Sales Tax Liability Does Not Show the Correct Amount in QuickBooks

by Elizabeth Mott, studioD

Tracking all the financial intricacies of a business becomes cumbersome -- and prone to costly mistakes -- without the assistance of accounting software, such as Intuit's QuickBooks. If you use the program without taking the time to learn its setup, assumptions and rules, you can enter data incorrectly and see unexpected results in its reports. If QuickBooks shows a sales tax liability that doesn't match the amount you expect to owe, look for errors in your data entry procedures.

Wrong Payment Method

If you pay sales taxes through the Pay Bills or Write Checks screens within QuickBooks, the amount shown in your Sales Tax Liability Report won't match the amount shown due in the Pay Sales Tax window. QuickBooks establishes specific rules for how you deal with sales taxes, including the expectation that you use the Pay Sales Tax function to remit them, rather than treating them like regular bill-paying responsibilities. If you don't follow the program's rules for the proper ways to transact and record sales tax payments, QuickBooks won't report what you owe correctly.

Tax Jurisdictions

Sales tax liabilities vary from one state to another and within individual states. Depending on the geographic reach of your customer base and sales, you may need to collect and pay taxes at the city and county as well as at the state level, and your responsibilities may vary, depending on the location of individual customers. In QuickBooks, establish a sales tax item for each of these jurisdictions and a group item for the combination of taxes that applies in a specific location. The group item sums the taxes on the invoices you generate, but breaks them out individually when you report your liabilities. If you do business in a large number of locations with varying local taxes, your liabilities may become complex enough to require the assistance of a CPA with QuickBooks expertise.

New Methods, Old Methods

In 2012, Intuit introduced new QuickBooks sales tax recording and reporting methods, including the group items that bundle multiple jurisdictional taxes into one combined tax rate. If your QuickBooks files include recurring transactions that you first entered in an older version of the program, you need to change the way these transactions implement sales taxes, if you want new instances of them to use software's the new tax system. Otherwise, they continue to use prior tax rates, which may conflict with the rest of your record keeping.

Refunds, Tax-Exempt Clients or Other Adjustments

How you refund and record overpayments affects how QuickBooks calculates and displays your bottom line, including your sales tax liabilities. Instead of presenting a refund in the form of a regular QuickBooks check, the amount you owe should appear on a credit memo that generates a refund check. When you do business with tax-exempt not-for-profit clients, an invoice that includes sales tax will prompt a payment that doesn't match the amount of your invoice. To correct the problem, disconnect the payment from the original invoice, generate a credit memo, correct the sales tax code you apply to the customer and create a new invoice that matches the original one, but without sales tax applied. When you apply the customer's correct payment amount to the accurate new invoice, the sales tax problem related to the transaction disappears.

Version Disclaimer

The information in this article applies to QuickBooks 2014. It may vary significantly or slightly with other versions or products.

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