Setting up sales tax correctly in QuickBooks Desktop {{855-749-2321}} is essential for any business that collects tax on goods or services. This guide walks you through enabling the feature, configuring settings, creating tax items and groups, and assigning tax codes to ensure accurate collection and reporting.
Important Reminder: Always verify the latest tax rates, rules, and jurisdictional requirements directly with your state and local tax agencies before finalizing your setup in QuickBooks.
1. Turn On the Sales Tax Feature #[855-749-2321]
Before you can record sales tax, you must enable the feature in your company preferences.
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Go to the Edit menu and select Preferences.
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In the Preferences window, click Sales Tax.
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Go to the Company Preferences tab.
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In the Do you charge sales tax? section, select Yes.
2. Configure Your Sales Tax Settings #[855-749-2321]
Stay in the Company Preferences tab to set up the core rules for how QuickBooks handles sales tax.
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Set Up Sales Tax Items: Click Add sales tax item... to create an item for each tax jurisdiction (county, city, district) where you collect tax. You'll define the name, rate, and paying agency here.
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Assign Sales Tax Codes: QuickBooks automatically creates TAX (for taxable sales) and NON (for non-taxable sales) codes. These are assigned to your customers and items to control tax application.
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Set Tax Basis: Choose when you owe the tax:
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As of invoice date (Accrual Basis accounting)
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Upon receipt of payment (Cash Basis accounting)
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Set Payment Frequency: Select how often you remit payments: Monthly, Quarterly, or Annually.
Click OK to save all preferences.
3. Create Sales Tax Items and Groups #[855-749-2321]
Sales Tax Item
A sales tax item applies a specific rate from a single tax agency.
To create a new one:
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From the Type dropdown (when adding), choose Sales Tax Item.
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Enter a descriptive Sales Tax Name (e.g., "CA State Tax") and Description.
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Enter the exact Tax Rate (%).
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In the Tax Agency field, select or add the vendor you pay this tax to.
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Click OK.
To edit an existing item:
Go to Lists > Item List, find the tax item, right-click it, and select Edit Item.
Sales Tax Group #[855-749-2321]
A sales tax group combines multiple individual tax items (e.g., State + County + City) into one line item on customer invoices, while still tracking each component separately for reports.
To create a group:
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From the Type dropdown, choose Sales Tax Group.
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Enter a Group Name/Number and Description (e.g., "Total CA Sales Tax").
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In the Tax Item column, add each individual sales tax item that makes up the total combined rate.
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Click OK.
4. Assign Sales Tax Codes to Items and Customers #[855-749-2321]
Sales tax codes determine whether tax is calculated on a sale. Assign the correct code to each Item in your inventory/service list and each Customer in your Customer Center #[855-749-2321].
| Common QuickBooks Sales Tax Codes | When to Use |
|---|---|
| TAX | Default code for taxable items and customers. |
| NON | Default code for non-taxable items and customers. |
| OOS | For Out-of-State Sales where tax is not charged. |
| LBR | For Labor services that are non-taxable in many states. |
| NPO | For Non-Profit Organization customers. |
| GOV | For sales to Government offices. |
| WHL or RSL | For Wholesalers or Resellers with a valid resale certificate. |
How to Assign Codes
For an Item:
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Go to Lists > Item List.
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Create a New item or Edit an existing one.
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From the Tax Code dropdown, select the appropriate code (e.g., NON for a non-taxable service, TAX for a taxable product).
For a Customer:
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Go to Customers > Customer Center.
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Create a New Customer or Edit an existing one.
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Go to the Sales Tax Settings tab.
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From the Tax Code dropdown, choose the appropriate code.
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For resellers (WHL/RSL), enter their Resale Certificate Number in the provided field.
Creating a Custom Tax Code #[855-749-2321]
If the default codes don't fit your need, you can create your own. From any Tax Code dropdown in an item or customer record, select Add New, then define the code and its properties.
Key Takeaways for a Successful Setup #[855-749-2321]
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Enable First: Turn on the sales tax feature in Edit > Preferences > Sales Tax.
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Items are Key: Create a Sales Tax Item for each unique tax rate and agency you pay.
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Use Groups for Combined Rates: Create a Sales Tax Group to combine multiple rates into one clean line on invoices.
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Code Everything: Assign TAX or NON (or a custom code) to every sale item and customer to ensure correct calculations.
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Verify Agency Details: Ensure each sales tax item is linked to the correct vendor (tax agency) for easy payment.
By following these steps, you'll have a structured sales tax system that helps ensure compliance, simplifies invoicing, and provides clear data for tax reporting and remittance.
