QuickBooks Tip #16: Change Sales Tax Rate

by Debbie Gilster

in Financial Management

Sales Tax Rate

PROBLEM:

The sales tax rate in your area is changing. You are a current user of QuickBooks® software and you need to ensure the proper rate will be applied to all sales.
 
SOLUTION:
 
To ensure everything flows smoothly and accurately be sure to execute all three steps!

 1.      Add the new Sales Tax Item to the Item List (Lists > Item List).

  • The Item Name will have to be different than what you are currently using. Consider putting the sales tax % on the Item Name. An example is “Sales Tax-OC (8.75%)”.
  • This can be done in advance of the date your sales tax will change.
  • If you use more than one sales tax item, be sure to add them all in.
  • You cannot delete or change the rate on your existing Sales Tax Items because you need the Item to properly calculate your sales tax return.

 
2.      Change your Sales Tax Preferences to use the new Item.

  • Go to Edit > Preferences > Sales Tax > Company Preferences tab.
  • When you create any sale (Invoice, Sales Receipt) or credit memo, this Sales Tax Item will now be used as the default.
  • This can be done in advance of the date your sales tax will change ONLY if you will remember to change the Sales Tax Item on any sale. If you won’t, write a reminder to yourself to change this on the date the sales tax rate is effective.

 
3.      Make the old Sales Tax Item inactive on the Item List.

  • Go to the Item List. Double click the old Sales Tax item and click the box ‘Item is Inactive’.
  • Do this on the date the new Sales tax is effective!

 

Don’t forget to change any shopping cart systems you may also be using!

Want more QuickBooks tips and techniques? Check out our Effective Results Club.

(This was originally posted in 2009.)

Creative Commons License photo credit: Horia Varlan
Be Sociable, Share!

{ 4 comments… read them below or add one }

Susan January 13, 2014 at 4:38 pm

I have changed the sales tax rate from 5% t0 5.3% but $0.00 is showing up when I go to look at the sales tax liability?? Any help would be so appreciated! Thanks in advance. Susan

Reply

Debbie Gilster January 13, 2014 at 6:39 pm

Susan-
Check your invoices to make sure that you are 1) using an item that is taxable; 2) that the TAX column on the right of the invoice is using “tax” (it’s a drop down menu); 3) your customer tax code is set to “Tax”. and/or 4) you truly are using the sales-tax item on the invoice. Any one or combination of these things can stop sales tax from calculating properly. Study an invoice you think should have sales tax.

Reply

susan January 3, 2012 at 8:33 am

Greg,
As a bookkeeper I want to have the past information available and would never change or delete old records of that sales tax. I don’t fool with mother nature or the government. If I was audited and the tax rates had no trail, I could be held liable. I believe it make more sense to use the method described.

I made a new sales tax item for 2012, changed my preferences, then made the other tax rates inactive and my new invoices and sales receipts reflect the new rate. It took less than 1 minute to make those changes. I feel better have the trail of previous sales tax rates in the system, rather than deleting or changing them.

Reply

Greg McKenney July 6, 2011 at 11:55 am

This advice is incorrect and I can prove it. You do not need to add a new sales tax item. You can just adjust the existing item. Here’s the proof: I ran an experiment, which you can easily replicate. First I backed up Quickbooks. I ran the Sales Tax Liability Report and the Balance Sheet as of today and wrote down the amount of the sales tax liability. In my case they were the same amount because we report sales tax on accrual basis in California, and my balance sheet was accrual basis as well.

I then CHANGED the %rate on my existing sales tax item from 9.5% to 8.5%. I ran the same reports AGAIN and noted that neither report changed one bit! All my old transactions were still at 9.5%.

Then, I entered a new sale using a Sales Receipt (I also tried an invoice). It correctly picked up the new sales tax receipt of 8.5%. When I hit my previous button to look at the prior sales tax receipt, I could see that the older receipt still correclty shows 9.5%. Bottom line: Changing the rate on the existing item does NOTHING to old transactions or reports. And adjusting the item is easier than setting up a new item because you do not need to change all the default sales tax items for each customer.

Reply

Leave a Comment

Previous post:

Next post: