back to the balance sheet the other side goes to the income statement tap into the right scrolling up running the report to refresh it closing the hamburger holding control, scrolling up and I don't know which income account did I assign it to I've put it into the I think I put it down here sales of product income let's go into that one I think that's it and then there it is so there's the inventory notice it's going up by only 750 so if I go into that then that does not include the sales tax in it so we have to be in balance from just an accounting standpoint so where does the other 60 go it doesn't go in the income statement it goes to a payable a liability account it's because we're gonna collect on it and we owe it to the state we're gonna have to then pay it back out it's not on the income statement so we go back to the balance sheet I'm gonna hold control scroll up again down to the liabilities section so in the liabilities where I got lost here are the liabilities master cards so these are the payables so I think it was the board of equalization because it's California I'm gonna go into that one and so there's the $60 we owe there and then as we accumulate this money up in our payable account a liability account which is the reason we're looking at these items here we're then at some point gonna go to our sales tax manager widget down here in the taxes and generate a payment out of here possibly monthly meaning after the month that we've collected the sales we're gonna have to pay it the month after or semi-yearly something like that or quarterly or at a yearly basis depending on the rules of the location so just a quick recap sales tax three things to think about one, turning the sales tax on entering all the information you need including the rates and the locations and whatnot and then two, making sure that your items the things you sell are set up properly to apply the proper taxes to the proper item to see whether they're taxable or not and then three, set up any customers the default setup will be that they're subject to sales tax but if there's multiple locations for the sales tax that you're subject to then you might have to think about a little bit more detail about the customer which could get more detailed in terms of what a sales tax is gonna be applied to them and whether or not they're gonna be exempt from sales tax due to them being a charitable organization or them not being the end user or whatever in that scenario so we'll talk more about setting up the sales tax from scratch in our practice problem in the second half or other course