Sales Tax Items and Sales Tax Codes in QuickBooks
Are you puzzled about how Sales Tax and Sales Tax Codes work in QuickBooks? Once you understand the basic setup it is pretty straight forward. We’re going to take a look at the proper setup of sales tax items and sales tax codes.
Although very small businesses may be exempt from charging GST or HST the Canada Revenue Agency requires that all corporations and businesses register and collect GST or HST. These businesses remit the sales tax on a monthly, quarterly, semi-annual, or annual basis. The amount of GST or HST spent on purchases is deducted from the taxes charged to customers.
In broad terms collecting sales taxes in QuickBooks means creating Sales Tax Vendor, Sales Tax Items, Sales Tax Group, and a Sales Tax Code.
Sales Tax Vendor
Properly setting up a tax code in QuickBooks all begins with establishing a tax vendor. On the vendor information tab there is a box marked “Vendor is a Sales Tax Agency”. When you tick this box a new tab is added for Tax Agency information. You will need to identify what type of sales tax (i.e. GST, QST, or other provincial tax). You will also identify the reporting frequency and the account to track taxes charged on purchases and sales (only one account is required for both the taxes charged and the taxes spent).
Sales Tax Item
The next step is to create a Sales Tax Item in the Item List. You will need a separate Sales Tax Item for sales taxes charged to customers and another Sales Tax Item for purchases. When setting up the items you will identify the percentage rate of tax to be charged, the Vendor Tax Agency, and the reporting line on the tax remittance form. A Sales Tax Group is needed if you have separate sales tax items to be included in one Tax Code. For example, where there is a Provincial tax and GST you will need a Sales Tax Item for each plus a Sales Tax Group to join them together.
Once all the above steps are completed then you can create a Sales Tax Code. These codes are used when creating customer invoices, entering vendor bills, or creating cheques. These can be set up from the Sales Tax Code List. Is is best to use a simply code to identify the tax rates. For example, use H13 for HST at 13% or H15 for HST at 15%.
These guidelines presume that you have no Sales Tax Items or Sales Tax Codes set up yet in QuickBooks. Nevertheless, many of you reading through this already do. If this is the case, just go to your lists and see if your Sales Tax Items and Sales Tax Codes are set up correctly. If you need any assistance give Galloway Consulting Group a call at (416) 803-5638 to arrange a consultation.