 QuickBooks Online 2023, sales tax set up. Get ready to start moving on up with QuickBooks Online 2023. Here we are in our get great guitars practice file we set up in a prior presentation using the 30 day free trial. We also have the free QuickBooks Online test drive sample company open. If you want these two things open at the same time we suggest using the incognito window or another browser if using Google Chrome you can find the incognito by selecting the three dots and choosing the new incognito window and then typing in QuickBooks Online test drive to find the sample company. We will be using the sample company to compare and contrast the accounting view the view that get great guitars will be in indicated or can be seen with the items on the left and the business view the view that the sample company will be in you can toggle back and forth between the two views by selecting the cog dropdown and switch back and forth between accounting and business here. In prior presentations we set up the company file we looked at some of the preferences under the cog button up top we looked at our chart of accounts we are entering the beginning balances imagining that we had a prior accounting system and we're entering the beginning balances from it as of the cutoff date 12, 31, 22 so we can move forward as of January 1st, 2023 last time we entered the inventory items which got us to this number for the inventory assets at the 2008, 96. Now that we have that in place we also wanna think about setting up our sales tax so that when we make the sales the sales tax will be appropriately calculated going forward quick recap on the sales tax how it's gonna work I'm gonna jump on over to the flow chart remember support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page we also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it the sales tax will typically be applied this is a desktop flow chart but we're just looking at the flow here looking at the customer cycle usually when we make a sale if there's gonna be sales tax applicable we'll need to be using the invoice form or the sales receipt form we're gonna be charging whatever we charge for the actual item being sold and then we're gonna have to bump it up for the sales tax so that we're gonna be collecting on the sales tax the sales tax in theory is not something that we are charging as the business owner but rather we are the collection agent for the tax agency and therefore we're not gonna record the amount we collect for sales tax as revenue and then expense it when paid but rather we're gonna put it on the books as a payable when we make the sale and then we'll decrease the payable when we pay the sales tax so that's the general idea and the United States the sales tax is going to be a a state and local tax as opposed to a federal tax so we don't have like a blanketed sales tax over the whole country it'll be dependent upon the location and could be dependent on other like where the sales took place and so on and so forth but therefore it's a little bit more complex QuickBooks does have a nice setup process to try to help us to calculate the sales tax now also we wanna keep three things in mind with the sales tax the first thing to keep in mind is you gotta turn on the sales tax which we'll do down here in the taxes tab on the left if you're in the business view you also have a taxes tab on the left as well once the sales tax is turned on and set up the system needs to know whether or not the sales tax is gonna be applicable or not the primary thing that will give the indication there is the items that we set up last time the products and services that's under the sales tab and then the products and services and the business view it's under the get paid and paid tab and the products and services so we set these up before for us we're gonna say that the inventory items are typically subject to sales tax the service items are not gonna be subject to sales tax so once we turn the sales tax on we'll have to verify that there's properly recording the items having a taxable component or not and then the third thing we have to think about are the customers meaning for example is the customer subject to what sales tax is the customer gonna be subject to and if we have multiple sales tax applicable and we might have some customers that aren't subject to sales tax at all so we could then go to the customer and kind of override the primary item that's gonna indicate sales tax which will be the inventory items okay that said let's see how it works let's set up the sales tax we're gonna go to the tab on the left we're gonna go to the taxes and we're in the sales tax so I'm gonna close this back out says up top automatically calculate sales tax rate for each sale one create an invoice or receipt two we calculate the sales tax rate based on date location type of product or service and customers those are the three items and three we keep your sales tax updated when laws change so you stay compliant which is nice the systems getting better and better at applying the sales taxes on state and local level which is more complex than just a federal level so that's nice so we're gonna use the automatic sales tax here's the address we have on record so they're using our address which is gonna be the primary address that they're gonna try to calculate the sales tax in so they're gonna say hey what are the this is my my interpretation what are the sales tax requirements for a business located at that address that's gonna be what they're gonna assume is gonna be applicable in general so we're gonna say all right let's keep that so I'm in California here in practice we'll try to make the sales tax kind of generic I'm trying to try to override it to 5% when we make the sales just to keep it like a generic sales tax but it's gonna be based on the location here okay tell us more about your taxes we calculate sales tax based on what you sell and where you sell it so if you sell in multiple locations we calculate the correct sales tax for each one so do you need to calculate sales tax outside of California I'm gonna say no which will of course be more simplified if you do have sales tax in multiple locations then you'd hit yes and you gotta make sure that you're filling out the information necessary for the sales tax for multiple locations so it looks like you need to pay tax to just one government office in California we call this your tax agency your tax agency California department of tax and fees administration I'm gonna copy that in case they wanna force me to make the vendor for that but yeah that's who we pay then in California looks good nice long title for the California office there automatic sales taxes set up give it a spin by creating your first invoice so I'm not gonna create the invoice here because I think