Sales and Use Tax Solution Integrated With QuickBooks

This month we will review SalesTax-Pro software, a new QuickBooks add-on tool for companies that use QuickBooks. With SalesTax-Pro, you can prepare the California sales tax return almost completely automatically from your QuickBooks data. By extracting the data directly from your QuickBooks file, SalesTax-Pro automates the data entry, calculations, and printing of your sales tax returns. Currently, this product only works for the California returns, but the company is planning versions for other states soon.

If you sell products and/or certain types of services, chances are you will need to collect sales or use tax. In many states, such as California you have to deal with (1) state sales and use tax, (2) county sales and use tax and (3) city sales and use tax. Each frequently is a different tax rate. If you sell non-taxable goods (e.g. products to resellers or retail sales to government agencies), many states also require a breakdown of total non-taxable sales and the reason for the non-taxability.

As everyone who reads this newsletter is aware, failure to collect, remit and file correctly can result in costly penalties and interest.

The following excerpts taken from State of California Board of Equalization ("BOE") Publication 75 entitled "Interest and Penalty Payments" is a good example of why you should handle sales and use taxes correctly.

Publication 75 sets out "Examples of Situations That can result in Interest and Penalty charges" in connection with sales and use taxes and indicates some of these are:

File a late return and/or payment

Do not include a payment with your return

Do not include sufficient payment for a tax liability

Do not report tax on a taxable transaction

Calculate tax at the incorrect rate

Do not file a return

Misuse a resale certificate or make sales without a valid permit.

BOE Publication 75 sets out "How interest and penalty charges are calculated: Interest is calculated on a per-month basis. That is, one month's interest is charged for each month or fraction of a month that a payment is late. For example, if a payment is three days late, a full month's interest is due. Or, if a payment is one month and three days late, two month's interest is due. The current interest rate for overdue taxes is 9 percent per year. The percentage amount depends on the type of penalty and whether more than one penalty applies. The total amount of penalties that can be charged ranges from 6 to 60 percent of the tax amount due." Similar provisions can be found with respect to sales and use taxes in all of the other states that levy sales and use taxes.

Our goal in this article is to help you understand what can be done to correctly record and collect sales and use taxes, pay the proper amounts, file the returns which have been prepared correctly, and thereby assist you in avoiding costly penalties and interest.

Accomplishing this goal requires (1) that the data is correctly entered in QuickBooks, (2) the data is correctly extracted from QuickBooks and entered on the returns, and (3) all calculations are made correctly on the returns. Several aspects of correct data entry were addressed in our Newsletter, April issue 2002: Sales Tax Changes QuickBooks® 2002. As we indicated in that article, "Sales tax tracking is automatic and runs smoothly if you setup and operate QuickBooks correctly". However, even when your QuickBooks setup is perfect and the data is entered accurately, this does not ensure that the data is transferred to the sales tax returns correctly.

Correct Transfer of the Data from QuickBooks and Correct Calculations

While QuickBooks allows a user to use items to track the various sales, and sales tax items to calculate the rates to charge in each tax location, you also need to categorize your revenues according to how they get reported on the sales tax return. Sales Tax Codes are an important feature in QuickBooks because they provide an additional classification for calculating and reporting sales tax on the return.

A Sales Tax Code is assigned to each product or service item, as well as to each customer. Sales Tax Codes serve two purposes. First, Sales Tax Codes indicate whether a specific product or service is taxable or non-taxable. Secondly, Sales Tax Codes categorize revenue based on the reason you charged or didn't charge sales tax. If your sales tax agency requires reporting for different types of exempt sales, you may wish to create several non-taxable Sales Tax Codes for each type of non-taxable sale (e.g., RSR for non-taxable resellers).

Proper use of sales tax codes allow you to easily determine total sales for each type of revenue as needed to complete the state required forms. For example, the state of California requires most companies to complete a schedule A and schedule T. These schedules require separate figures for each non-taxable revenue source, as well as separate amounts for taxable sales to each "district" in the state.

Sales Tax-Pro allows the user to match sales tax items with districts in their state. The one-time setup allows imported data from QuickBooks to auto fill in the appropriate places on all the forms selected. The district mapping process will bring over your QuickBooks item codes for an easy and quick reference in the matching process.

SalesTax-Pro also addresses the task of tracking non-taxable sales. By using the one-time matching process again, you can map your sales tax codes with the nontaxable sales categories provided on the 401-A form. This quick process allows the form to auto fill with your QuickBooks data, when you import your file. The import process keeps a user from re-keying information, it auto fills your data, and it calculates using the appropriate formulas needed.

English and Spanish Together

Another useful feature of SalesTax-Pro is the offering of both English and Spanish interchangeably on the same complete CD. A helpful reference guide, help menus, instructions, and forms are offered in both languages. If you select the Spanish version during preparation, when forms print, they revert to the state required English version for filing.

Return in Process and PDF Forms

Additional user friendly features are the Return in Process, the PDF forms, and a menu of several schedules related to sales tax. The Return in Process feature allows a user to stop in mid-processing, save, and return where they left off at a later time. Schedules that are required less frequently, such as power of attorneys, waivers, etc., are provided in the drop down menu, which is easily accessible, and saves time in locating the BOE site. Returns print to PDF in order to save to file or print.

Integrated or Stand Alone

While the fact that SalesTax-Pro integrates with QuickBooks is an important feature, it can be used as a stand alone sales tax preparation tool. For clients that still find it necessary to keep manual books or track items differently in QuickBooks, they can enter their own data, and let SalesTax-Pro complete the calculation process for them.

Summary

Setting up QuickBooks correctly as described in the April 2002 Newsletter, plus correct use of SalesTax-Pro software should assist you in meeting the goal set out in addition to helping the user avoid costly penalties and interest by correctly recording transactions, collecting sales and use taxes, paying the proper amounts, and filing the correctly prepared return. Although SalesTax-Pro is currently available only for California, plans are to release Texas, Florida, New York, Illinois and Pennsylvania after the first of the year as well as other states as required.

In the meantime, if you have clients that might benefit from SalesTax-Pro, I encourage you to go to their website or e-mail to cservice@salestax-pro.com.