Sales Tax with QBO

Barb Sawdy

QBO has a very powerful built-in feature for sales tax.  We have found that some clients are not taking advantage of QBO’s features and may be manually maintaining rates.  This especially may be true if the filed was converted from QB Desktop.   Automated sales tax may not be available to you yet, but it is getting rolled out to all QBO users.

In order to get the most value from QBO automated sales tax rates, here are some tips:

  1. Set the tax rate in the customer set up to be “based on location”
    • Select the customer & Edit
    • In the Additional Info section, select the tax rate to based on location and save
  2. Confirm that the ship-to address is correct on invoices.  If no ship to is entered, QBO defaults to the Shipped from location, which is usually the business main address, not the customer’s address
  3. When you invoice, select the tax rate to be “based on location”
  4. Click on the link in the invoice screen to check the math and confirm the rate looks appropriate

Tax categories can be added to products and services.  This is more important if you sell to multiple states since not all states tax products and services the same.  The following categories have the highest need for mapping:  clothing, sales tax holidays, food for home consumption, meals tax, medical products, items with fees (such as tires, batteries, TVs and monitors), freight, and computer and software products and services.

You should run the sales tax liability report to use for reporting and save a copy for your records.  Enter the payment from the Tax section in QBO.  You can add adjustments for rounding before recording the payment.

There is also an Economic Nexus report that will display your sales to other states and if you have reached the registration thresholds.  If you have transactions in a state, there will be a link to click on that will display the economic thresholds for that state.


The Tax Relief for American Families and Workers Act of 2024


Developments on Tax Incentives Available to Construction & Engineering Businesses for Tax Year 2023