that kinda confuses things I'm gonna close this out first and that then gives us our sales tax information to further populate so how often do you file sales tax so you can find this info on your sales tax business registration so if we're subject to sales tax then we gotta make sure that we're set up our sales tax with the appropriate office of the sales tax and then we need to determine how frequently we need to pay the sales tax now remember what happens we make sales, we're gonna collect the sales tax which hopefully should be set up to do that at this point in time and then the money that we've collected from the customers because we're just the collection agency now they've made us into their collection agency we're gonna have to then pay that to the government at some point in the future how is that going to work am I gonna be collecting the money on the sales for the month of January for example and then have to pay the January collections I made in February or maybe I can collect for three months the whole quarter January, February, March and then I pay at the first month of the following quarter and so on or maybe they let me collect all year and I only have to pay one time what's gonna be the deal so if you can't find it or change or it change, check out the table to see so normally you would wanna go to your personal information but they have the default information down below you got the California Department of Tax and Fees this is of course subject to California it will differ based on your location but you have a similar kind of concept so filing frequency so do we file monthly, quarterly or yearly again this will be dependent on location and typically the amount of sales you make generally if you don't make a lot of sales the government's more likely to say hey we're just gonna make you file yearly because whatever you don't make a lot of money anyways so that's fine but if you start making more money then they want it quarterly because they wanna check up on you to make sure that you're doing things right if you make a lot of money they want it monthly because they want their money because now you're making money and they want their money and you know how it works so there it is I'm gonna say monthly for the purposes of the practice problem so that we can see a payment happen then we've got the California filing frequency so this is just for California but again you would think there would be similar filing requirements depending on your location so here's the source information if you wanted to check it out I'm going to save it there and so that should complete the setup process so now when I'm in the sales tab so if I hit the plus button I'm in the sales tab again we've got our information auto-save for sales tax the California is our location we just have the one and then the California department of tax we've got the nice little tag down here you've got your sales tax settings if you need to make any adjustments to the sales tax setting here's gonna be the agency if we needed to add an agency we can hit the plus button and go through the process of adding another agency as up top you can also have your custom rates down below now for the purposes of the practice problem I would like to have basically a custom rate of like five percent just to make it generic so I'm gonna try to add a custom rate and so add a custom sales tax rate and I'm just gonna say sale or test rate I'm gonna say the agency I'll keep it the California department here and I'm gonna say the rate is five percent so I'm gonna have a generic rate that I'm gonna be applying and I'm gonna say save so now we've got our generic rate on down below that we have added I'm gonna go back to our sales center up top and then you also have your economic nexus over here if you go into that it says all states have rules about collecting sales tax from out of state businesses so you've got kind of problems of course now when you have sales that are happening in different cross state lines and whatnot so if you do enough business in a state you may owe them sales tax even if you don't have a physical location there will help you figure out if you meet the threshold to pay sales tax in different states so then you can kind of dive in here and do some more research on what your sales tax obligations are when you get into more complex situations making sales in multiple locations the next thing we need to look at are the items that we set up in the prior presentations because if I hit the plus button up top we're gonna be calculating the sales tax possibly when we create an invoice or the sales receipt and the primary item that's gonna drive that just to open an invoice and take a look at it will be the item the item is gonna be the thing that's gonna say hey is this thing subject to sales tax or not so now we wanna go over to our items and look at them so I'm gonna leave without saving do you want to leave without saving I'm gonna say yes and then I'm gonna go on over to my items which is under the sales tab you'll recall if you're under the business view it's under the get paid and pay tab products and services items and I'm gonna close up the hamburger and then scroll down now I think by default it's gonna apply the sales tax so if I go in say to editing an inventory item and I scroll down now we have this sales tax item here it says taxes standard rate will apply sales tax based on location only so you could go into this and add more detail so they've got information in here so you can browse the item but notice down here we have it as taxable based on location so I'm gonna keep that as the default and so I'm gonna say that's great let's go on to the service items then which I think I'm gonna have to adjust and remove the sales tax I'm gonna say the service items will not be subject to the sales tax so I'm gonna just edit the service items this is why it probably in some ways might be easier to turn on the sales tax and then add your items but I think it's easier to see what's happening with the sales tax by doing this way so that's why we've done it this way so we're gonna edit the sales tax and this one I'm gonna say is non-taxable so I'm just gonna do this for all the service items so I've made that service item non-taxable save it and close it so that was this service item I'm gonna do the same for this one edit this service item and I'm gonna say taxes and say that it's non-taxable and that and say done and that's for the tuning so I'm gonna save it and close it and then the late fees I'm gonna edit and go down to the taxes and say this is gonna be non-taxable done, save and close for the late fees the service charge I'm gonna edit and scroll down and say that it's gonna be non-taxable save it and that's for the services so I'm gonna save and close and then the