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Mixing Sales Tax Rates in a QuickBooks Invoice

February 5, 2011 | By | 35 Replies More

The typical way to work with sales tax in QuickBooks is to have one sales tax item or sales tax group that applies to the entire invoice. In some cases, however, you may have a need to charge different rates to different items in the invoice. Here are some thoughts on how to accomplish this.

Please note that this applies to the US editions of QuickBooks, I don’t know how it works with the Canadian, UK or Australian versions.

I talked about how to enable sales tax in my Setting Up Sales Tax in QuickBooks article. If you aren’t familiar with how QuickBooks manages sales tax you should review that first. Essentially, you create both sales tax item and sales tax group entries in the item list, and select the appropriate tax rate at the bottom of the invoice. You control which items are taxed by the taxable flag on each line, and to the entire invoice by using the customer tax code.

QuickBooks sales tax

One tax rate is applied to all taxable items on the invoice. What do you do if you want to tax some items at different rates than other items? In the traditional approach shown above, you either tax an item at the one rate, or don’t tax the item.

Create the Tax Items

For our example we’ll set up three tax items. These must be sales tax items, they cannot be sales tax groups.

  1. A sales tax item for Beverage items at 3%
  2. A sales tax item for other (non-beverage) items at 5%
  3. A sales tax item for a zero tax rate

QuickBooks zero rate sales tax item

It is important that this be a zero rate.

In addition, if you don’t have one already, create a subtotal item.

QuickBooks subtotal item

Create the Invoice

When you create the invoice you will enter all of the items that are taxed by the same rate in a section – and add a subtotal item after each section, followed by the appropriate sales tax item. QuickBooks will create a subtotal for the items and then apply the sales tax rate to that subtotal.

Adding sales tax to a QuickBooks invoice In addition, you must set the invoice tax rate to be the zero tax rate item, and the customer tax code to be tax.

This approach lets you set different tax rates for different items within the same invoice.

What is Going On?

  • We set the Customer Tax Code to have sales tax apply to this customer in this invoice.
  • We marked each item that IS taxable, no matter what rate, with the Tax flag.
  • We set the Tax to a zero value code so that there isn’t one sales tax applied to ALL taxable items.
  • We grouped the items so that all items with a similar tax rate are together.
  • We added a subtotal item after each group to get the value of that kind of item.
  • We inserted the appropriate sales tax item after the subtotal to apply that tax to that group of items.

By having the zero rate for the overall invoice, no tax calculation is perfomed there. Once you do this you can insert the sales tax items in the appropriate place within the body of the invoice. This should show the correct values on the sales tax reports.

Note that we cannot use sales tax group items this way, as QuickBooks won’t let you insert that item type as a line item. If you have compound tax jurisdictions this approach might not work for you.

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Category: Working with QuickBooks

About the Author ()

Charlie Russell is the founder of CCRSoftware. He's been involved with the small business software industry since the mid 70's, and remembers releasing his first commercial accounting software product when you had a one-floppy disk drive system, loading the program from one floppy and then replacing that with the other floppy to hold the data. He has a special interest in inventory and manufacturing software for small businesses. Charlie is a Certified Advanced QuickBooks ProAdvisor with additional certifications for QuickBooks Online and QuickBooks Enterprise. He also is a Xero Certified Partner. Visit his CCRSoftware web site for information about his QuickBooks add-on products. Charlie can be reached at charlie.russell@sleeter.com He is also the author of the California Wildflower Hikes blog Connect with Charlie at Google

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  1. Sales Tax in QuickBooks | Loggins And Associates, P.C. | June 18, 2012
  1. Thanks for all the info and details on this work-around; I’ll be able to use your article to speed up my trainings.

  2. ceje says:

    Thanks so much for publishing this excellent article. It saved me a lot of time and effort.

  3. Seema Parekh says:

    I have been trying to create invoices in QB ever since Maryland imposed a 9% Sales Tax rate on Alcohol Sales and all other sales remained at 6% starting July 2011. Your example clearly explained how this can be done on a single invoice. Thank you very much for the excellent explanation.

  4. Thank you for solving this thorny problem for me. Everything works great untill I print the invoice; an additional line is inserted on the invoice, with item code “none”, description “sales tax” percent “)%” and amount zero. While the computation is still correct, is there a way to avoid this line showing up on the invoice?

    Thank you, Anette

    • If you don’t have the sales tax box to print the sales tax in the bottom of the form, Intuit will always print that sales tax line in the body. So, edit your form to add the sales tax value in the footer again. That removes that extra line.

      Then, go into the layout editor and change the font color for that box to be white, which (if you are printing on white paper) makes the box disappear. But QuickBooks thinks it is still there…

  5. Anette says:

    Thanks so much, Charlie! Very sneakey and works like a charm. I wonder why that is not mentioned on the Community website? Anette

  6. Sally S says:

    I’m so glad I found this site. I live in TX and have to apply two different tax codes to certain items, one at 80%, the rest at the regular tax rate. I did a test invoice, taking $100, click Tax at the 6.6% rate and then subtotaled it.It correctly showed the tax now of $6.60. I then added another $100, clicked Tax at the normal rate of 8.25%, and subtotaled it. The overall tax now shows $16.50 and should be $14.85. After I add the last $100 and change the tax code to the normal 8.25% for that figure, it changes the top figure to be 8.25%. What am I doing wrong?
    Thank you so much!

    • Sally, it is hard to say – can you give me a line by line description of what you have? Subtotals can be complicated to work with, particularly if you are trying to nest them.

      • Sally S says:

        Sure, Charlie, thanks!
        Example:
        “Service” Description 100.00|Tax (at Tax box under body I am selecting the tax rate I created of 6.6%)
        SUBTOTAL 100.00
        (It now correctly has $6.60 as the tax due so far at the bottom)
        Then I add a second, different rated item:
        “Service” Description 100.00|Tax (at Tax box under body I am selecting the normal tax rate of 8.25%)
        SUBTOTAL 100.00
        but NOW it has changed ALL the tax to 8.25%, making the total tax due $16.50 and it should only be $14.85, consisting of one rate at 6.6% and the other at 8.25%.
        Does this clarify?

        • Sally, if you are trying to apply different tax rates to different items, and you are inserting tax items as lines in the body of the invoice, then you have to set the “tax” rate at the footer of the invoice to a 0% rate. You cannot mix both methods. Either one tax at the very bottom in the footer, or tax items inserted as lines, but not both. If you look at the screen shot you’ll see that I have the overall tax rate marked as 0%

          • Sally S says:

            Ok, if I have the bottom set to 0%, then how do I add the different tax rate to each item? I’m obviously missing a step but I’m just not understanding. When I set it to 0%, there is no tax at all listed in the invoice, even though I have “Tax” checked beside each $100 figure.

          • You add tax items as a detail line, just like the item and the subtotal.

            Service Item, $100
            Subtotal, $100
            Tax item with rate of 6.6% for $6.60
            Service Item, $100
            Subtotal, $100
            Tax item with rate of 8.25% for $8.25

            If you only have the two $100 items you don’t need the subtotals, you only need that if you have several lines at that tax rate.

            You won’t see anything that says that there is a total of $14.85 in tax, which is the drawback. But the totals are right.

            Look at my example above very carefully…

  7. Sally S says:

    I just figured it out! BUT, is there a way to do it instead of the 0% at the bottom and the line item TAX where the customer can see how much tax they are paying per invoice?

  8. Sally S says:

    When I generate a Sales Tax Liability report, it’s only showing the zero tax item I created and no tax payable.

    • If you used a “sales tax item” in the body of the invoice, to show sales tax (and not a discount item, or service item), then those values should show.

      • Sally S says:

        I realized once the invoice is paid, it does show up on the Sales Tax Liability report. Thanks so much for your help!

