Managing Sales Tax in QuickBooks – Part One

Posted by on Feb 14, 2011 in Sales Tax | 0 comments

 

Since this section has a number of important areas to cover, it will be divided into several segments.

If you take a look on your Home page you will see that Manage Sales Tax is part of your Vendor section. With that in mind we will tackle this very complicated topic.

If you ever wondered how QuickBooks is able to automatically set up the Sales Tax codes for your business and know which percentage to use, it’s because QuickBooks uses your company address to determine this. You then need to assign these sales tax codes to items that you buy and sell.

In the example company we have been using since the beginning of this series, we are assuming that when this company buys something to resell, it does not pay the PST at the time of the purchase. If you are a business buying goods to resell, you may be able  to present a PST Exemption form to avoid paying the PST on the purchase.

If so, you would need to set up an item in QuickBooks to have one tax code for the purchase (GST only) and another when you sell it (GST + PST).

Other provinces  may see businesses claim the PST they pay on purchases as an input tax credit (ITC), like the GST. If that is the case with you, then assign the PST on business -related items to your PST Liability acccount (to reduce what you have to remit to the government) instead of to a PST Expense account.

Since we have already created Sales invoices, credits, vendor bills and credits, you should be familiar with QuickBooks calculations on the various tax codes. If you are using the HST ( which we are in our example), this tax is calculated as one rate in the GST field. Remember, although QuickBooks rounds this tax to the nearest cent, it calculates and reports each individual tax amount correctly.

If you are a quarterly filer, which most companties are, that quarter period’s sales and purchases, once filed, are marked as “filed” by QuickBooks. They will not apppear in the return again.

What I like about QuickBooks File Sales Tax section, is that if you enter a backdated transaction into a previous GST or PST period which you have already filed, it will automatically be included in the next return you process. So those amounts will always be accounted for.

Before we proceed further, let’s go take a look at the Sales Tax codes and Items that QuickBooks sets up as defaults.

From your Menu Bar at the top of your Home page, choose Lists then Sales Tax Code List. You should see six tax codes starting with code G – GST Only, followed by H – HST (BC) only, P – PST Only, S – Standard Taxes (GST/PST)Z – GST Zero rated and E – Tax Exempt.

At the bottom of the page are three tabs, with one being Reports. If you wanted to view a QuickReport of any of the codes you would highlight the code, then Reports, QuickReport, and set the criteria for your report. This would come in handy if you had coded some transactions with the wrong tax code and needed to isolate them, as this report will gather all types. Close these windows, go back to Home page and choose Items and Services from your Company section.

You will see that all the Sales Tax Items are listed in the Type column, along with the G/L Account they point to and the percentage rate. Unless you are a user that is quite versed in the QuickBooks Sales Tax Code area, my advice would be that you do not change any codes that have been set up as defaults.

QuickBooks has also designed this section to prevent you from tinkering with the defaults, as it does not want you to be able to change them. This makes excellent accounting sense.

If for some reason you do not see a code pointing to a G/L Account, please contact your QuickBooks Trainer or ProAdvisor, as your returns will be incomplete and incorrect  if filed.

These two areas that we just reviewed, Sales Tax Code List and Item List, are the areas that you could use to set up a new Tax Code. The other area that you could do this would be in Manage Sales Tax in your Vendor section.

This also is an area that I would suggest your Trainer or ProAdvisor be involved in helping you. We are going to stop here and cover the Manage Sales Tax area in the next segment.

Remember that you can follow me on Twitter @twitter.com/QuikBooksTrainr for tips and updates also.

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