hours I'm gonna edit and say that it is non-taxable two more times non-taxable boom and then diagnostics edit and then I'm gonna say that it is non-taxable for that item boom save it and then one more time on the hourly service non-taxable and there we have it so now the inventory items are taxable and I'm saying the service items are not taxable and so we should be able to see that when we make a sales item now so if I hit so let's go to the plus button up top and just add a test transaction we won't record it but just to test it out let's open up an invoice you can also do a sales receipt but we'll just go with an invoice we made up a mock customer which we just called AAAs I'm just gonna say the AAA customer just to test it out and then we're gonna go down to the products the products should be the taxable items so I'm gonna choose say an ELP and you can see it has a checkbox automatically as it being a taxable item now sometimes you have to like click off on the second line to make sure that it applies the tax properly down below so now we've got a $500 that's what we charged for it and then the sales tax is being applied notice it's being applied by location now the customer doesn't have a location up top so therefore it's being applied by what we're saying is our sales location which is the California location and that's where it's coming up with this 47,550 you can look at the math related to it if I go into here how your sales tax is calculated we've got the location based on where you sold your item you need to collect sales tax here so notice it's actually three things that we're collecting the California rate the Los Angeles County and the Los Angeles County District and that adds up to that 9.5% on the sales tax that we're adding so notice it gets a little bit complex and QuickBooks is actually quite nicely doing that for us and the complexity will differ based on location of course and so for our practice problem we'll actually do a generic just the 5% to see the generic tax just so we can make it a generic that could be something that's in concept applicable to the whole country without kind of just focusing on California you can also change the math here if you wanted to just for a practice problem or if you needed to for whatever reason by overriding this amount and then you can apply like the 5% rate if you wanted to and then the reason because I said so, you know, other and so if for whatever reason you need to force it to do it you can overwrite it but you wanna be careful doing that we're gonna overwrite it kind of for our practice problem now if I close this out the third thing we gotta consider is the customer so remember if I go back into my customers which is under the sales tab and then my customers if you're under the business view it would be under the get paid and paid tab and then the customers and then when we set up our customers by default they're gonna be subject to sales tax based on what they bought but maybe they're not subject to the sales tax so if I go into this AAA customer for example and I edit them and I go into their sales tax information which is down here then usually the sales tax is gonna be by default based on location that's what generally happens or you can choose the 5% which is the other tax if they're subject to that so if you have multiple rates down below multiple subject to sales tax rates then you would choose the applicable one it's gonna default to the based on the location I could choose the 5% if I wanted to or I can say this customer is exempt from sales tax this customer is tax exempt why maybe they're a government agency or a charitable organization or whatever and so and I could put the details so if I did that then I close this out I go to the plus button have a new invoice and I choose everything that's the same AAA customer a product subject to sales tax and it even has its sales tax checked off but no sales tax being calculated if that happens you're gonna say why isn't it happening I got it checked off and nothing's happening well maybe the customer then is set up to not be subject to sales tax so the next thing you need to check is the customer side is it proper that the sales tax isn't being calculated even though you gotta checked off and sales tax set up and the item subject to sales tax because the customer somehow are not subject to sales tax let's close that out and try it again go back to the customer and let's edit the customer and say now that the customer is subject to a different rate so we'll say they're subject to sales tax but maybe it's that 5% rate so I'll go okay so now if I hit the plus button and I go to the invoice and I go everything's the same I go into the customer and I say okay sales tax taxable item but now the rate that's gonna be charged is the 5% as opposed to the normal California rate right and then of course it shows something that's not subject to sales tax like the service item a diagnostic then sales tax isn't applied because the item is now saying it's not subject to sales tax alright so I'm gonna close this back up by default if I go into the customers we'll go this back into the customer and say by default it's usually gonna have the default setting of the customer's taxable and then it's gonna be based on the location so that's the default unless you say something otherwise so one more thing if I record something on the invoice now you can see how complex this transaction is getting even though the data input is quite easy if I choose an inventory item then what's this gonna do the invoice is gonna increase the accounts receivable by the full amount including sales tax 54750 the other I'm not gonna actually record this by the way I'm just saying what would it do the other side is gonna go to sales the 500 driven by the item which we told it to go to the sales revenue account and then the tax is gonna go up not to an income account not to revenue but a payable account given the theory that we're not actually charging the sales tax we're just a collection agency the sales tax is being charged by the government to the customer therefore it's not income to us but a payable liability as we collect the tax and then we're gonna pay it later and because it's an inventory item inventory is gonna be going down and also the cost of goods sold is gonna be going up and the sub ledger for inventory in terms of by well the sub ledger for inventory by amount is also gonna be impacted going down the units of inventory and the customer sub ledger tracking who oases the money is gonna be impacted as well complimenting the accounts receivable so a lot's going on with just the invoice now but the data input is quite simple so once again I'm not gonna record this closing this out do you want to leave without saving I'm going to say yes sales tax now set up