      • Sally says:

        Hi Charlie, I have one more question. When I go to print the invoice now, it shows the 0% Placeholder underneath the tax amount at the bottom. Is there any way to delete the 0% from the invoice?
        Thanks,,
        Sally

        • Ah, that is tricky. If you remove the sales tax from the footer, QB most likely will try to put a detail line for the sales tax rate in the body. If it does, then LEAVE the sales tax box in the footer, but use the Layout Designer to edit that box and change the font to “white”. So it prints, but it prints white on white and you don’t see it…

  9. Vickie says:

    I have used this process with my clients and its a nice workaround for invoicing. Unfortunately, most of my clients have to estimate first and you cant use a sales tax item in the body of an estimate, grrrr…

    The work round that by creating “Other Charge” items as “faux” sales tax items just to get the sales tax quantity on the Estimate and then they replace the faux sales tax items with real sales tax items after they have converted the estimate to an invoice. We have create and memorize a proofing report that searches for the faux sales tax items on invoices, it should always come up empty, they run this before processing payments for sales tax.

    We have a work around for down-payment money also. The work arounds are difficult to teach and increase opportunities for error. States and local governments are getting very creative with sales tax and Intuit is not moving fast enough to keep up. QBO has serious sales tax limitations and the Desktop version needs some new features. Its not just a taxable or non-taxable setting anymore. I have not run into it with any of my customers yet, but I heard of a county where certain items are taxable on certain days of the week!

  10. Vickie says:

    PS and then there are the local governments that cap the sales tax at a certain amount, You have to do these in the body, like Charlies examples but add text warning that you must manually insert the maximum amount if it calculates higher than allowed. The sales tax reports make this almost impossible to decipher if you have collected the proper amounts when the entire sale doesn’t get hit equally.

    If you couldn’t guess, sales tax in QuickBooks raises my blood pressure :)

    • For complicated sales tax issues you may want to consider looking at Avatax from Avalara. Last I looked it was a bit pricey for some cases, but it does provide a much better solution. I don’t know if it will handle all of the situations you outline, but it probably would. Worth looking at.

  11. Gina Palacio says:

    Great work around for a complicated situation. Connecticut also has a few mixed rates – Computer IT is taxed at 1% and the hardware at the normal rate of 6.35%. I always assumed that two invoices would have to be created.

    I use the concept of a zero tax rate to track the non-taxable exceptions to taxable services and goods – new construction, properties lived in by the home owner (versus rental properties that would be taxed for the same services), resale, non for profit, government agencies . . . . it allows me to show that the service or good provided is technically taxable but tax was not collected for XXXX reason. The sales tax liability report then provides all the breakdown I need to prepare the detailed sales tax filing required by CT.

  12. Kristin S. says:

    Thank you! Finally an answer! Why Quickbooks won’t allow more than one rate at a time is beyond me.

    • Kristin, it depends on what kind of situation you have. If it is just two rates on the same amounts, use a sales group item. Other than that, they do provide the mechanism I talk about here…

  13. Jay Kimelman says:

    Charlie,

    How would I handle the Florida descretionary sales tax? It has a limit of $5000. So the state sales tax is 6% of the sale and the decresionary portion is X% up to $5000?

    Any info that can help me out there?

    Thanks
    jay

    • That has been discussed in many different forums many times. Unfortunately, QuickBooks has no way to deal with this automatically.

      Most people seem to suggest that you just enter the tax manually (that is, calculate it yourself and then add sales tax items with the amount). I’ve seen other approaches, but to be honest I haven’t had to deal with it myself so I’m not sure if there is a better approach.

  14. Tony K says:

    First, thank you for the details above.

    If we have a client that is financing their equipment and the financing company needs a non-taxable packing slip (invoice). My client’s account is taxable in CA. I know that I can temporarily change the “TAX” on the bottom to “RESALE” but I am not sure that doing so is a legitimate fix for the purpose of the financing company because then the financing company is now responsible for billing the client for Sales Tax. I have received the finance company’s resale certificate however my boss doesn’t want me to create the finance company as a separate client account. I hope I have been clear in my question if what he has asked me to do is correct or the best practice.

    • Tony, I’m not sure what exactly you are looking for. Do you want to produce a copy of an invoice, that has taxes applied, but not show the tax amount or final amount with tax included? Or are you asking how to set up a customer for this situation? Not clear.

  15. Margo @ CKM says:

    I think this is the solution to my problem but I don’t know how to apply it. I have a caterer with deposits recd months to years in advance. Deposits are received as other liability on a Sales Receipt non taxable. When the event is done and the invoice created, we use the customer deposit item as a negative (non taxable) but the sales tax report is wrong.

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